Retailers Brace for Turbulent Six Weeks as 2012 Closes
The fourth quarter is always an active – and critical – period for retailers, but with just six weeks left and still much left unresolved, the second-half has much more on the line.
Whether it’s gearing up for Black Friday, Cyber Monday and the next six weeks of holiday sales, preparing for the looming fiscal cliff or the potential for massive port strikes in January, retailers have much on their plate as 2012 comes to a close.
The worst-case scenario over these next few weeks will be if holiday sales flop, the economy plummets over the fiscal cliff and talks between port workers expire, potentially putting billions of dollars of U.S. trade at risk.
“The vibrant economy we all seek cannot exist without a robust retail industry,” the Retail Industry Leaders Association has warned in letter to Congress about the fiscal cliff.
While uncertainty has blanketed the retail industry and generated year-end jitters, the sector is generally confident a year-end catastrophe can and will be avoided.
“I think there’s a high degree of probability that Congress will resolve this, I just want them to resolve it asap and move into 2013 with a framework to make long-term change to policy,” National Retail Federation Senior Vice President David French said of the fiscal cliff.
That upbeat mindset seems to be reverberating across the retail industry, giving retailers confidence as they head into the unofficial start to the holiday season this weekend.
Ahoy: Watch for Port Strikes
The final quarter of the calendar year kicked off in September with an extension of port talks through Dec. 31 that temporarily stifled threats of a massive strike in major ports along the East and Gulf Coasts that risked suffocating holiday shipments.
The threat was temporarily averted, but if the Longshoremen’s Association, the union representing the port workers fighting for fairer wages and job security, and the port operators' Maritime Alliance fail to reach a deal by the end of the year, the union is threatening to stage mass strikes that risk bringing port activity to a virtual standstill.
“Retailers are still paying close attention to [the negotiations], trying to make a decision now whether they need to implement those contingency plans, whether they need to divert cargo to the West,” said Jonathan Gold.
Given the lengthy cycle of the supply chain, retailers are making decisions now about their inventory in January. That means the threat of strikes combined with the fiscal cliff has some scrambling to decide whether to enact contingency plans, which include anything from shipping to alternative ports or expediting orders to using airfreight.
The NRF has urged the Longshoremen and Maritime Alliance to come to a conclusion as quick as possible, warning that a failure to do so would lead to supply chain disruptions that “could seriously harm the U.S. economy.”
ILA president Harold Daggett in mid-October said the two sides were “making progress,” offering hope that a deal could be reached before the Dec. 31 deadline.
‘Tis the Season Just After Sandy
The retail industry was greeted with a number of upbeat consumer spending, confidence and retail sales numbers in September. Consumer spending growth of 5.4% year-over-year in September budded confidence that the holiday shopping season would be strong.
The NRF is predicting a 4.1% increase in holiday spending, while Adobe (NASDAQ:ADBE) forecast an 18% jump in Cyber Monday sales to $2 billion, putting it on track to become the most lucrative digital shopping day in history.
In early October, retailers announced plans to hire more temporary workers and earlier this month they started pulling out all of the marketing stops ahead of Black Friday weekend in an attempt to differentiate themselves from competitors and lure in customers.
Superstorm Sandy, however, temporarily stunted some of the holiday cheer when she barreled into the East Coast during the final few days of October.
The storm caused retailers to reroute inventory, damaged some brick-and-mortar stores while causing a vast majority of businesses in New Jersey and New York to at least temporarily lose power. And heading into the third-week of November, Sandy’s repercussions are still being felt across the area as people struggle to clear debris and rebuild.
For retailers, though, the timing came at “the best of the worst time,” according to Jim Brownell, vice president of retail industry solutions at GT Nexus, a global supply chain management company. Had Sandy hit a week or two earlier or later, the outcome for retailers would have been “catastrophic,” the backup of goods “tremendous,” Brownell said.
A majority of retailers already had their early holiday inventory stockpiled before Sandy in preparation for Black Friday.
“It happened at the tail end of the peak shipping season so a majority of their product was already in for Black Friday,” Gold said. “For the stores that were directly impacted from Sandy, there may be issues as far as damage, but as far as the supply chain, they were able to make sure the product got to where it needed to be.”
Counting Down to the Fiscal Cliff
Offsetting some of the optimism is the fiscal cliff, which has been looming over the U.S. for several months and is set to expire at the end of the year.
For this, a worst-case scenario would be falling over the cliff, which could shave off some 3% of the U.S. economy in the first half of next year while inflicting tax hikes and spending cuts of up to $600 billion, according to the Congressional Budget Office.
The RILA has said that a “certain disaster … would befall America if the fiscal cliff is not properly addressed,” reminding Congress in a letter how badly a failure would hurt the retail industry and broader economy.
For retailers, though, the anxiety surrounding the cliff is less a fear that the U.S. will topple over, as a majority of NRF's members are confident Congress will resolve the fiscal issues before it's too late, but more a concern that ongoing uncertainty will impact holiday sales, French said.
A whopping 72.1% of U.S. adults in a recent American Pulse Survey of 3,620 people said the prospect of falling off the cliff has impacted their spending, while 42.5% said they have decreased overall spending because of it.
“These numbers are significant,” French said. “If negotiations drag out and it appears likely [that the U.S. will fall off the cliff], consumer spending and confidence is going to be substantially dampened.”