Brands Are Making Bets on Which of Their Products Will Be Hot This Holiday, But They Don’t Have to Guess

What a difference a year makes.

At this time last year, consumers were hesitant to spend on much besides essentials and products that would make their life at home more comfortable. They were fearful about going into stores, many of which were temporarily closed due to the pandemic anyway, worried about how COVID-19 would affect their family’s health and finances, and unsure whether and when the economy would rebound.

Meanwhile, retailers and brands were nervously looking ahead to the holidays and worrying about the glut of inventory they were left holding following months of sluggish sales due to the pandemic.

This year, the script has flipped, with consumers ready to spend but retailers and brands struggling to ensure they’ll have enough inventory to meet holiday demand. Companies face continuing supply chain disruptions, labor shortages in warehouses, and shipping constraints that are driving container freight prices four to 10 times higher than normal.

At the same time, consumers’ wallets are stuffed with what they’ve been saving by not traveling, dining out, attending events or shopping as much as usual over the past year and a half. In addition, government stimulus checks, child tax credits and, in some cases, enhanced unemployment benefits have given shoppers an extra cushion. American consumers have put away well over $2 trillion in excess savings since the pandemic started, according to Wells Fargo, boding well for brands this holiday season — if they can stock the items shoppers are looking for.

Supply Chain and Shipping Crunches Make Leaner Inventories Inevitable

The pandemic has snarled global supply chains for more than 18 months now, and few expect the situation to improve anytime soon. Regional surges in delta-variant COVID-19 cases continue to prompt sporadic factory closures in China and other countries, and brands have struggled to diversify their sourcing and manufacturing networks to mitigate raw materials shortages and production disruptions. And even companies with the greatest sourcing flexibility will still face another massive challenge for at least the rest of 2021: shipping.

The pandemic is driving an ongoing shortage of freight capacity that's making it more expensive than ever to get goods to consumers. Freight-shipping marketplace Freightos found that the cost to ship a container from China to the U.S. East Coast was up 500 percent year-over-year in the first week of August, to a whopping $20,804.

And it’s not just ocean freight costs that have spiked. The Cass Freight Index, which measures volumes of goods shipped by truck, car and rail in North America, showed that the cost of shipping by land rose 43 percent year-over-year in July. In addition, in early August, the USPS proposed temporary price hikes for shipping some packages over the holidays. If approved, the higher prices will be in effect from Oct. 3 through Dec. 26. Other U.S. shipping and last-mile delivery firms are sure to follow suit.

The week they reported second-quarter earnings, Walmart and Target executives commented that they had planned ahead to ensure they will have plenty of goods on shelves during the holidays, despite shipping constraints and delays. But what can other retailers and brands do to maximize their holiday season this year?

3 Strategies for a Successful Holiday With a Narrower Assortment

Given the ongoing supply chain and shipping challenges, retailers and brands will be under pressure to keep assortments lean this holiday season. Therefore, it’s crucial that they mitigate risk by knowing what products consumers want, what they’re willing to pay for them, and how they want to receive them.

Three strategies will help ensure a successful holiday this year:

Understand Consumer Demand for Specific Products and Categories

To succeed with narrower inventories, companies must identify what products are in demand and where. Purchase history won’t provide enough detail, given how much consumers’ habits and priorities have changed over the course of the pandemic. Gathering voice-of-the-customer data and applying predictive analytics to it to inform smarter, faster inventory decisions is key.

This kind of rich data, based on digital product testing and other consumer feedback, provides crucial insights that allow companies to forecast more accurately and design, develop and produce goods consumers actually want. It allows brands to continually stock sufficient volumes of popular goods and know what similar items they might present when a supply chain snag results in an out-of-stock item. Offering an alternative that appeals to a shopper can give brands a way to turn a potentially disappointing customer experience into a sale and an opportunity to build loyalty.

Voice-of-the-customer data also allow brands to pivot more quickly in response to shifting shopper behavior. A recent survey we conducted at First Insight found that 56 percent of consumers were scaling back their retail spending in August in the wake of renewed fears about the pandemic, up from 52 percent in July. Some 64 percent of respondents said they were worried about COVID-19, up 25 percent from the previous month, and 56 percent said they were hesitant to interact with store associates, up 30 percent month-over-month.

While these concerns may not linger into the holiday selling season, they illustrate how fast the consumer confidence picture can change and why brands must have the agility to pivot when needed. Of course, companies that have worked to digitize their supply chains will be best placed to leverage consumer data insights and respond to shifts in demand quickly this holiday season. Digitization gives companies the real-time visibility into their supply chain that enables them to increase speed to market and alter their strategies on the fly, re-routing products from one store or warehouse to another, for example, or quickly ramping up production to restock items that prove unexpectedly popular.

Identify Where There's Price Elasticity

This holiday, retailers will have some pricing leverage, but it won’t extend across all products or categories, so brands have to understand elasticity of demand. To maximize fourth-quarter revenues, companies will need to figure out which of their products can command full price and which categories they need to mark down in order to move goods quickly. Winning brands must leverage technology and data analytics providers to identify which consumer cohorts are willing to pay full price for which goods. The strongest competitors will avoid automatically cycling through the typical holiday promotions and discounts this year.

Although we’ve seen some inflation, it’s likely temporary — and it hasn't affected all consumer categories equally. Given the extra savings shoppers have tucked away, it’s also unlikely to crimp holiday sales too much.

Focus on Offering Omnichannel Convenience

Shipping capacity and labor shortages will challenge brands to get consumers their holiday deliveries on time. To alleviate the problem, brands should not only offer and take advantage of the convenient buy online, pick up in-store (BOPIS) and curbside pickup options consumers have come to love during the pandemic, but also incentivize shoppers to choose these options.

Click-and-collect reduces the cost of last-mile fulfillment and eliminates the risk of delivery delays for retailers and brands, while boosting foot traffic and giving them an opportunity to generate additional sales from customers who enter stores to pick up their orders. Offering a small discount or reward to shoppers who pick up in-store can help drive profitability.

Of course, real-time inventory management is key to providing a seamless shopping experience that spans brick-and-mortar, mobile, desktop and tablet, so companies that have invested in supply chain digitization will have an advantage over those that have less visibility into exactly where their inventory is and, therefore, less ability to get it to the right store or warehouse at the right time.

This holiday season will look very different than last year’s, with tighter inventories and a consumer who is more willing to spend. Retailers and brands that leverage data analytics to identify which of their products will be in highest demand — and price them accordingly — will be ahead of the game. The ones that couple those insights with digitized supply chains that allow them to quickly respond to disruptions and consumer behavioral changes will be most likely to win.