All those holiday products stuck in the supply chain will arrive eventually. When they do, it could be 'very lucrative' for consumers.

Shipping containers lined up in rows forming a zigzag pattern at the Port of Los Angeles
Shipping containers sit at the Port of Los Angeles.Mario Tama/Getty Images
  • Supply chain chaos has left a lot of items stranded, so they may arrive too late for the holidays.

  • But everything will make its way to its destination eventually, and then what?

  • Experts say retailers will either have to pack-and-hold or sell products for as much as 50% off.

You've probably heard by now that a lot of products are stuck on container ships and piled up on docks, or otherwise stuck somewhere in the global supply chain.

But all that stuff — seasonal decor, apparel, toys, and so many other types of delayed products — has to make its way to its final destination eventually. So what happens when it does?

The short answer: a major glut that will leave retailers with a choice, one that could be "very lucrative" for consumers, experts say.

How bad is the supply chain situation?

The supply chain crunch has led to issues sourcing everything from artificial Christmas trees to game consoles this holiday season. As a result, retailers urged consumers to get a jump on their holiday shopping since well before Black Friday to ensure they'll be able to nab the gifts they want. Experts have also chimed in, warning of fewer deals and worse selection than years past.

But according to Mark Cohen, director of retail studies at Columbia University, the situation maybe isn't as dire as retailers were anticipating — "the shelves are not tragically bare," he told Insider.

"Little Johnny and Mary are going wind up getting something under the tree," he said. "It may not be exactly the video game that their parents had intended for them, but they won't go without."

How delayed are products right now?

While supply chains initially became disrupted back in the spring of 2020 when the coronavirus pandemic shut down factories, consider what's happened in the past three months alone: Orders from September got stuck on container ships; October orders followed just as the September orders were finally making their way to the docks at US ports; then November orders shipped as the September orders made it from the docks to warehouses and October orders made it ashore.

Sound confusing? Think of what that means for the holiday season and beyond: Retailers are going to go from a shortfall of product to a major overstock of product, Marshal Cohen, chief retail industry advisor at market research firm NPD Group, told Insider.

"It's what I call the seismic supply shift," he said. "All of a sudden, you're going to have three months' worth of products that you're going to try to be selling in a period of six weeks."

Some Halloween merchandise is just now arriving at US ports, which means a lot of Christmas goods certainly haven't made it to their intended location yet. But holiday items are perishable in a sense — once the season comes to an end post-Christmas, consumers lose a lot of interest in things like heavy sweaters.

So what will retailers do with all this stuff?

Retailers essentially have two options: pack everything up and store it in a warehouse until next year, or sell it at a loss.

The pack-and-hold method has gained popularity because it gives retailers a second chance at selling an item at full price. Gap said in November that the pack-and-hold method it used in 2020 for its spring and summer lines is a "good strategy" that will probably be employed again this holiday season.

Other retailers, like Calvin Klein parent company PVH, have also tested this method.

For fairly standard items that are in demand every holiday season, like a black beanie or insulated gloves, this strategy makes sense. For a retailer that sells a wide range of basics, like Gap, pack-and-hold could make sense.

But there are downsides to this strategy. For one, styles and popular colors change year-to-year, and a retailer may not be able to sell certain 2021 products in 2022. Plus, the company already paid for a product they're now making no from while other costs pile up. On top of that, they'll have to pay someone to pack it all up again, transport it, and for warehouse space to store it.

The other option is discounting.

Retailers who receive goods late will be forced to "clear their decks" to make room for spring merchandise, Cohen from Columbia said, but that means they'll need to sell these products at a "pretty heroic" discount.

What kind of discounts are we talking?

Columbia's Cohen said that shoppers should expect to just see excess stock of certain products — specifically items that are in demand year-round — rather than deep discounts.

But those "perishable" categories will be steeply discounted, NPD Group's Cohen said — items like fashion and "COVID lifestyle" products that people only needed to buy once, like a new toaster oven. Those discounts will begin to hit right around now, he predicted.

"As we near holiday, or as we get on the other side of holiday, you're going to start to see 50% off," he said. "This could be a very lucrative January and February for the consumer."

Read the original article on Business Insider