By Egon Sanders

From nearly every retailer’s perspective, the most important story of the past two years has certainly been the ongoing supply chain disruptions wrought by the COVID-19 pandemic. First it was paper products, wheat, masks, and sanitizer. But even though there is now ample supply of those products, the availability of parts and delayed deliveries of products has expanded, almost in waves, since at least the early months of 2021. It has affected nearly all industries, not least consumer electronics and appliances, including TVs, smartphones, e-bikes, refrigerators, laptops and cars, to name just a few. Volatile costs and unpredictable wait times have created one hurdle after the next for the entire supply chain, from factories and manufacturers to retailers and consumers. 

These disruptions have been particularly exacerbated in the consumer electronics industry, where demand has risen dramatically as supply has plummeted; remote life has driven a greater need for everything from laptops and tablets to game consoles and VR devices, which have become increasingly difficult to come by. As we tumble into the second holiday season in COVID’s shadow, it’s clear that there are manifold complexities to be overcome — but whether that will continue to result in companies being unable to meet demand, however, is somewhat less clear. 

It’s not just a chip shortage problem in the supply chain. 

Last month, the trade group IPC released its survey of hundreds of companies around the world regarding their experience with disruptions to the electronics supply chain. The results are rather telling: Nine out of 10 manufacturers are currently experiencing an increase in their cost of materials, while seven in 10 have reported increased labor costs. Additionally, 80 percent of these companies reported that it was either “somewhat” or “extremely” difficult to find qualified workers. So both costs and worker demand are up; what remains unclear is whether these costs will be passed on to the consumer, and whether or not these companies will be unable to keep up with demand for their products. 

And, of course, there are the component shortages. According to Canalys, for instance, shipments of mobile phones dropped by six percent in the third quarter of 2021 compared to the same time last year, due to component shortages preventing the manufacturers from keeping up with demand (even Apple is expected to cut its production by 10 percent in Q4 for its latest iPhone 13, with suppliers hitting challenges in delivering displays and wireless components). Car manufacturer Toyota cut back on production by a staggering 40 percent, and expects this situation to persist into 2022. The publication Wired and many others report that computer chips (and thereby, the consumer electronics products they inhabit) have been in short supply throughout the pandemic, and will likely continue to be. As Popular Science reports, “The CEO of chipmaker STMicro estimated that the shortage will end by early 2023. The CEO of automaker Stellantis said that the shortage ‘is going to drag into ’22, easy.’

Bharat Kapoor, a partner in global consultant Kearney’s Strategic Operations practice and co-author of a recent whitepaper on the topic, doesn’t foresee any relief in supply constraints until mid-2022 — and even then, doesn’t expect things to return to full capacity. “The reality is that it will take at least two to three years to come back to a steady state,” he says. “These times have exposed an underlying weakness in the consumer electronics industry, which is its inability to get ahead of the market and capture growth during an upswing and protect margins during downswings. The buffer inventories in the system have also been depleted, so pretty much whatever is being cooked is being eaten — the fridge and pantry are empty.” 


Demand is way up (that’s good), but so are prices (that’s bad)

But not everyone is quite so bearish. Stephen Baker, VP of industry analysis at The NPD Group, says that things have in fact bounced back rather dramatically. “The answer, broadly speaking, to the ‘component’ shortage [question] is that there really are no shortages in consumer electronics right now,” he says. While conceding that there are a handful of specific products without substitutes — gaming consoles, graphics cards, and the like — Baker says this doesn’t represent the whole picture. “In general, if you are looking for almost any product in consumer electronics, you can find it,” Baker says. “We don’t have a shortage right now; what we have is too much demand.” Baker points to the fact that after 18 months of record sales levels, because of volumes that were unimaginable in most market segments pre-pandemic, any supply chain is going to be stretched and run into problems. 

Baker says that the current scenario will not necessarily manifest in product shortages, but rather in price increases. “The biggest impediment to consumer buying is not availability; it is pricing,” he says, pointing out that segments of the TV market are up 30 to 40 percent over historic levels, and that most other categories are seeing similar (if not as dramatic) end-user pricing increases. Still, Baker warns that it’s vitally important to remember that “most categories continue to deliver double-digit increases over pre-pandemic sales levels, and have been doing that for 18 months now, with factories and the supply chain overall supplying more goods than they ever have in the past.” 

How to keep the shelves full

Kapoor predicts that this segment — consumer electronics — will continue to be the hardest hit, and especially so this holiday season. “Retailers need to develop scenarios on how, and with what, they will stock their shelves if the most popular game console or phone is not available,” he says. “Older products in their inventory may see full prices being paid. This may also enable alternate product categories — not substitutes — to find mind share and wallet share among buyers. Merchandisers and buyers at retail companies will have their hands full.” 

Not all companies are being affected equally, either. “Bigger companies have robust supply-chain functions, even if they are suffering at the moment; they have higher buying power and can secure capacity directly with semiconductor makers,” Kapoor says. “Small companies typically rely on third parties. In times of supply constraint, those with the least power suffer the most.” 

In the near term, prices may not come down. “A lot of capital is being invested, and companies will have to recoup that, which will take time,” Kapoor says. “Supply issues won’t settle for the next two to three years, and in the meantime, demand will only keep increasing.” He says that most people forget that data is growing at a massive pace — and data requires chips to create, move and store it; he likes to call this decade “the Decade of Chips.” “We are seeing our world change as never before — a change even bigger than what steam and electricity did in their time. Industries outside of high tech are just realizing what these tiny chips can do,” he says. “The genie is out of the bottle.” 

This article originally appeared on Dealerscope’s website.