Retail Observer

September 2021

The Retail Observer is an industry leading magazine for INDEPENDENT RETAILERS in Major Appliances, Consumer Electronics and Home Furnishings

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Page 49 of 67

RETAILOBSERVER.COM SEPTEMBER 2021 50 S upply chains have been upended across all categories over the past year and a half, and the root cause is, of course, the global pandemic that persists 19 months later. But every major retail category has also faced its share of add-on obstacles. The furniture industry has been hampered by ongoing lumber shortages. Bedding is still fighting through foam shortages caused by a late- winter deep freeze. And appliance makers have been hurt by social distancing measures that reduced their capacity to produce product. When it comes to consumer electronics, if you've been following the industry over the past year, you know there's been an ongoing component shortage that has impacted nearly every piece of technology – as well as some of the smart appliances retailers have on their show floors. Everything from automobiles to TVs, computers, gaming consoles, smartphones, speakers, headphones, earbuds and more have been impacted by the chipset shortage. It's been a challenging time for consumer electronics retailers, to say the least. And it seems like a compounding and escalating set of factors are continuing to drive supply chain shortages. When the pandemic started last March, the biggest issues were just a spike in demand and a shortage of containers to help retailers keep up. And then we had all the unpredictables that occurred, with power outages at glass foundries in Japan, fires at other manufacturing facilities, and so on and on – all of which compounded the pressure on the supply chain over the past year. The good news is that the majority of the challenges associated with manufacturing shortages are coming to an end. As you read this, we should see fill rates for retail hovering around 70% to 90%. And in other great news, by the holidays we should be closer to 90% - 100% allocation availability. So, while it's been difficult for the past few months, it's going to get better by the end of the year. That said, the chipset challenges aren't going to disappear overnight. There was a period early in the pandemic when chipset manufacturers didn't understand the forecast. But another big hurdle is that there simply are not that many really big chipset manufacturers, and they're not very widely distributed, due either to core competencies or geography. TSMC, for example, is the largest chip set producer in the world — they fabricate about 80% of the entire world's allocation and use about 160,000 metric tons of water per day to cool and clean components. TSMC also came off a year where, for the first time in nearly a decade, they haven't had any typhoons. Add the fact that they're in the middle of a massive drought, and their local government is saying, "Okay, we have to supply water to people before we can start making consumer durables." So that's yet another complicating factor. Despite the challenges, business is up year-over-year. Depending on where you're doing business in the country and what week it is, some retailers are up, some are down, and it really just comes down to who can ship product. But the industry as a whole is up around 7% right now for the year. What's very important to remember is that manufacturers are ramping back up now. Some are up 50% in units year-over-year. Some have been producing goods 24 hours a day, seven days a week since roughly June of last year. So even though it's difficult to find product and we don't yet have the inventory we want, it's more of a function of demand and some other supply chain and ecological challenges. Business is incredibly healthy, and our forecast is that we will remain at that level of demand at least through the back half of this year. Consumers are thinking differently about their purchases. They're thinking more about how they're going to interact with the product, so they're more open-minded than they've been in the past. For retailers, it means thinking about their business a little differently, maybe bringing in some categories that they've gotten away from, and going a bit deeper into other categories than they have in the past. But also just making sure the staples of warranty and service are forefront in the minds of their salespeople. The storm persists and the challenges remain, but the CE category is in a strong position to weather the storm and come out of it ready to thrive. Lee McDonald Consumer Electronic Trends Lee McDonald, Vice President of Consumer Electronics, Nationwide Marketing Group RO ON THE CHIPSET SHORTAGE AND OPPORTUNITIES FOR CONSUMER ELECTRONICS RETAILERS

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