Business media and online channels are abuzz regarding the latest rather optimistic forecast of expected retail holiday sales issued by the National Retail Federation (NRF), an industry trade group of the retail industry. However, retail supply chains need to be prepared for even more challenges and unknowns in the coming weeks leading up to the end of year.

The NRF is forecasting that upcoming retail sales in the months of November and December (excluding autos, gasoline and restaurants) will increase by 4.1 percent over 2013 levels, equating to nearly $617 billion. According to the NRF, retail sales incurred an actual 3.1 percent increase during this same time period in 2013. The current forecast marks the first time since 2011 that holiday sales would increase by more than 4 percent.

In an interview with business network CNBC, NRF’s chief economist indicated that the 4 percent increase could be on the low end, given the current downward trend in energy prices that are benefitting consumers.

Also today, Shop.org released its 2014 online holiday sales forecast, expecting sales in November and December to grow between 8 – 11 percent over last holiday season to as much as $105 billion.  Holiday non-store sales in 2013 grew 8.6 percent.

In its release, the NRF wisely warns retailers that shoppers will remain extremely price sensitive and that retailers will have to overcome such challenges through differentiation in value and exclusivity. That trend was reinforced by a recent PwC study based on a poll of more than 2,200 consumers across the U.S. that spanned all demographics and income levels, and defined the holiday season as September through January. The PwC study reported that 84 percent of respondents indicated that they plan to spend the same or less than they did in 2013.  That is a somewhat conflicting data point relative to spending levels and for us, is a clear indicator of continued price sensitivity among the majority of consumers.  Thus, the retail winners in 2014 are those with the most attractive promotions and merchandising creativity.

Even more confusing is presumptions that termed “webrooming” (researching online and buying in physical store) the opposite of “showrooming” (research and touch in-store and buy online) will prevail this year. We refer readers to various commentaries, including our own,  written at the conclusion of the 2013 holiday buying period regarding lessons learned.  In early January, the Wall Street Journal produced ShopperTrak trending data related to total retail foot traffic since 2010 that clearly indicates a significant reduction in store visits, by a factor of almost a half since 2010.  In our Supply Chain Matters 2013 lessons learned commentary, we addressed information data security (credit card data breaches) coupled with logistics and transportation capacity breakdowns as important lessons. Some of those learnings are now reflected in conversations among retailers and their logistics partners.

What does all of this mean for retail supply chain teams? 

It essentially means that the challenges in the upcoming holiday surge are going to be even more dynamic  than last year and supply chain agility, flexibility and patience will be all important factors. 

Sales and Operations teams will probably have dynamic, perhaps even heated  discussions with merchandising and marketing on the timing of promotions, including how late to keep the channels open for orders and guarantee holiday delivery for consumers.

Planning for inventory needs in the correct fulfillment channel will be another challenge and will require a lot of demand sensing and day-to-day collaboration with marketing and merchandising teams. There are but 11 weeks remaining of planning time. Because of the threat of a west coast dock labor stoppage, most of the inventory has arrived and is making its way to various distribution points. Similar to last year, the period between the Thanksgiving and Christmas holidays is a short 26 days and the severity of winter weather conditions will again be all important in assuring continuous logistics flow without last year’s numerous logjams.

One very important other wildcard to monitor is whether economically stressed but savvy consumers, who may have lost trust in the data and information security practices of retailer systems, trend toward shop online and pickup and pay by cash at retail stores at the very last minute.  That may well be the 2014 doomsday scenario for retail supply chains that lack adequate agility in inventory re-positioning, multi-channel and logistics partner fulfillment capabilities.

Good luck, best wishes and let the planning and execution begin.

Bob Ferrari