Although the leaves have just turned and started to fall and the first snow of the season has yet to arrive, economic experts can already hear the Christmas bells in the distance. Last year, we wrote a post about the holiday shopping season starting earlier, and it appears that 2021 will be much of the same, if at least partially for different reasons. If you haven’t started thinking about getting gifts for the holiday season, although it’s only October, now is probably a good time to start. There are significant supply chain issues that are already impacting retailers, and those who start their shopping earlier are likely to come out ahead this year. Here’s what you should know about the holiday shopping season and the headwinds facing retailers in 2021.
Supply, Demand, Supply Chains, and Shortages
I think we all can agree that 2020 is a year we’d like to forget. When it came to the holiday shopping season starting earlier last year, much of that had to do with pent-up consumer demand after months of lockdowns. Retailers started offering deals as early as October to try to lure consumers while money was burning a hole in their pockets.
One year later, consumer demand is still quite high, but there are additional hurdles for retailers and consumers this time around. This primarily has to do with shortages of numerous goods, their inputs, and a global supply chain crunch.
One of the major headlines of the past few months has been the chip shortage that has impacted everything from vehicle manufacturing to personal computers to small electronics. This even caused a financial phenomenon where some used cars were selling for more than their original purchase price. This may be the first time ever that a vehicle wasn’t necessarily a depreciating asset!
Experts are not expecting this chip shortage to abate anytime soon. Some are even predicting that it will persist through 2022. This will certainly have an impact on what products consumers will be able to buy for gifts this year. The chip shortage in particular will impact the availability and the prices of electronic goods. There is a good chance consumers will be hard-pressed to find doorbuster deals on electronics because there isn’t ample supply to go around, and many of these hot items, like TVs and video game consoles, are likely to be gobbled up without any additional incentives.
Other Shortages Abound
These days, it seems like nearly every good is becoming hard to find. From electronics (due to the semiconductor shortage) to food products to simple home furnishings, it appears almost everything is a hot commodity. Some of this can be attributed to shipping supply chain issues (discussed next), but much of it is due to manufacturing hiccups in general.
The issues are twofold. First, manufacturers have been having problems staffing their plants and operating at full capacity since the pandemic began. Some employees have opted not to return to work, and finding new employees has been difficult. Also, it is not uncommon for a person at a facility to test positive for COVID-19 at some point, causing manufacturers to halt production until it is safe for workers to return.
Second, consumer purchasing preferences shifted during the pandemic, causing manufacturing facilities to adjust their operations. As consumer desires continue to change and, in some areas, return to pre-pandemic preferences, it takes time for facilities to shift back. This is contributing to additional supply issues in the face of unrelenting consumer demand.
Clearly this is expected to have an impact on what products will be available for gifts this season. Some sources were touting beginning holiday shopping as soon as August because of these issues. The abundance of goods we’ve become accustomed to likely won’t be available for holiday shopping.
If chip shortages weren’t enough, shipping already produced goods has become a disaster as well. There is a stark imbalance between ships coming to the US and those going back out with produced goods. This is causing ports to become congested and ships being unable to unload their containers of highly sought-after products. Since the demand for products is so high in the US, many ships are heading back East empty, leaving at port full containers that were supposed to be shipped out. This is causing additional congestion at certain ports (Los Angeles in particular) because there is less room for new containers, as other full ones are taking up space.
To add insult to injury, even when ships are able to unload at a port, the next logistical hurdle is to then take the products from the dock to warehouses and retail store shelves. The only problem with that is that there is a serious trucker shortage too. This is causing delays in restocking retailers and also with having consumers’ orders arrive on their front porch. This is another reason why many experts are suggesting starting your shopping soon!
Planning Holiday Shopping in 2021
Although we’ve discussed some unfortunate predicaments, don’t let it take the “ho-ho-ho” out of the holidays. As many experts have recommended, it’s a good idea to begin your holiday shopping now for a few reasons.
Some Deals Have Already Begun
If you still think Black Friday is the only great day for deals, times have changed. The holiday season tends to begin earlier and earlier every year, and 2021 is no different. For instance, Amazon is beginning to offer daily deals on its website to lure in early holiday shoppers. Other retailers will certainly follow suit so as to not miss out on the expected exceptional consumer demand this year.
