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Global supply chains have been beset by elevated consumer demand over the past 18 months. This report reviews recent trade, sales and inventory data. Elevated US consumer spending has not been matched by imports coming in earlier-than-normal in the peak season, aside from those by electronics retailers. As a result inventories are at depressed levels in most retail segments.
Global supply chains have faced two major challenges in 2020 and 2021.
First, a switch in consumer spending from services to goods during the pandemic, discussed in Flexport’s Nov. 5 research, has generated elevated and persistent demand for goods and shipping services.
Second, the disruptions to factory operations and logistics networks resulting from the pandemic itself have caused delays and reduced product availability in both volume and variety terms, just as shipping is at its most stressed.
The annual holiday shopping season in the US has always been a time of peak activity for retail supply chains. This year the evidence suggests there is more demand pressure than ever before.
A series of retail surveys confirm expectations that holiday shopping in the US will be significantly higher than in 2020 and that shoppers are making purchases earlier than normal.
A survey by ICSC estimates US holiday spending will rise by 8.9% year over year in November and December with 75% of shoppers starting purchases earlier than normal. Similarly the National Retail Federation expects an increase of 8.5% to 10% over the same period.
Shopify’s survey, meanwhile, indicates consumer spending between Black Friday and Cyber Monday in 2021 will be 15% higher than a year earlier to reach $787 per person. Finally, a survey by Oracle has found that 52% of Americans are shopping early, just in case of shortages and price increases.
Elevated spending in November and December comes on top of total U.S. retail sales which climbed by 1.7% in October with growth of 1.7% versus September on an seasonal, adjusted basis, according to US Census Bureau data.
On an unadjusted, annual basis, growth in sales excluding food and autos was 14.2% YOY in October. Sales by stores specializing in clothes, sporting goods and electronics expanded at double-digit rates. General merchandise stores, including the big-box retailers, expanded slightly faster than average, continuing a longer-term trend.
The four major big-box retailers have reported continued revenue growth (Walmart, Target, Home Depot and Lowe’s). Flexport’s calculations from company financial figures shows a combined 8.5% year-over-year same-store sales growth in the three months to Oct. 31. That marked an acceleration from 4.5% in the prior quarter.
Notably, non-store sales (e-commerce) rose by just 7.4%, indicating slowing growth for e-commerce retailers.
Some care is needed with assessing the dollar value of sales. Overall U.S. consumer-price inflation increased by 6.2% YOY in October, according to Bureau of Labor Statistics data. Notably an industry survey from Salesforce indicates price increases of 20% YOY for holiday gifts. Thus, growth slower than 6.2% is actually a decline in real terms.
Inbound Flow of Goods
Consumers’ actions to spend more and spend earlier raises the challenge for retailers in meeting demand. The evidence from macroeconomic and shipping data suggests that more is being shipped, but not necessarily earlier in the year.
Imports of key consumer products follow well-established seasonal trends. There has been a shift in 2021 versus the 2016 - 2020 period. Figure 2 uses macroeconomic and shipping data to show the sequential growth in US imports of a range of products in 2021 (black bar) and the prior five years’ average (green bar).
Shipments of toys and leisure goods which normally pickup in July only picked up in August in 2021, suggesting later-than-normal shipments. Similarly, imports of apparel - which have both spring and fall peaks - picked up in July and August rather than June and July. For all three, the congestion in logistics networks may be partly to blame.
Consumer electronics by contrast, covering everything from TVs and appliances to specialist electronics but not telecoms, have accelerated in September in 2021 rather than October historically. The higher average value per kilogram may have made airfreight and expedited seafreight more economic for the electronics sector both versus other sectors and versus prior years.
While many sectors have not shipped earlier, there is evidence that a lot more has been shipped overall. Across leisure goods, apparel, toys, consumer electronics and furniture in three months to Oct. 31 there was import growth of 9.9% YOY led by leisure goods and apparel, as shown in Figure 3. That was also equivalent to 22.5% compared to 2019 indicating both the degree of continued elevation as well as downside in the case of a return to pre-pandemic levels.
Elevated and early sales without early shipping is a recipe for a drop in inventories and stock-outs.
Indeed, press reports have suggested that U.S. sales of toys may run into inventory challenges as soon as Black Friday (11/26) according to two industry publications. That’s reportedly due to the mixture of earlier shopping than usual and logistics challenges.
US retail inventories excluding autos were just 1.06x sales in September according to US Census Bureau data. That’s inline with the prior six months’ average but well below pre-pandemic levels of around 1.2x as shown in Figure 4.
During the past three months, the inventory balance in furniture and appliance stores has improved and reached the highest since December while general merchandise stores dipped. Note that the significant spike in early 202 reflects store-closures during the pandemic.
Despite the reduced inventory situation, several of the big-box retailers have reportedly struck a confident tone regarding the availability of inventories for the holiday shopping season.
That may reflect their use of alternative strategies from flexible shipping arrangements and in-housing / reshoring production to price increases and intensifying supplier partnerships. Future Flexport research will delve into these techniques in more detail.
Flexport’s latest Post-Covid Indicator update shows consumer spending will likely continue its skew towards goods through the end of the year.
Flexport’s Trade Activity Forecast for US imports indicates there could be a 12% drop in imports in Q1’22 versus Q4’21, inline with normal seasonality. However, imports in Q1’22 would still be 1% above Q1’21 levels as a result of the elevated consumer preference for goods.
One risk to watch is that the late arrival of goods after the peak holiday season runs the risk of unwanted products or elevated inventories that could require subsequent discounting.
In conclusion: Consumer spending remains elevated ahead of the peak holiday shopping season. Outside of the electronics sector, importers have not been able to increase shipments earlier than normal. That’s left depressed inventories as the shopping season begins.
Disclaimer: The contents of this report are made available for informational purposes only and should not be relied upon for any legal, business, or financial decisions. Flexport does not guarantee, represent, or warrant any of the contents of this report because they are based on our current beliefs, expectations, and assumptions, about which there can be no assurance due to various anticipated and unanticipated events that may occur. This report has been prepared to the best of our knowledge and research; however, the information presented herein may not reflect the most current regulatory or industry developments. Neither Flexport nor its advisors or affiliates shall be liable for any losses that arise in any way due to the reliance on the contents contained in this report.
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