Why is there an electronic chip shortage? The global chip shortage has been an ongoing problem for manufacturers, retailers, and consumers alike since the onset of the pandemic. But why is it happening?
Consumers have purchased more devices that require chips and semiconductors than ever before over the pandemic period. Factors such as stay-at-home guidance and less money being spent on traveling and socializing have led to consumers migrating their spending towards home improvements. It wasn’t just hardware materials and decorating that consumers were increasing their spending on, devices saw a huge surge including large appliances and white goods. Consumer spending on home improvement products grew 13% in the US alone over the last 2 to 3 years.
The rise in consumer demand has resulted in a global chip shortage, or more specifically, a semiconductor shortage. Manufacturers are no longer able to keep up, retailers are experiencing low stock levels and consumers are left on hefty waiting lists to get their items, and they’re disgruntled about it. This has all resulted in significant supply chain disruptions, especially for the major appliances industry, and for the brands and retailers selling smart goods and appliances.
With no end in sight yet for when things might start to ease, we take a look at the chip shortage impact on the major appliances market and what retailers can do to save face.
1. Smart appliance surge
Consumers have generally spent more time in the home environment since the onset of the pandemic in 2019. As a result, what they’re spending their home improvement budget on has changed. Consumers are now looking for a little more comfortability and luxury within the home to facilitate a generally more efficient, helpful, and happy lifestyle. Enter smart appliances. If you want to learn more about smart living and how the trend is impacting consumers, look here.
Thanks to the increase in home improvement spending, the smart appliances market has experienced a boom since 2019, and as a result, is set to grow to $9.4 billion by 2027 according to recent market research. Consumers are growing more accustomed to using and having smart devices both in the workplace and at home, and for those that don’t have them installed, they’re being taught the benefits thereof by others. For example, the older generation may struggle working out how to install, set up and use a smart washing machine, but introduce a digital native grandchild into the mix, and everything is likely to be set up in minutes. This increase in sharing culture is resulting in age or generation not being a barrier to innovative technology adoption, regardless of its form. As a result, more people have smart devices and appliances in their homes.
However, as technology continues to advance, chips are no longer only reserved for ‘traditional technology’ devices and products such as computers, smartphones, and cars. Chips are now required for all sorts of home devices and appliances including – but not limited to – fridge freezers, washing machines, dishwashers, TV,s, and many more white goods and appliances. Now that these once traditional products are ‘smart’, they need chips installed to work as they’ve advertised to do so. And this is where the chip shortage comes into play. Some consumers are having to wait months for their large smart home appliances, as demand is wildly outstripping supply. In some cases – for example, where existing products or appliances might have failed – consumers are purchasing downgrades from their current appliances as there’s simply no other choice.
Needless to say, this is putting a huge strain on smart home appliance brands and retailers, and chip and semiconductor manufacturers. So, how is this impacting the supply chain?
2. Supply chain delays
A recent Department of Commerce study into the worldwide chip shortage found that the majority of chip manufacturing facilities were operating at or above 90% capacity and that the median demand for chips was as much as 17% higher in 2021 than in 2019. Simply put, the available supply just isn’t increasing enough to match the rising demand. The bad news? It doesn’t look as though things are going to get better anytime soon. Some experts are even expecting it to be a matter of years before the shortage is resolved – whether that’s demand dampening down or supply getting back to previous levels.
This stark difference between supply and demand has also resulted in sporadic purchase behavior patterns from consumers, particularly panic buying. Paired with the surge we’ve already seen in the smart home appliances market, the increase in supply chain issues has caused some consumers to panic buy goods, for fear of missing out altogether. We first saw this consumer purchase behavior arise again at the start of the pandemic and a couple of times since, as people fled to shops to snap up supplies of pasta, toilet roll, and gasoline. While supply chain issues continue to pile up, it’s spurring consumers to purchase more goods than perhaps they need when they do finally become available. Another supply chain issue is the retailers and brands themselves. Due to the lack of supply, when chips and appliances are becoming available, they’re also panic buying and purchasing more than they need, which is only worsening the situation and not providing manufacturers with the leeway they need to try and get back on track.
As this problem continues to escalate, it’s becoming a vicious cycle: no supply, chips become available, retailers and consumers purchase all that’s available, no supply. And as lead times stretch and everyone continues to place orders, there doesn’t seem to be much hope in sight for manufacturers.
