The Friday Report Blog: December 22nd, 2023

Holiday Cheer Ahead: Supply Chains Ready to Deliver a Merry Christmas!

The holiday season this year brings a wave of optimism for the retail and logistics industries, showcasing a significant improvement compared to recent years. Economic indicators suggest a brighter outlook, with a predicted 1.8% growth from last year, according to the comprehensive Lewis-Mertens-Stock index.

Consumer spending has remained robust, highlighted by a record 200.4 million shoppers from Thanksgiving to Cyber Monday, surpassing previous years. This surge in shopping activity is reflected in logistics managers reporting decreasing inventory levels in November as people eagerly purchase holiday items.

The supply chain landscape is notably more stable than in previous years, a crucial factor since 40% of consumers might consider brand switching for late deliveries. Encouragingly, major national carriers like FedEx, UPS, and the U.S. Postal Service have maintained impressive on-time delivery rates above 94% in 2022, with expectations of similar or better performance in 2023.

As the economy continues to recover, with wage growth outpacing inflation, there is a positive outlook for further economic strengthening in 2024. While future challenges are unpredictable, this holiday season allows for a moment of relief and optimism, giving Rudolph and his magical team a well-deserved rest.

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Spicing Up Supply Chains with Lessons from the Sriracha Shortage

The sriracha sauce market, known for its vibrant red jalapenos, is experiencing a dynamic shift. After facing supply shortages due to climate challenges and exclusive supplier relationships, brands are learning valuable lessons in supply chain management.

The shortages began when Huy Fong Foods, a leading sriracha brand in the U.S., encountered disrupted jalapeno supplies due to severe weather conditions. This highlighted the risks of single-sourcing and spurred a reevaluation of supply strategies across the industry. Competing brands like Underwood Ranches, which launched its own sriracha sauce,

capitalized on the situation by diversifying their supply sources and strengthening relationships with multiple growers.

Experts suggest that to avoid similar disruptions, companies should build flexibility into contracts, source from various regions, and have alternatives for key ingredients. This approach is already being adopted by other sriracha makers, leading to a surge in sales for brands like Sky Valley Sriracha and Weak Knees Sriracha.

Huy Fong Foods, despite facing challenges, is poised for a comeback with improved jalapeno harvests. The broader industry takeaway is clear: cultivating robust, diversified supplier relationships and having contingency plans are essential for navigating supply chain uncertainties.

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Are Retailers Prepared for Post-Holiday Return Surge?

Despite economic challenges, U.S. consumers have shown strong support for retailers in 2023, contributing to a significant rise in sales during the fourth quarter. This includes a notable 6% increase in November retail sales compared to the previous year, fueled by successful Black Friday and Cyber Monday events.

However, with increased sales comes an inevitable rise in returns, particularly during the holiday season. Last year, the return rate during the holidays was around 18%, amounting to nearly $171 billion in merchandise. This year, the returns might be even higher, with estimates suggesting up to $173 billion in goods being returned post-holidays.

Retailers are proactively addressing this challenge by revising their return policies and investing in better logistics to handle the expected influx. Many are shortening their return windows or introducing fees, following the lead of companies like Amazon and Zara. At the same time, they are balancing these changes with customer experience, recognizing the importance of convenient and transparent return policies.

Online shopping continues to dominate consumer preferences, with e-commerce sales soaring by 10.6% year-over-year this November. Retailers are adapting to this shift by encouraging online purchases and in-store returns, a strategy that drives foot traffic and potentially increases in-store sales.

Ultimately, most retailers understand that frequent returners are often their most loyal customers, and they are focusing on enhancing the return process to maintain customer satisfaction and loyalty. This holiday season, while returns are a significant part of the retail equation, companies are better prepared and equipped to manage them efficiently.

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