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Consumer Tech 2022: The State of the Industry

How are manufacturers and retailers holding up under multiple supply chain, product and component shortages, the Great Resignation, distribution backlogs, fuel prices, and inflation/recession pressures?

Each winter, POTUS addresses a joint session of the U.S. Congress to proclaim that the State of the Union is strong – then proceeds to spend the next hour-plus enumerating how the administration would address the litany of problems the country always faces.

In the face of raging inflation, supply chain slowdowns, Covid-related Chinese factory shutdowns, worker shortages, increasing e-commerce encroachment on brick & mortar, and assorted other operational speed bumps, consumer technology industry stakeholders tend to be – need to be – a bit more realistic.

“While most business leaders are optimistic by nature, I prefer to deal with probabilities,” CTA president & CEO Gary Shapiro pessimistically lays out in a recent article, “Prepare For the Recession,” in which he reluctantly predicts an inevitable economic deterioration.

As in any set of conditions, some operations brave unsettled business conditions better than others, and both want and need to interpret a picture of the sun on the horizon as rising rather than setting. “What we see in the industry today, is that like at any time, depending on the specific market segment, there may be some ebbs and flows,” philosophizes James Fishler, SVP of Samsung’s American Home Entertainment Division, “but overall, the industry looks strong and is growing when compared to pre-pandemic levels.”

“When looking at the state of the industry, it’s beginning to look like growth is returning to pre-pandemic levels across different consumer technology categories and products,” agrees Tyler Ishida, president of Sony Electronics’ Consumer Business Group, who also advises that “the market outlook truly depends on which products and categories we are looking at, since not all categories are created equal.”

“Overall, the CE industry is rapidly returning to pre-pandemic trends,” echoes Andrew Sivori, head of Go-to-Market Strategy for LG USA’s Home Entertainment Division, who then adds his own caveats. “However, it is struggling over withdrawal from the stimulus money ‘sugar high’ it experienced over the past two years. As it has for decades, though, it continues to adapt to ever-changing consumer expectations and behaviors.”

TCL’s new SVP, Chris Hamdorf, isn’t as sanguine as his major manufacturer compatriots, however. “The industry is down year-over-year as consumers are choosing to spend money on travel and experiences as opposed to household goods like TVs,” he states frankly, noting that conditions are “forcing retailers and manufacturers to plan their business much further out.”

It’s Getting Better All the Time

Major manufacturer optimism is likely buoyed by the consumer technology industry’s historic ability to buck economic downturns. “In general, NPD believes that tech remains in a very strong position compared to some of the challenges in the overall economy,” reports Stephen Baker, the soon-to-be-retiring VP and industry advisor for NPD Group’s Technology & Mobile sector. “Clearly the first half of 2022 will be very difficult as the comparisons are very challenging from the stimulus-induced first half of 2021 growth rates. And no one is downplaying the challenges of growing against two years of Covid-induced sales growth. But the prospects for when the market begins to shake off those hangovers look very good. Even now, as we look at current results, we see most major categories delivering volumes at 2019 levels or, in some cases, above 2019 levels, which obviously bodes well for the long-term growth of consumer hardware.”

Especially able to gird itself against the vicissitudes of recession and inflation is the more premium end of the market, such as video- and audio products sold by independent dealers, the traditional heart of the CE business. “The state of the industry remains robust within the independent channel,” insists Lee McDonald, VP of consumer electronics for the Nationwide Marketing Group. “We have seen key vendor partners increase production and back-stock levels beyond 2021 levels… While e-commerce remains strong, we are seeing a pronounced return to in-person shopping, buoyed by a strong ‘tock’ cycle of new product and technology introduction.”

Top Issues

So what are the biggest roadblocks for consumer tech operations returning to some degree of normalcy? The consensus seems to be the continued supply chain issues as well as the looming threat of inflation/recession.

Supply chain issues confound both manufacturer and retailer. “2020 and 2021 presented several cascading breakdowns in the global supply chain, which we will undoubtedly be dealing with for the remainder of 2022 and well into 2023,” Nationwide’s McDonald observes. “While inventory levels on core categories like televisions and projectors have improved, the industry is still seeing critical shortages in secondary and tertiary categories, such as audio, automation and other component lines.”

Even if Chinese factories return to pre-pandemic output, even if component shortages are addressed, even if distribution and delivery backlogs can be overcome, the question of whether consumers will be able or want to buy tech products is a looming, if not already present, shadow on the industry.

“According to CTA Research, 68% of Americans believe inflation is the most important issue facing them and their household,” warns Rick Kowalski, CTA’s director of Industry Analysis and Business Intelligence. “Inflation is weighing on consumer’s every purchase decision, and many have less disposable income than in the past two years. This could put downward pressure on consumer tech revenues.”

But just as consumer tech typically suffers less than other businesses during tough times, the industry believes it can actually contribute to bringing back the good ones.

“The tech industry can play a leading role in reducing inflationary pressures,” Kowalski asserts. “Tech companies can execute short-term solutions now like implementing digital transformation to improve competitiveness, re-engineering products to reduce component costs, and banding together against rising cargo and freight costs. In the long term, billions of dollars are being invested in chip production across the globe, although it will take time to mitigate our current troubles.”

Winners and Losers

So which product categories are currently hot and which are cold? It’s clear that Covid work-from-home sales boosts of PCs and tablets has subsided dramatically, and smartphone sales are predicted to drop around 3% or more this year as both Samsung and Apple have cut production estimates.

More stable are ever-popular home entertainment products, especially large screen TVs for viewing and action. “While consumer interest in displays that tastefully blend into the living room was already building ahead of COVID, the pandemic certainly accelerated that growth and we’ve seen no drop-off in interest since,” says Samsung’s Fishler, while “gaming continues to be in high demand across audience segments.”

But as always, the current state of the industry is fueled by anticipation of what’s next. “It feels like we’re in a transition to the next wave of innovation where a lot of converging advances, especially AI and extended reality/metaverse will start to have a much stronger influence on both mature and emerging categories,” projects Ross Rubin, principal analyst at Reticle Research. “The former is everywhere today but under the hood, improving tasks like video capture and upscaling. I wouldn’t expect much impact on the XR front this year in terms of new consumer products, but next year should bring some exciting advances.”

Overall, “the CE industry has proven to be nothing if not resilient,” summarizes LG’s Sivori. “In many respects, it’s better prepared to weather this storm than in years past. End to end, from improved discipline in PSI operations to the evolution of digital marketing strategies, both manufacturers and retailers have become far more efficient in maximizing sales opportunities.”

See also: Insights For The 2022 Holiday Season