By Andrew K. Reese
Every year retailers and consumer products companies look for a successful holiday season to stuff their stocking with profits, but Christmas 2008 may leave them with a lump of coal instead.
The National Retail Federation's annual Holiday Consumer Intentions and Actions Survey shows that U.S. shoppers plan to spend just 1.9 percent more than last year on gifts this season, representing the lowest increase in planned consumer spending since the survey began in 2002. NRF predicted, based on the survey, that total U.S. holiday sales would increase just 2.2 percent to $470.4 billion.
Clearly the global financial crisis is weighing on consumers heading into the fourth quarter. But retail's troubles began earlier in the year, as energy and fuel prices hit record levels, hitting consumers in the pocketbook and creating a higher-than-usual level of uncertainty among retailers and consumer products companies trying to plan for this year's holiday push.
"The first nine months of this calendar year have had such a soft level of demand compared to prior years that forecasting for this holiday season has been a real challenge," says Jacob House, vice president, strategic account management, at ModusLink Global Solutions, the Waltham, Mass.-based provider of outsourced fulfillment services and supply chain solutions to companies in the high technology, communications and medical industries.
The economy weakness is affecting the volumes of goods that companies are moving, and consequently many companies are winding up with higher inventories than they expected, back into the supply chain, including at their original design manufacturers (ODMs) and contract manufacturers (CMs), which are holding more component inventory. "This really emphasizes the need to be extremely flexible in terms of capacity," House says. "Retailers are only going to take so much inventory in their distribution centers, and they'll need to see the sell-through happening before they replenish those DCs."
House concludes: "It's always a gamble, a guessing game, with retail."
Nevertheless, companies as diverse as Rocky Mountain Chocolate Factory (RMCF) and Polar have been deploying new technologies and lining up new supply chain partners over the past couple to better position themselves to whether the ups and downs of the holiday season.
Sweetening the Chocolate Forecast
Key Jobson knows all about the difficulties of ramping up for the holiday season. Jobson is chief information officer at Durango, Colo.-based Rocky Mountain Chocolate Factory, which sells its chocolate candies, fudge and other confectionery products through a system of 320 retail stores and franchise operations, as well as online and through other retailers. The company does about 70 percent of its business during an extended holiday season that lasts from November through the end of March.
"We start in the April timeframe to manufacture product that's going to be sold during the holiday season," Jobson says, explaining that during the spring and summer the company primarily manufactures everyday product, along with holiday component product destined to go into gift boxes, and puts that product in the freezer. Then, as they roll into September and October, they start to pull out the holiday component product to build the holiday packaging, as well as the everyday product to ship since their lines are tied up producing holiday product at this time.
Scheduling production to meet the holiday surge had proved challenging using RMCF's legacy enterprise resource planning (ERP) system, Jobson says. "We had very limited ability to effectively schedule more than one day out operationally and more than three days out strategically," he explains. As a result, the company's planning process constituted daily meetings that ran as long as two hours and involved up to eight managers. For the holiday season, planning was complicated by the need to bring in special items to be married up with product — like plastic Santa gift boxes — as well as the relatively higher variability of the 30-40 percent of their sales accounted for by their specialty market product — which includes Internet, some big-box retailer distribution and mom-and-pop gift shop distribution.