Dive Brief:

• Going into the holidays, 98% of surveyed retail executives said they are experiencing supply chain issues, according to a new study from First Insight and the Wharton School's Baker Retailing Center.
• A full 100% said that supply chain disruption will affect the upcoming holiday season "significantly or somewhat" and will last at least through 2022.
• To mitigate increased costs from the challenges, 59% of executives said they were increasing product price or shipping costs for consumers, and 36% were taking a margin hit to keep prices level. Just 2% did not anticipate cost increases on the company, according to the study.

Dive Insight:

Much as consumers and businesses have pined for a return to "normal," 2021 has brought surprises and challenges of its own.

While last year's holiday season took place under a cloud, with COVID-19 raging out of control in the U.S., this year consumers in many areas have reasons to feel safe shopping in person and visiting family, with vaccines widely distributed and cases falling overall from their most recent peak in September.

Vaccines, job upticks and government stimulus have all led to a demand surge this year. Going into the holidays, retail sales are so strong that even a disastrous, sudden slowdown in sales in the latter months of 2021 would still make for a record or near-record season, according to Wells Fargo analysts. Taking challenges into account, that team predicted an 11% year-over-year sales increase for the holiday season, while Deloitte has estimated a 7% to 9% increase while AlixPartners has projected a 10% to 13% increase.

All of which is good news for retailers. But the demand surge has put unprecedented pressure on supply chains, which are still operating on constrained capacity after last year's sudden implosion of demand, and have been disrupted by COVID-19 outbreaks around the world. Manufacturing, ocean shipping, trucking — nearly every point in the chain has been affected. At home, companies are also struggling to find workers to staff warehouses and other domestic nodes of the supply chain.

The result has been skyrocketing freight costs and shipping delays, and many anticipate it will leave many shelves empty during the holiday season.

Not every retailer is affected in the same way. Target, Walmart and Amazon have touted their efforts to mitigate the challenges and have reassured customers they will be stocked come holiday shopping time. Executives across the industry have said they have been raising prices, leaning on air freight, cutting costs elsewhere and otherwise finding ways to get products to shelves and hold on to margins.

The study from First Insight and the Baker Retailing Center provides a detailed picture of how the challenges are playing out in the industry. Among those surveyed, a sizable majority (68%) said they anticipate a margin hit of less than 10%. Another 27% expect a margin reduction of 10% to 20%, and just 5% expect margins to fall by more than 30%.

To recoup some margin, 22% of executives said they were reducing or eliminating planned promotions. A third of those surveyed said they planned to use cost-based pricing to pass along their own cost increases to consumers.

Executives are also working to improve their forecasting, finding new vendor partners, streamlining assortments, working with freight forwarders, sourcing domestically and taking other steps to ease the challenges of the year, according to the study.