However, there are a few ways in which retailers, especially those in the white goods industry, are attempting to manage their supply chain issues to keep consumers happy. Large appliance retailers likely already had handy tools such as waitlists, back-in-stock alerts, and estimated delivery dates and times, all in place to provide greater visibility. This is largely because these products are often large-ticket items that have always required prior notice for factors such as delivery and installation. Retailers are relying on these tools more heavily than ever to provide greater transparency to consumers and offer earnest waiting and delivery times.
3. Rising costs
Due to the rise in demand and inevitable supply chain issues surrounding the chip shortage, the cost associated with the chips themselves has also risen. It sounds simple when supply outstrips demand, costs rise. But it’s not quite as straightforward as that.
The overall cost of living has risen exponentially worldwide over recent years. For example, 83% of adults in the UK reported an increase in their cost of living in March 2022. The US has experienced the largest inflation surge in 40 years, with the cost of food, housing, gasoline, utilities, and other goods rising 8.5% over the last 12 months. This rise in costs can be attributed to factors such as staff shortages, business disruptions, and more. Again, this is noted to be a direct consequence of the global pandemic. Lots of people were without jobs due to business closures and those who were working were at risk of disease and needed to stay home if they did get sick. As the world tries to get back to normal and businesses continue to open and function at a more ‘normal’ level, cases are bound to rise and impact staffing and overall business operations.
Rising costs can also be seen in the white goods industry, again, due to several reasons. The first is that as appliances get smarter and require more sophisticated technology, they become more expensive to manufacture. Consumers are having to dig further into their pockets to get the products they want, and it’s becoming an increasingly competitive market for brands and retailers.
The second and perhaps most prevalent reason that large appliances are costing more is due to the chip shortage. The lack of chips and semiconductors is inevitably starting to raise the price of technology. And now that this technology is installed in large home appliances like dishwashers and washing machines, they’re becoming more expensive. Although it’s business-savvy for retailers to pass these price increases onto consumers to secure revenue and stay in business, they must be careful not to go too far as they risk losing potential and existing customers either to competition or turning consumers off purchases altogether.
3. Brand loyalty
When it comes to brand loyalty, some consumers are better than others, and some sectors are better than others. If you’re a retailer that sells products with chips in the chip shortage, you are likely experiencing less brand loyalty from your customers than before. Here’s why.
Consumers are much more likely to churn to the competition simply because you don’t have an item in stock and another retailer does. Supply availability is the be-all and end-all of the global chip shortage era. It doesn’t matter how long that customer has been purchasing from you, or, how many purchases they’ve made in the last week, if you don’t have the product, they’re less likely to wait around until you have available stock, they are probably going to look elsewhere.
This fickleness is wreaking havoc and having long-lasting effects on the overall customer experience, and it’s leaving large appliance retailers questioning if they should continue advertising at all or pull back. Whereas increased profits due to reduced inventory are causing some retailers to pull back, others are thinking about their long-term marketing strategy, and continue to advertise to greater expose their brand to their target market.
To counteract the damage caused by the lack of brand loyalty during the chip shortage, large appliance retailers should instead look to streamline their customer experience to help them gain market share both now and in the future. By continuing to focus on CX during this crisis, retailers can rest assured that once things do get back to normal and supply finally catches up to demand, they’re front and center of consumers’ minds. These are the retailers that have still plugged their products on social platforms, put money into paid search, and generally ramped up their marketing strategy to say ‘hey, we’re still here and we’ll continue to be here both during and after this shortage’.
Conclusion
One way in which white goods retailers can provide a streamlined and consistent customer experience is by leveraging a PIM/ DAM solution. What’s a PIM (Product Information Management) and DAM (Digital Asset Management) solution? Well, it’s a solution that allows retailers to ensure all product information across their catalog and all available and supporting assets are consistent, up-to-date, high-quality and provide all the information consumers could need about your products to then help them make an informed purchase decision.
ECP provides PIM and DAM solutions to white goods retailers to help them stand above the competition during the global chip shortage by harnessing a truly superior and streamlined customer experience. The solutions they provide offer everything a retailer needs to ensure content consistency and success, while also streamlining internal processes to save time and resources, so retailers can better focus their time and efforts on driving and delivering value.
Are you a white goods or large home appliance retailer struggling with how to market yourself during the chip shortage?