Also, the Deals May Not Be There
While some deals already are being offered, with supply so low and demand so high, consumers may not find as many savings as in years past. If you’re holding out for items with exceptional Black Friday savings opportunities, they just might not be as dramatic as we’ve become accustomed to. A large part of this can be attributed to the supply crisis we’re experiencing now. Retailers may not need to offer such great deals to attract customers, and the limited inventory available will almost certainly sell out without any additional sweeteners. So, it may not hurt to start shopping early, since you may not experience any buyer’s remorse from finding a better price later in the season.
As discussed before, there are serious supply chain concerns plaguing retailers this year that will almost certainly remain unresolved through year-end. This means that getting those last-minute gifts may not be an option. If you have a particular gift in mind for someone, it’s probably a good idea to pounce on it earlier rather than later. It just might not be available later in the season as last-minute shoppers raid store shelves and online checkout carts.
Retailers are having issues stocking shelves, and consumers will have issues stuffing stockings if their orders are placed too late. The supply chain is already strained, and this is without the additional pressure that comes from the holiday season. Depending on the shipping method selected, it is best to have everything ordered by early December to ensure enough time for the gifts to actually make an appearance under the tree. In fact, in preparation for the insatiable shipping demand during the holidays, the US Postal Service has already announced an increase in shipping costs starting October 3 and going through December 26.
Gifting Best Practices
While the shopping season may look a little different this year, there are still some time-tested best practices to consider.
It can be surprisingly easy to get carried away when getting gifts for the ones we love. Make sure when shopping this season that you stick to a preset budget to prevent overspending. It’s a best practice to list in advance the names of everyone you intend to get gifts for. If possible, also list what you expect to get each person, or designate a dollar value that you want to spend. When doing your shopping, use this list to help keep you within the predefined limits set and prevent overspending. Having it all written out in advance can help you clearly see how much you’re actually planning to spend, and if it’s more — or less — than what you want, you can make adjustments.
2) Watch the Gifting Limit
If you’re in a financial situation where you can be exceptionally generous, it’s also important to consider the gifting limits per person. Each individual is currently able to gift up to $15,000 per person (in 2021). If you split the gift with your spouse, you can double it to $30,000, but you will need to fill out Form 709 with the IRS to indicate that the gift limit was used by both spouses for the same person.
It’s important to note that these are annual limits, and currently they reset each year. For instance, if you’ve already gifted $5,000 to someone earlier in the year, you only have $10,000 remaining for the rest of 2021. Also, this limit does not apply when gifting to spouses. So, splurge away (assuming your financial plan can support it!).
Last, since we’re talking about the spirit of giving, this limit does not apply to charities. You can give as much as you want to a charity annually. However, whether you are able to deduct the contribution and how much of the contribution you can deduct in a given year will depend on your unique tax situation. Please consult with a tax advisor to review your situation.
Sometimes the best gifts don’t even cost any money. You don’t necessarily need to spend a lot of money to show someone that you really care about and appreciate them this holiday season. With supply shortages and the possibility of limited deals this year, 2021 may be the perfect year to create personalized gifts.
For those who have read The 5 Love Languages consider what language your loved one speaks and tailor your gift to that. For instance, if it’s acts of service, this could mean pledging to do some extra work around the house or cooking a few meals in lieu of a package under a tree. Or if it’s quality time, finding a way to connect with that person, even if it’s in an inexpensive activity, may mean much more than a lavish gift. Even if their love language is receiving gifts, the thoughtfulness behind the gift is often much more impactful than the price tag associated with it.
Gifts can be incredibly meaningful without being exorbitantly expensive, and this is something to strongly reflect on during the most wonderful time of the year.
There are some significant supply chain issues heading into the 2021 holiday season. Many experts are suggesting you start shopping now to better ensure that you are able to get the gifts you want for your loved ones and that they arrive on time — especially since the holiday shopping deals may not be as robust as they have been in previous years.
Of course, it’s always a best financial planning habit to ensure that you’re budgeting your holiday spending appropriately and that you don’t overspend. It’s a best practice to create a list and stick to it, similar to a jolly old man in a red suit.
Nick Prigitano, CFP® is an advisor at Milestone Financial Planning, LLC, a fee-only financial planning firm in Bedford NH. Milestone works with clients on a long-term, ongoing basis. Our fees are based on the assets that we manage and may include an annual financial planning subscription fee. Clients receive financial planning, tax planning, retirement planning, and investment management services, and have unlimited access to our advisors. We receive no commissions or referral fees. We put our clients’ interests first. If you need assistance with your investments or financial planning, please reach out to one of our fee-only advisors.