A Unique Peak — Again
Agility is the name of the game this year as brands prep for the peak season while navigating this volatile and uncertain market. As American consumers grew more pessimistic over the summer amid inflation and persistent supply chain disruptions, brands have learned some valuable lessons operating in the midst of uncertainty which can help them adjust to market pressures and prepare for the holidays. Brands in the luxury goods market, in particular, have reason to be cautiously optimistic that there will be strong demand this holiday season.
Consumer demand for luxury items such as jewelry, shoes, handbags and beauty products are showing signs of resilience, despite rising inflation. High-income consumers are still spending on luxuries, and the CEO of Saks recently said that the luxury customer remains “highly engaged” in fashion. The luxury goods group Louis Vuitton Moet Hennessy (LVMH) reported better-than-expected second-quarter sales, despite declining revenue in Asia, where lockdowns in China disrupted business. The French company also saw robust U.S. growth and a recovery in Europe over the second quarter.
Adding to the uncertainty of this holiday season is the strong return to in-person shopping. Consumers want it all: online; in-store; curbside; buy online, pick up in-store. But the big question as we prepare for peak is which channel will the demand show up in.
Even if consumer demand stays steady through the holidays (and that’s a big if, depending on the types of products you sell), brands still need to be prepared to solve for uncertainties in consumer demand and buying behavior. They need to do all this while overcoming supply chain disruptions, inflation and labor shortages — yet again. This peak season will be nothing if not complex. However, by leveraging the lessons learned from recent years, brands can control what they can and still meet customer expectations.
The Cost and Complexity of Doing Business This Year
Consumers who have the money to spend on luxury items aren't expected to curtail their shopping plans this holiday season. However, brands are still impacted by inflationary pressures and higher costs. Overall, brands are having to surmount many hurdles to meet consumer demand.
Outside of luxury, inflation is having an effect on consumer spending and the cost of doing business. Labor Department figures show consumer prices jumped 9.1 percent from last year as inflation has taken hold in the U.S., and gas prices surged by 11.2 percent in June. These higher prices come on the heels of last year’s figures which saw business logistics costs rise 22 percent.
Transportation is an expensive part of the ordering process in “normal” times. Add in the rising cost of fuel, and the cost of transporting products has started to significantly impact the bottom line. Small parcel capacity also continues to be a challenge, with large national carriers taking surcharges and introducing capped capacity, making it more complex to ensure speedy delivery of products to customers.
Brands should have an intentional strategy to get inventory closer to customers to combat higher costs in shipping and fuel. Utilizing regional carriers keeps goods on the ground and closer to customers. Diversification from a carrier strategy perspective can help solve the immediate issue around fuel costs, along with other benefits such as sustainability and customer satisfaction.
To achieve this, however, brands may want to consider engaging a third-party logistics provider (3PL). One of the advantages of using a 3PL is the provider’s ability to bring incremental carrier relationships to the table and simplify those relationships on behalf of their brand partners. Engaging a 3PL can help brands expand their carrier network from two to nine carriers or more. A 3PL will also manage the logistics of working with an expanded carrier network and may have more power to pre-negotiate better rates.
Navigating Uncertainty With an Omnichannel Approach
Brands that have embraced an omnichannel approach already are one step ahead of the game and are more likely to navigate uncertainty in the market this year with greater success.
Omnichannel diversifies your fulfillment and inventory points. You can think of it as “insurance” — if one method or part of the supply chain stumbles, another can pick up the slack. A distributed order management (DOM) system can help brands effectively manage their omnichannel strategy, routing orders across multiple fulfillment points and optimizing inventory across channels. With a DOM in place, brands can direct orders to be fulfilled from various locations depending on fastest delivery time, lowest-cost shipping, most sustainable delivery method, or a combination of these factors.
A multinode approach enables faster fulfillment and equips customers with access to those alternative delivery methods they’ve come to expect, such as curbside pickup and ship-from-store.
Inventory Management and Planning Are Key
Brands and retailers are placing orders earlier than they ever have before to make sure they can get the inventory in hand and situated in the right locations. Predicting if, when and where consumers will spend their dollars, however, is complicated. This is why inventory management will be key this year. Consumers have come to expect a variety of channels when they make their purchases and they will continue to come back to the brands that offer them the greatest experience, flexibility and reliability.
Inventory placement between retail and online is going to be critical. Allocation teams have adjusted to what our new reality is in terms of timing. Even if brands get the demand planning curve incorrect, they can still have productive inventory. For instance, if you get higher online sales than anticipated, you need to be able to use inventory sitting on retail shelves to satisfy that demand. Brick-and-mortar stores become, in essence, micro-fulfillment centers in support of online orders. Likewise, if the demand shows up more in retail stores, brands need to be able to quickly move inventory either to the store or direct to consumers without compromising the customer experience.
What impact inflationary pressures will have on consumer demand in the last quarter of the year is the big question. Having a proven strategy to navigate logistics and manage inventory amidst uncertainty will be a silver lining for many brands as they prepare for this peak season. Embracing an omnichannel approach will help brands and retailers stay nimble and overcome the unique challenges at play as they strive to keep customers happy through the holidays.
As vice president of business operations, Jamie Saucedo is responsible for PFS' global portfolio of 70 brands.
As Vice President of Business Operations, Jamie Saucedo is responsible for PFS' global portfolio of 70 brands. Throughout her 10+ years at PFS she has served in various roles across the organization, giving her a wealth of industry knowledge across verticals. Jamie applies her expertise to guide our clients to successful eCommerce operations.