The physical retailers that remain standing today have had to overcome some massive obstacles over the last couple of years. From pandemic lockdowns and fear of public spaces to the threat of e-commerce that already loomed large before the pandemic even began, it hasn't been easy. Those with a strong e-commerce presence were best positioned to adjust their strategies as needed. But thousands of retailers ultimately closed their doors for good.
Fortunately, the tide is turning. From 2020 to 2021, the number of retail closings was slashed by half. Add to that the fact that only about 20% of all core retail sales are happening online, and it sounds like physical retail has made it through the desert.
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Sadly, that's not the whole story. Early last year, retailers were dealt yet another blow in the form of supply chain issues. Pandemic shutdowns led to lasting production delays and sourcing issues, and the preexisting problem of truck driver shortages reached a level never seen before. But one of the biggest supply chain issues was port congestion. It got so bad several major retailers chartered smaller ships so they could dock at smaller ports and even used planes, all to bypass clogged ports.
Let's take a look at what's being done about port congestion and how real estate investors can expect retailers to benefit.
Port optimization is changing the game
Just how crazy have the ports been? In 2021, 10.7 million 20-foot containers passed through the Port of Los Angeles, a 13% increase from the record set in 2018. And there's no sign any of this will slow down any time soon.
But that port is staggering the ships now, only allowing a few in at a time, while several wait docked outside the port and many more approach very slowly from about 150 miles offshore. The port is also asking larger retailers to help out by importing only what they need on ships rather than using them to stockpile goods so smaller retailers can get what they need, too.
The L.A. and Long Beach, California, ports have also recently implemented a container dwell fee, which penalizes retailers that don't pick up and return their shipping containers quickly. This is all going a long way to clear up cluttered ports and increase efficiency at the docks.
Retail investors can expect to see this port optimization impact retailers in three major ways: inventory, pricing, and strategy.
Consumers can be more confident going forward that retailers will have what they need on their shelves. That could help encourage more in-store visits over online shopping. And while inflation is driving prices up either way, reducing their reliance on costly chartered transportation can help retailers avoid having to raise them even more.
And finally, if retailers don't have to spend so much time putting out the flames of the supply chain problem, they can refocus those resources on planning and strategizing to continue to grow and develop their businesses.
A major step toward repairing the supply chain
Most retail investors are probably a bit sick of hearing about the supply chain. Unfortunately, port optimization won't end the problem entirely. Lingering production issues and labor shortages are still having an impact. But the good news is that port optimization is a huge step in the right direction -- one worth celebrating for retail investors.
