Supply Chain Woes Spawning 7% Product Price Hikes: ProSource CEO
SAN ANTONIO -- Product shortages are “day to day, product by product,” ProSource CEO Dave Workman told a press briefing Wednesday during group’s summer show. He ticked off supply chain challenges facing manufacturers, saying, “You can’t get it out of China. If you get it out of China, it sits in the dock in Long Beach [California] or wherever; you can’t get it offloaded.”
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A shipping container that cost $3,500 a year ago is more than $20,000 when expedited today, Workman said. “And then you may have to pay more to get it off the boat, but you get it in Long Beach.” He told of a vendor that had a container sitting on a railcar and couldn’t get a train to pull it to the company’s distribution center in Kentucky. Snags are "everywhere in the supply chain.” Resulting cost increases from most vendors are coming in at “7% or so."
Workman believes President Joe Biden and German Chancellor Angela Merkel pressured chipmakers to prioritize fabs for auto production. “We all use the same chips,” Workman said. “That shoved everybody else down, and you hear the horror stories of the 28 cent chip that now is $4.50. Available inventory is being taken to wholesalers, “and you’re bidding for limited production of that chip,” he said. A lot of manufacturers are re-engineering, as a result, but “that takes time” to bring in a new supplier, he said. The White House didn't respond to questions.
The shortages aren’t going away, Workman said. “We’re still showing double-digit increases with virtually every manufacturer and whining about not having enough product at the same time.” Shortages have taken “15% of what could have been,” he estimated. Dealers who are flexible are at an advantage, he said. “What’s changed is, if you have it, the customer buys it. There’s no shopping around.” Dealers who suffer are the ones who say: “I’m waiting for my Sonos Arc sound bar. If you’re a small dealer, you may not see a Sonos Arc sound bar for the rest of the year.”
Supply chain programs have produced unexpected results, World Wide Stereo CEO Bob Cole told us. “People will buy anything you’ve got.” In its high-volume e-commerce business, World Wide was able to whittle down inventory through stores after high-demand products sold out. “We moved old inventory, dead inventory, obsolete inventory at retail," Cole said. "It’s the only thing that was available.”
Stay-at-home trends arising from COVID-19 continue to pay dividends for the custom installation channel, dealers told us. “It’s been huge for our business,” said Cole of World Wide, whose business spiked in its custom and e-commerce businesses. “COVID taught a lot of people, not everybody, that their families are pretty cool, and it’s neat to be home and do things with the family.” He expected that attitude to dip as pandemic restrictions lifted; instead, it accelerated, and Cole is marketing to that.
Industry veteran Walt Stinson, CEO of Denver-based ListenUp, told us he girded for a 2008-09-like recession when COVID-19 first started to spread. “I’m happy that I was wrong,” he said, saying there were no winners in 2008, but the pandemic has produced winners and losers. “I feel really bad about the losers," he said, "but I feel good that our industry is not in the loser category.”
Stinson didn’t expect to expand in this climate, but that’s what happened. “Our business is up all over across the board,” he said. Commercial hasn’t grown as much, but custom, retail, e-commerce and labor have gone up, despite store closures last year during lockdown. All five of his stores are open, though the situation was more difficult in its only store outside of Colorado due to the heightened severity of the pandemic in New Mexico.
July-September 2020 were the beginning of a “surge” that hasn't let up for ProSource members. Business was up 45%-50% during the summer stretch vs. 2019, said Workman. He considers “flat or above a win” for this year. Numbers are growing vs. last year but at a slower pace, he said: “Our concentration of categories still seems to be holding up very strong.”
Project pipelines in the custom channel are “very healthy,” said Workman. On whether higher home prices are diverting dollars from home technology budgets, Workman said that hasn’t been the case, and the housing market is driving demand. “Right now, we’ve got our hands full,” he said. For consumers buying a $2 million home, a prime customer segment for ProSource, a $100,000 custom electronics package is “an accessory to purchase,” he said. Housing price cannibalization could be an issue at the lower end of the electronics market, he said. “But that’s not our customer.”