Another—unprecedented—year of change, but another year closed and in the books. In 2021, businesses faced production delays, stalled containerships at ports, stockouts, and labor and capacity constraints. Overall, retail sales increased, but for as many wins, there were as many disruptions.
Key Takeaways
- Total holiday spending was up 8.5% YoY, and 20.9% of total 2021 holiday sales were online, despite December overall sales dropping 1.9%
- Ongoing logistics constraints impacted throughput and the ability to meet holiday demand. It also increased costs, contributing to the 7% increase of the consumer price index
- With consumer spending starting to slow, high inventory levels may become an issue with the average North American industrial real estate vacancy rates at 4.3% and net absorption exceeding half a billion square feet for the first time ever
Consumer spending is up but took a hit in December #
Holiday spending between November 1 and December 24 showed 8.5% YoY growth; in-store sales were up 8.1%, and online sales were up 11% YoY. The Black Friday / Cyber Monday sales event drove a 14% YoY increase in sales, but MoM total retail sales dropped because shopping started earlier this year (similar to 2020).
In Q4 2021, MoM change in total retail sales went up then down, increasing 1.8% in October and 0.2% in November but decreasing 1.9% in December. December’s drop exceeded previous estimates of -0.1%. The decline, in part, came from the arrival of the Omicron variant but also illustrates how earlier shopping impacts total Q4 sales momentum.
Most notably, eCommerce sales took the biggest hit, dropping 8.7% MoM in December—a result from early Q4 media coverage urging pre-December shopping to avoid stockouts and account for eCommerce delivery delays.
Though the MoM data demonstrates the ongoing impact of the pandemic and supply chain shortages, it doesn’t tell the whole story. Early 2021 predictions estimated that eCommerce sales would account for 15.3% of total holiday sales, but actuals came in at 20.9%—26% higher than original projections.
Early 2021 predictions estimated that eCommerce sales would account for 15.3% of total holiday sales, but actuals came in at 20.9%—26% higher than original projections.
Overall, total sales increased, making 2021 a year of retail growth. The steady increase in YoY sales is a sign of economic health.
However, new buying behaviors and sales-channel diversification directly impact supply chain complexity, which forces retailers, brands, and logistics providers to evolve operations and support more omnichannel fulfillment options.
By the numbers: #
eCommerce sales made up 20.9% of total holiday sales but saw a drop (8.6%) in December
Holiday consumer spending (between November 1 and December 24) increased 8.5% YoY and 10.7% compared to 2019
Q4 brick-and-mortar sales saw improvement since the pandemic, growing 8.1% YoY, but only 2.4% since 2019
The implications #
"Volatility and unpredictability remained a constant in 2021 and will likely spill into 2022. Economists' inability to forecast accurately goes hand-in-hand with shipper demand forecasts, adding strain to fixed fulfillment infrastructure across retail and eCommerce supply chains. Increased utilization of omnichannel retail will test shippers’ ability to replenish inventory and fulfill orders quickly. For example, buy-online-pickup-in-store (BOPIS) will account for 11% of eCommerce sales in 2022. That requires a potential adjustment of retail footprints. Maintaining agility and avoiding over-spend on capital-intensive supply chain projects will be a key strategy in 2022 with the backdrop of uncertainty.
Business opportunities remain rich for operators capable of sustaining labor and sourcing industrial space. Limited capacity will continue well into 2022, meaning that taking on new leases will come at a premium cost. This may lead to further inflation. Speculating in the right markets and the right price will determine winners and losers. We expect the focus to shift to secondary warehouse markets, inland from port congested primary markets."
Ongoing supply chain constraints drive subsequent inflation #
In addition to managing higher Q4 volumes, the retail and supply chain industries continued to face port, capacity, and labor constraints—all of which drive inflation.
It was difficult to hire. Seventy percent of logistics providers said it was more difficult to hire in 2021 than in 2020. And, in Q4, available transportation, and seasonal labor dropped 8.4% YoY.
It was difficult to move goods. Container dwell time at the Port of Long Beach dropped from 12 days to 5 days in December. But 72% of North America’s freight moves by trucks, and the industry is short 80,000 drivers.
Ocean freight rates dropped 25% in January 2022, but they’re still 3x higher YoY. And as of January 3, 2022, more than 100 containerships were still waiting at the Ports of Los Angeles and Long Beach.
It was difficult to find space. The industrial real estate market vacancy rates are at 4.3%. And the 2021 North American net absorption rate reached an all-time high at 507 million square feet. This is the first time net absorption exceeded half a billion square feet.
At the end of November last year, industrial lease prices were up an average of 25% from the rates of five-year contracts that expired in 2021. The increases came as strong consumer demand and an eCommerce surge triggered a rush on distribution space.
At the end of November last year, industrial lease prices were up an average of 25% from the rates of five-year contracts that expired in 2021.
The compounding effects of ongoing constraints and disruptions drive inflation as supply chain costs trickle down to consumers. The consumer price index sits at 6.8% before the seasonal adjustment. The ~7% inflation rate leaves consumers worried as it outpaces cost-of-living increases. In fact, 6 out of 10 consumers are “very concerned” about inflation and its impact on their finances.
The looming slow-down in consumer spending will strain warehouse capacity further as inventory continues to pile up.
By the numbers: #
Prices to lease industrial properties were up an average of 25% over the rates at the end of five-year contracts that expired in 2021
4.2 million people quit their jobs in November, and most of the turnover is in low-wage work
6 out of 10 consumers are “very concerned” about inflation and its impact on their finances
The implications #
"Labor constraints are a persistent trend. Despite improvements in employment numbers, workforce participation remains low relative to pre-pandemic levels. Shortages of hourly workers persist with no clear end in sight. Leveraging secondary and tertiary warehouse markets to access broader labor pools is one strategy to overcome labor hurdles.
Competitive salaries and benefits are key for attracting and retaining talent and keeping business. Those that offer competitive pay, specifically to front-line workers and material handling equipment (MHE) operators, will service clients more effectively when balancing volatile shipper demands. Ultimately, creative labor management strategies will provide a competitive advantage."
Looking ahead: Shippers will get creative with excess inventory and minimal space #
The ports are still overburdened as processing remains slow. However, inventory is here, and it needs a place to go. Limited warehouse and distribution capacity presents added complexities in solving that challenge.
But regardless of residual Q4 inventory challenges, 2022 peak seasons are on the horizon, and supply chain leaders must forge ahead.
Stay tuned for an update in February to see how final reporting rounds out for 2021 and what’s on-trend for Q1 2022.
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