The coronavirus pandemic has changed the way consumers shop. During this time of the year, shoppers would normally flock to stores in hopes of snagging great deals. Now, local restrictions, in-person capacity limits, and safety concerns are driving consumers to do much of their holiday purchasing online instead.
It's a shift retailers have been anticipating for quite some time. But one thing they may not have geared up for? Delivery services pushing back.
In the wake of Black Friday, which was largely an online event this year, coupled with Cyber Monday, UPS (NYSE: UPS) has already had to instruct drivers to temporarily stop collecting orders from a handful of major retailers, including Macy's (NYSE: M), The Gap (NYSE: GPS), and Nike (NYSE: NKE), after the number of packages those retailers put out exceeded its delivery capacity.
To be fair, retailers were warned by UPS and other shipping outlets that their allocation would be limited during the holiday crunch. And both UPS and FedEx (NYSE: FDX) have encouraged retailers to spread out promotions throughout the holiday season and process orders over the weekend to ease the burden. But retailers, desperate for revenue, may be more inclined to push couriers to their limits in hopes of salvaging the holiday shopping boom during an already turbulent year. And if that strategy backfires, it could be catastrophic.
Will shipping issues lead to retailers' demise?
Dozens of popular retailers have already filed for bankruptcy in the wake of the pandemic, and as part of that process, many have either already closed stores or are making plans to do so in the near term. That's terrible news for shopping center and mall operators, who may soon have a massive vacancy crisis on their hands. It leaves mall REIT investors in a tough spot, too.
Many retailers with sluggish sales are hoping the holidays will deliver the revenue surge they need to stay afloat. But if shipping services can't keep up with demand, that strategy is dead in the water.
UPS says that retailers' shipments will get delivered -- eventually. But "eventually" may not be good enough. If shipments are delayed beyond the holidays, many consumers will seek to return goods that didn't arrive in time for gift-giving purposes. On a widespread level, that could be a true revenue killer.
This year, Black Friday saw a 22% jump in online purchases, according to Adobe Analytics, as consumers sought to avoid crowds and shop safely. And some retailers may still be in the process of getting those orders out. If online sales volume continues to explode, retailers may have a huge problem on their hands. Of course, physical retailers can offer curbside pickup and BOPIS (buy online, pick up in store) for online orders, and those are options worth pushing given the shipping crunch couriers are grappling with. But at the end of the day, this season, many holiday shoppers simply don't want to leave their homes, and if shipping companies can't keep up, retailers could be in for a world of hurt.