For many high street businesses, Christmas is a make or break time of year. This is nothing new, but the stakes are that much higher during periods of economic contraction; times when the retail industry is under intense pressure just to stay afloat, and shops will anxiously await the results of the Christmas trading period in the New Year. And yet, it is not just the shops and retail outlets themselves that have a live stake in the success of the high street – the pressures of success and profit filter right the way down the supply chain, and actively influence the following year’s stock volumes that will, in turn, make or break logistics providers.
Indeed, freight forwarding and logistics companies often have a unique insight into the real situations within retail; privy to the scale of order volumes (and the confidence or otherwise that it signifies) a full six months to a year before any goods hit the shop floor. Even at the best of times this can be extremely problematic, but if the economic climate is in a phase of instability or transition, then it can be really damaging. To use the example of this year; how can order volumes made as early as January be certain to be right for December when our economic forecasts have been (significantly) altered at least four times this year?
The problem that retailers face, and the one that freight forwarding companies cannot really solve, is that the cheapest way to transport goods is in huge, cost effective but comparatively slow, ocean liners. This fact not only means that retailers are forced to order very early in the year, but places huge significance on consumer confidence and sales forecasts in terms of deciding on order volumes. Retailers cannot afford to simply look at their own targets and past performance – they need to keep an eye on what the market is doing. After all, in the last five years, the UK has twice dipped into recession, and countless long-established businesses have disappeared from the high street.
One thing to keep in mind is that forecasts are exactly that; forecasts. They are educated predictions that the future often chews up and spits out in a different shape. For example, initial retail predictions for 2012 were on the whole positive, with the London Olympics set to re-ignite an ailing high street and boost the economy, as the Visa expenditure and output report from earlier in the year demonstrates*. And yet, by September many reports were stating precisely the opposite**; that the Olympics had distracted high street consumers, with sales actually falling by 0.2% from July. Somehow, between these polarities, retailers had to decide how much stock to order for Christmas.
Understandably, most will have erred on the side of caution and under-ordered. This has been borne out by a lack of a clear shipping peak in August and September - the months when freight forwarders would traditionally expect to be transporting Christmas stock. However, it is my feeling that the gloomy headlines that may have been influencing the order volumes across the land in those crucial summer months may have underestimated consumer confidence. My hunch, based on forecasts that took a longer-term view at the beginning of the year, is that confidence is considerably higher than has been reported or forecasted.
Statistics in the New Year will prove me right or wrong on this point, but I think that many retailers will have been forced to turn to air freight more this year than last (provisional observations suggests that order volumes will pick up for the high street). If, due to overly conservative under-ordering, this should indeed prove to be the case, then many retailers will quite literally have missed the boat – air freight offers the only feasible way to freight extra goods to outlets in tight times frames (for instance, in time for Christmas). As a result, I would expect to see quite a rise in air freight volumes throughout October, November and maybe even early December.
Naturally, this wouldn’t be a great situation for retailers. Air freight is a more costly option, and the boost of strong sales will be tempered by the knowledge that potential profits are being diverted elsewhere. Indeed, it brings us back to the problem we started with – how can retailers deal with an ordering time lag ill-equipped to manage changing marketing conditions?
I am not talking about a retail turn around as such, but instead a difference in forecasting and ordering that could potentially impact positively on the air freight industry, as well as helping the high street. I said earlier that freight forwarders can do little about either the speed or cost efficiency of big ocean liners, but perhaps there is scope to make air freight more than just a last resort.
For example, October orders would get stock imported in good time for the Christmas rush, give buyers the luxury of consulting more recent retail forecasts and therefore provide a far better chance of ordering the volumes needed. Indeed, with sufficient demand, and then with sufficient competition to meet said demand, in time it’s likely that the prohibitive cost of air freight might reduce. After all, it’s in both retailers and forwarders interests to ensure that consumer demand is met to the very maximum that it can be.
Ultimately, it’s an extremely complex problem, and I certainly wouldn’t claim that either my predications or my solutions are necessarily the only way forward. But in a way that’s exactly the point. My lack of certainty reflects an enduring sector-wide (and even nationwide) economic uncertainty. Unfortunately, in the scenarios discussed in this article, this means that the high street is fighting an uphill battle and often, ironically, contributing to its own difficulties. That said, there’s always a solution out there – we just all need to get our thinking caps on.
Disclaimer text: The views expressed in the above comments do not necessarily express the views of Air Transport Publications Ltd. or any of its publications.