“Our fear is the customer is not receiving the experience that should lock them in long-term once their savings and ‘cabin fever’ wears down.”
With a record 100 ships waiting to dock and unload outside the Port of Los Angeles, President Biden’s recent announcement that the port would operate 24/7 came as welcome news to those anxiously looking ahead to a busy holiday season.
It’s the latest in an ongoing saga of disruptions in the global supply chain that began during the pandemic. That includes record demand for industrial warehouse space, which gets more intense by the day.
And then there’s the issue of labor. Dock workers, truck drivers and even retail clerks are all in short supply. With what is expected to be the busiest quarter since the pandemic began, disruptions could drive industrial rents even higher, and leave retailers scrambling.
Oblivious to these forces, consumers are ready to enjoy the upcoming holiday season.
“We’re looking at a huge jump in shopper demand this holiday season,” says James Cook, JLL’s Americas Director of Research in Retail in a new post. “There are fears now that supply issues will mean bare shelves.”
There’s Not Enough Space
Industrial real estate developers are trying to keep pace with the explosion of online shopping. But while inventory has grown substantially across the US, in many markets, there isn’t much more land on which to build. US vacancy has hit an all-time low at 4.3%, according to Mehtab Randhawa, Senior Director, Industrial Research, JLL.
This has driven industrial rents sky high.
Large big box retailers are better positioned to absorb the shock of supply chain issues that result in these product shortages at the worst possible time. Some of them, including Target, are chartering their own cargo ships and stockpiling goods ahead of the holidays, creating additional demand for warehousing.
“Big box retailers will come out of this with more market share,” Cook says.
Sandy Sigal, President and CEO, NewMark Merrill Companies, tells GlobeSt, “While it has been great to see the strong customer desire to come back to stores—and our traffic is not just showing increases over 2019, but historically strong traffic and sales—our fear is and has been that the customer is not receiving the experience that should lock them in long-term once their savings and ‘cabin fever’ wears down.
“Between not enough servers, chefs, sales people, etc., or those who are there being overburdened, and constraints on goods being in stores in time for each season, the labor and supply chain breakdowns are a warning sign for the holidays.
“While this will be the first ‘normal’ holiday shopping season in two years, and we think traffic will be there, what concerns us is the sentiment and satisfaction of the customer and whether that impacts their future view of shopping in person.”
Warehouse Workers in Desperate Need
The supply shortage is the result of cascading factors driven by the pandemic. Factories have been plagued by repeated shutdowns due to Covid-19 outbreaks. Cargo ships and containers aren’t where they should be. Goods have stacked up at ports.
At the biggest ports, like the port of Los Angeles in Long Beach, ships wait as long as three weeks to unload goods. Once they do arrive and unload, there’s still the issue of the ongoing labor shortage: not enough truck drivers or train operators.
And the labor shortage doesn’t stop there. A lack of retail workers has put the squeeze on businesses hoping to keep up with increased holiday traffic. Warehouses face a shortage of workers too, but less so since some retail workers are switching over due to higher pay and incentives.
“It has been an in-store issue to get store associates because of the competition from big box warehouses,” Cook says. “Warehouses pay wages typically higher than in store associate jobs.”
Grocery Aisles Disappointing Consumers
Doug Munson is a principal at MTN Retail Advisors, a Salt Lake City-based national primary grocery retail research and data collection firm that works with nearly every major grocery company to help real estate investors determine best locations for grocery stores.
“The pandemic reinforced a conviction that investors have always held, grocery is essential, and virtually recession proof,” Munson tells GlobeSt. “That fact was reflected in the top performances experienced by just about every grocery retailer and grocery-anchored retail center during the pandemic.
“Set against that backdrop, what we are seeing today is that staffing is an enormous issue facing grocery retailers, and the disruption in the supply chain is having perhaps even more of an impact on the sector. We’re seeing significant gaps of product in nearly every aisle of a grocery store, and not just the toilet paper aisle. These are wholesale gaps that retailers haven’t seen before.
“Consumers are accustomed to seeing full shelves, so this condition is expected to have a huge psychological impact on them. Even though demand is strong, the impact of a reduced labor pool, and supply chain issues are adding up to inflated costs to build and stock a store. The result is grocery retailers are tapping the brakes a bit now on expansion or investment plans.”
Supply shortages are hurting industrial space and development in other ways.
Jessica Mann-Amato, Design Principal and Co-owner of Mancini, a 105-year-old tech-driven design firm in New York City with regional offices in Red Bank and Millburn, NJ., tells GlobeSt, her company is constantly reassessing the supply chain for materials and components to find shorter lead times for our projects.
“Suppliers are doing everything they can; however, the whole world is encountering these challenges, so the solutions are limited.
“When we start a new project, we are very open and honest with our clients about lead times. We also avoid over-promising. As the architecture and design firm, we are proactively tracking every single item and staying on top of it so that we, in turn, can manage our client expectations.”