Supply chain drama will not be a holiday-season retail killer

You could be forgiven for thinking there is a new kind of retail apocalypse happening now, what with all the headlines of late warning that supply-chain chaos is putting “Christmas at risk”—or that there will be empty shelves and toy shortages during the upcoming holiday season.

At the same time, leading analysts are predicting a holiday season bonanza with sales growth in November and December expected to rise in the neighborhood of 7% to 10%. AlixPartners, whose forecast calls for 13% in a best-case scenario (and includes October), says it will be the strongest holiday season since 1999 in terms of growth.

So how can both things be simultaneously true? For one thing, the supply-chain bottlenecks, however dramatic they are, represent only a small sliver of sales. And stronger, well-heeled retailers and companies have gotten used to a supply chain that has been roiling retail since the pandemic broke out. In fact the successful ones have used their strength to order earlier—and in greater volume—to get ahead of the problem and their rivals.

Customer Growth Partners, a consulting firm, estimates that shortages and delays in getting inventory onto store shelves or to e-commerce facilities will cost retailers $10 billion this holiday season. While that is a big figure, it’s only 1.2% of the $813 billion in holiday season spending that CGP is projecting. (And it’s a much smaller dent to holiday season spending than high gas prices are inflicting, to the tune of $35 billion, CGP president Craig Johnson notes.)

Still, while the supply-chain problems won’t make or break the Christmas period, it is cause for some level of concern. Adobe Analytics, which tracks shoppers’ visits to e-commerce sites, said in a report on Wednesday that out-of-stock messages shoppers get have risen 172% year over year at the dawn of the peak shopping period. Apparel is the most problematic category, followed by sporting goods and electronics, Adobe said. And people doing home projects or trying to buy a new couch are keenly aware of this problem.

What the supply-chain chaos is doing, however, is deepening the chasm between retail’s haves and have-nots, says CGP. “Supply-chain problems have been anticipated by many astute retailers, particularly those with clout,” Johnson wrote to Fortune in an e-mail. “Many have taken the time to mitigate the impact on the holiday season.” And AlixPartners put it this way to retailers in a report: The holiday season was “yours to lose.”

Target, for one, has enjoyed some of the most blistering growth since the pandemic broke out. And it has used its clout with suppliers and its own financial strength to order items for the fall and holiday season well in advance, allowing it to even out demand over the season by offering Black Friday–style deals earlier in the season, as some of its rivals have. Chief operating officer John Mulligan recently told investors that Target had expedited ordering and placed larger upfront orders to reduce the risk that replenishing could take longer than usual. At the end of last quarter, Target’s inventory was up 26%, above sales growth expectations to have inventory secured. (Of course, big retailers ordering earlier have also exacerbated the strain on the supply chain.)

“Retailers have moved fast to get much more sophisticated in their operations, but they’re not all at the same level,” AlixPartners managing director David Bassuk tells Fortune.

At Walmart, the company’s capital spending has been allocated disproportionately this year to adding capacity and automation at its stores and largest distribution centers. Walmart, whose inventory was also up sharply at the end of the second quarter, has chartered its own vessels and beefed up its own fleet of trucks to mitigate any risks. Yet another retailer, Gap Inc., secured extra air capacity months ago and says it has been able to shift production between countries where its garments are made. Gap, which makes about 1 billion pieces of clothing a year, is leveraging its clout. “This is where scale matters,” Katrina O’Connell, Gap’s CFO, said on an investor call in August.

A portion of the big sales gains the industry is expected to see will come from higher prices dictated by restricted supply. Indeed, Adobe is forecasting that discounts during Cyber Week right after Thanksgiving will be about five percentage points lower than last year. And inflation is playing a key role as brands pass on higher transportation costs and labor costs to consumers as much as they can.

Still, it’s clear shoppers are eager to shop again and have the means to do so. CGP points to an extra $500 billion in savings over 2020 and lots of disposable cash left from government programs. There is also a lot of pent-up demand as life returns to a semblance of normalcy.

“There’s definitely a lot of demand, but delivering on that demand and doing so profitably is going to be much more challenging for retailers,” said AlixPartners’ Bassuk. “Retailers that are not able to deliver on their promises are going to struggle.”