How Is the COVID Supply Crunch Changing Advertising Plans and Revenue?

Supply chain issues seriously impacted the availability and cost of goods this holiday season. Multiple industries that rely on overseas production have been affected, including motor vehicles, toys, fashion, and cosmetics. Even local manufacturers and home crafts that rely on imported materials for their production have been hit.

Moreover, increased shipping costs cut into advertising budgets, and marketers had to tweak their planning to account for reduced and unpredictable inventory supply. If, how, and when campaigns ran differed greatly from previous years.

Supply Chain Issues Snowballed

For consumers, the shortage of goods is both frustrating and confusing. However, many have failed to understand that the crisis has been a long time in the making and thus can’t be resolved quickly. Production was initially interrupted when China became the first nation shut down by the coronavirus, and factories closed en masse. Then, as the pandemic spread and stores in the West shut down, many retailers pulled back on production. There was little appreciation of how effectively online shopping would maintain demand or that the money consumers couldn’t spend eating out and traveling would be redirected to goods.

Even once production ramped up, getting goods to overseas markets was problematic. Initially, this was because shipments were held up in ports that were locked down or overwhelmed by new COVID regulations. But there was also more demand for container space than usual as personal protective equipment, humidifiers, medication, and other COVID-related goods were manufactured in the East and shipped to the US and Europe. There was also an increase in the average size of goods being shipped. For example, demand for home gym equipment skyrocketed as people realized their work-from-home situations could be extended indefinitely. The result was that container space pricing increased by 600 percent.

The challenges don’t end at port clearing. Labor shortages stateside made it difficult for brands to get their goods moved from the ports to their warehouses and stores. This means that demand exceeded supply this holiday season in most cases. So even where the marketing budget hadn’t been redirected toward increased shipping costs, there may not have been a need to advertise anyway.

Ad Budgets Were Slashed

Some brands reduced their ad budgets to mitigate the increased shipping prices. Others knew they’d be short of stock and planned to sell whatever they had. That’s especially true of seasonal “essentials” that have predictable sales, such as Christmas decorations. So, for example, New Jersey-based holiday décor company National Tree Company slashed its online advertising budget by 75 percent for the 2021 holiday season. At the same time, it increased prices by 25 percent to cover revenue shortfalls and costly shipping.

Inventory shortages and slashed advertising budgets also hit influencers. In many cases, brands just couldn’t spare the merchandise — promo inventory that would typically be sent gratis to influencers was needed for paying consumers. These brands also didn’t want to get consumers excited by influencer “unboxings” only to find stores were out of stock of the items.

There Was Less Reliance on Curated “Seasonal” Products

Brands relied on their bestsellers this holiday season and declined to promote limited-edition seasonally branded products because they couldn’t be sure the holiday-specific inventory would arrive in time. As a result, there was a narrower selection of products available for brands in industries like cosmetics and fragrances than usual over the festive season.

There Was a Shift from TV to Digital Advertising

Many brands have relied more on digital marketing than TV or print media during the pandemic. They have found it to be a more flexible form of advertising, and it’s essential to have that control if inventory is late. Digital advertising also provides more insight into consumer behavior, so this switch is probably going to be permanent.

Ads Were Run Earlier

Many brands ran “see now, buy now” holiday campaigns earlier than usual — some starting as far back as September. They were hoping to beat the competition by generating consumer fear of shortages. This was particularly effective for toys and electronics, sectors where parents feel pressured to get kids the “latest and greatest” and don’t want to find themselves facing empty shelves on Christmas Eve.

Unfortunately, as has been the pattern established during the pandemic, it was the small and mid-sized companies that were hardest hit by holiday inventory shortages. Brands want to satisfy their big customers first, so large retailers typically experience minimal shortages as their orders are prioritized.

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David Geithner is a senior finance executive who draws upon nearly three decades of experience to serve as EVP Strategy & Business Development

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David Geithner

David Geithner

David Geithner is a senior finance executive who draws upon nearly three decades of experience to serve as EVP Strategy & Business Development

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