Last week, I did a deep-dive chat with a few friends who have probably forgotten more about e-commerce than I will ever know.
For decades, these e-commerce veterans and their companies have been major supplier partners with Amazon, Wayfair, Overstock (now Bed Bath & Beyond), Costco.com and CastleGate, as well as hosts of others that failed to make the cut.
They explained that while Covid-19 upset everyone’s cart, online retailers initially enjoyed a bump in business as consumers sheltered in place and shopped online instead of in-store.
But now, they maintain, it appears as if e-tailers are behind the eight ball thanks to spikes in shipping, labor, warehousing and more.
Here’s a short list of challenges they say e-tailers are now grappling with.
UPS/FedEx rates have exploded, especially with peak season surcharges.
How much are UPS peak surcharges?
Excess inventory everywhere, lots of it better goods
My sources said that e-tailers, even more so than brick-and-mortar retailers, bought up every stick of furniture to remain in-stock and to be able to continue to offer fast shipping.
Now, with business flat everywhere, many of the online giants are choking on case goods, much of it better goods and the majority of it just not moving.
As a result, my sources maintain that many of the online retailers are cutting prices hoping to put legs under their crippled inventory.
And at this point, Sir Isaac Newton’s third law of motion — “every action has an equal and opposite reaction” — comes into play.
What I mean by that is e-tailers, hoping to recoup some of their losses, are putting additional pressure on suppliers by asking for greater ad allowances and for “strongly suggesting” that suppliers now “geo-source” goods for them.
I had not heard that term and asked my sources to explain it. He said that e-tailers, needing to continue to offer fast shipping, are telling suppliers they need to use additional warehouses that are in proximity to where the bulk of their orders are coming from.
For one vendor, that meant going from one warehouse facility on each coast to backfilling with warehouse locations in the Midwest, Canada, Texas and Georgia.
The vendor was promised a healthy, double-digit increase in business which, unfortunately for the supplier, never materialized.
That vendor added, “You know, the other thing is your obsolescence becomes worse because when you make a mistake in one place, it’s easier to clean it up than when you make a mistake in three places.”
Another burden that vendors realized while trying to geo-place products was attempting to find liquidators to take product out of secondary and tertiary markets that were not working.
“There is no problem liquidating goods in Los Angeles. But it is a totally different story trying to find help liquidating inventory out of the Savannah area,” my source contends.
Speaking of warehousing, warehousing costs keep climbing higher.
According to a recent story in the Wall Street Journal, warehouse rental prices across the U.S. have never been as high as they were in the second quarter.
According to commercial real estate firm Cushman & Wakefield, the average asking price for rent for industrial space reached $9.59 a square foot during that period.
That was 16.1% higher than the same period last year, according to Cushman & Wakefield. Those figures are also up 50% since the spring of 2020, when exploding consumer demand driven by the pandemic sent the market for warehouses skyrocketing.
Tariff impacts China production
My sources also maintain that, because of the tariffs imposed on China by the Trump administration, China suddenly finding itself with excess production filled it by setting up marketing agreements with partners in the U.S.
One product category that Chinese manufacturers succeed with is recliners. My source confirmed that by adding upgrades such as heat and massage, they were able to export them under a medical certificate and thereby avoid tariffs.
And with no middleman, many of these feature rich recliners, priced far more sharply than recliners produced outside of China, quickly become bestsellers for many of the large, online retailers.
One source who is in this sector told me that they had been selling well over 100,000 recliners a year. However, once those recliners from China became available, his recliner sales dipped to 30,000 a year.
Without a doubt, the only constant we can look forward to in 2024 is change and lots of it.
For what it’s worth, my sources think a shakeout is around the corner in the next 12 months, particularly for those whose pockets are not deep.
I agree 2024 is going to be a bumpy ride for every channel in the home furnishings business.
But as always, in the midst of chaos and danger lives opportunity!