It’s doubtful as congestion has yet to abate and COVID is still with us.
That congestion will likely persist through this year, according to the Descartes report. Retailers are now concentrating on restocking inventories for 2022, and the question is whether the omicron variant of COVID will motivate consumers to continue to spend on stay-at-home goods, or whether they will re-diversify their spending habits to include more in the way of services, such as travel and restaurant meals.
“In the U.S., consumer behavior driving a high ratio of goods to services expenditures is the fundamental driver of the current situation and doesn’t appear to be changing,” said Chris Jones, a Descartes executive vice president.
Last year—with disposable personal income up 4.1% and spending on goods increasing 12%, according to NRF numbers—clothing and accessories, sporting goods, furniture, electronics and appliances, building materials, and garden supplies were all big winners, each posting increases of well into the double digits through November.
The ratio of spending of goods to services, which has consistently hovered below 50% since 2016, rose during the pandemic to a high of around 58%, according to Descartes figures. After falling a few percentage points last summer, the ratio has been inching up since then.
“The new coronavirus variants are having multiple impacts keeping consumers from spending on services as opposed to goods,” said Jones, “and exacerbating existing resource shortages and the ability to move goods efficiently.”
Going Forward in ‘22
Going forward, retailers will face multiple obstacles in their efforts to reset their supply chains. Delta, Omicron, and other possible future COVID variants represent causes of anxiety for importers. In addition, “China’s zero-COVID policy is worrying if it should lead to factory or port shutdowns,” said Gold.
But the problem is that shifting production and sourcing is easier said than done. “There’s a lot more involved than just making the products,” said Gold. “You need all of the supply-chain pieces in place.
It’s also important to work with partners that can be nimble and can adjust when you need them to.
“There have been some opportunities to near-shore sourcing of certain products and that trend is going to continue,” he added. “Having the right technology, information systems, and data in place will also prove to be very important to make sure retailers have better forecasting.”
Retailers must also consider the implications of future supply-chain disruptions, an issue that is hardly theoretical. The labor contract covering 15,000 West Coast dockworkers and 70 ocean carriers and terminal operators at 29 ports expire on July 1. In November, the International Longshore and Warehouse Union (ILWU) rejected an employer proposal to extend the current agreement for another year. In 2014, West Coast ports faced months of slowdowns as negotiations on the current contract proceeded.
Slowdowns or work stoppages at West Coast ports this summer could throw retailing supply chains into turmoil. “More shipments could be routed to East Coast ports as a result,” said Gold, a trend that is already ongoing according to the Descartes report. “As a percentage of the top ten ports,” the report noted, “the Port of Los Angeles declined by 4.6% when comparing December and May, while the Ports of New York/New Jersey and Savannah increased by 2.4% and 0.7% respectively.”
