Many business leaders — particularly those who sell to consumers — depend on the final quarter of the year to make a big part of their annual revenue targets. That’s because people usually spend more money in that final quarter visiting family, attending parties, buying gifts, and taking vacations to warmer climes.
Hopes were high at the beginning of 2021 that the availability of vaccines would result in a a spending boom. Sadly, that does not appear to be in the cards. Indeed Adobe predicted on October 20 that online holiday sales would rise between five and 15 percent compared to 2020 — when online sales soared 33%, noted Barron’s.
Boston media have repeatedly asked me to explain supply chain problems. Clear answers to what is causing the problems and when they will be resolved are hard for me to find.
One thing is clear — so-called just-in-time inventory systems coupled with global outsourcing of production aimed at local markets have collided with Covid-19 to create serious disruptions in consumers’ ability to order a product and get it delivered quickly.
Here are seven reasons that this upcoming holiday season could be on the low end of Adobe’s projections.
1. Not enough chips.
Many products — from vehicles to smart phones — need semiconductors. And the chip-induced supply shortage could convince shoppers to delay purchasing until the supply shortage ends.
When will the chip shortage end? Pat Gelsinger, Intel’s CEO, said that it will not end until 2023. Other chip CEOs — of AMD and Nvidia — expect the chip shortage to end in 2022.
Interestingly, Gelsinger said that art of the problem — for example in shipping notebook computers — is the lack of availability of other parts such as the display or Wi-Fi hardware, according to TheVerge.
2. Spiking energy prices.
Prices for gasoline and natural gas have soared, up 53 percent and 150 percent respectively in the last year.
Rising energy prices will increase the cost of trucking and other transportation and boost how much people pay to heat buildings. Retailers are likely to pass those rising costs on to consumers in the form of higher prices.
3. Cargo stuck at ports.
Port operators may be unable to raise wages enough to attract the number of workers needed to unload containers backed up at ports importing from major manufacturing centers in Asia.
On October 19, CNN reported that 62 container ships were anchored off the coast of southern California — holding about 200,000 20-foot containers. On October 18, a record 100 cargo vessels were waiting to be unloaded there.
Will operating these ports 24 hours a day make a difference? Yes — but it remains to be seen how much.
Supply shortages still abound — Adobe noted that out-of-stock messages are up 172 percent compared to the 2019 holiday season.
4. Accelerating prices
A broader spike in inflation — up 5.4 percent in September — outpaced wage growth. How so? Hourly wages rose at a 4.6 percent annual rate, according to CNBC.
Adobe expects goods for sale during Cyber Week to rise 9 percent compared to last year.
These increases will crimp family budgets — and could resulting in cutbacks on holiday shopping — or taking on more debt. Colleen McCreary, consumer financial advocate and chief people officer at Credit Karma, warned consumers “to be thoughtful about their spending to ensure they don’t start the new year in the red.”
5. Lack of workers.
The number of people in the workforce to manufacture holiday goods and provide services — such as restaurants, entertainment, and so on — will drop as vaccine mandates reduce the size of an already stretched workforce.
Some employees are quitting to avoid vaccine mandates. According to NPR, 15 percent of workers at a Houston hospital were unvaccinated — and only 2 percent remained so after the vaccine mandate went into affect.
6. Covid-19 winter spike.
People spending more time indoors could increase the spread of Covid-19 and a more infectious mutant strain that is resistant to current vaccines could emerge.
If enough people are vaccinated, the coming winter could be less severe than the last one.
There is also a worst case scenario. Jennifer Kates of the Kaiser Family Foundation told Vox, “Another variant emerge. Covid has fooled us before and can again.”
7. Rising interest rates.
Finally, the Fed could raise interest rates to crimp inflationary expectations. Rising rates could drive more consumers to default on buy now pay later loans — consumption of which skyrocketed 215 percent in early 2021, according to CNBC. Defaults would reduce their credit ratings and spending power.
Business leaders must answer an important question: Should we muddle through with hopes that things will improve next year or bypass these headwinds by changing how we operate now?