ELECTRONICS & APPLIANCE INDUSTRIES GRAPPLE WITH CONTINUED SUPPLY CHAIN BOTTLENECK

Ian Fredericks, President of the Hilco Retail Group, discusses the headwinds that continue to limit the availability of electronics and appliances products, and the steps retailers and manufacturers are taking to overcome those challenges.

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Steve Katz:

Hi everybody and thanks for taking time out of your busy schedule to join us on the latest installment of the Hilco Global Smarter Perspective podcast series. As return listeners know by now I'm your host, Steve Katz. And if this is your first time listening, welcome, we're really glad that you could tune in. I have really been looking forward to today's conversation because we're speaking with Ian Fredericks, who is President of the Hilco Retail Group, and really is just so knowledgeable about all things retail. And our topic, which is very timely by design as we are entering the very end of the year, is going to be focused on the electronics and appliance industries and what's going on there from a supply-demand and logistics perspective.

Steve Katz:

So that you get a little bit of a better feel for Ian's expertise, he heads the retail team at Hilco that I mentioned that includes experienced merchants and retailers, analysts, operators, investment and legal professionals. And they provide a suite of services that delivers analytical and operational execution at both the wholesale and retail levels. And all of that is designed, of course, to monetize unwanted or underperforming inventory and FF&E. So with that little intro out of the way, let's get it rolling. Ian, it's so great to have you back on the podcast.

Ian Fredericks:

Thanks so much, Steve. I'm super excited to be back and to talk to you about appliances and electronics. So thanks for having me.

Steve Katz:

Great. Thanks for joining us again. So big topic right now, lots of challenges for the industry. I know you guys are knee-deep in it with efforts on several fronts for clients. As I said, we're going to focus on electronics and appliances. Basically, I think it's safe to say any contractor, designer, consumer who's out there right now and try to get their hands on audio equipment, computers, cameras, kitchen, laundry appliances, things like that, has had a pretty bitter taste in their mouth as to what's going on. From what you guys are seeing, what are some of the biggest, most difficult challenges that those industries are facing and how should they be going about finding the right solutions?

Ian Fredericks:

It's a really interesting question. Unfortunately, they're facing a lot of the same issues that almost all sectors are facing. And it's not going to come as any surprise that one of the biggest challenges revolves around the supply chain. As most people know, the supply chain that existed prior to COVID and has been trying to work its way through has been a just-in-time process. And for clients and electronics retailers, manufacturers, wholesalers, things like that, the problems are probably worse than it is for apparel and some other sectors. Primarily around labor shortages, warehouse closures, semiconductor, and chip issues, anything that's electronic now pretty much requires some kind of semiconductor or chip, and you've driven by an auto dealer lately, you've probably noticed that those lots are empty. Unfortunately, cars are pretty much computers and appliances and electronics have largely come to that space as well. So from there, these manufacturers have been prioritizing their best clients.

Ian Fredericks:

So if you think about the Apples of the world and things like that, they obviously need semiconductors and chips for all of their devices and they also have tremendous buying power. And so they're being prioritized. So for the mid-market or smaller manufacturers of electronics or appliances, what you're running into are the big boys are basically capturing up all of the utilization that's out there, and then it's making it more difficult on you to run. But anything electronic, anything that's an appliance, they're basically mini computers. And the more that we want things connected to all of our devices so that we can operate anything from just the smartphone in your hand, or we want to be able to track things, that requires a different level of manufacturing that I think historic has been there. So in addition to all the challenges that everyone else is facing in the manufacturing process, the semiconductor and chip space is really I think, making the problem worse.

Steve Katz:

Yeah. So that's a great point. And it makes me think, as we see so much of what we live within our homes, a conglomeration of different devices, right? It's almost an endless need for things that talk to each other. And that probably, at least as I would think about it, is driving consumer demand for newer, better, faster, more connected stuff. But isn't that a problem right now? I mean, if manufacturers are having such a difficult time getting ahold of the chips and things, and people want the stuff that's more connected and the retailers can't get it on the shelves, what happens?

Ian Fredericks:

Yeah. Look, I think that that's definitely a challenge. But what I would tell you, and what you've probably seen, a lot of what you're seeing that's on shelves are the electronics or even the appliances that are not quite as sort of tech-heavy. So you're seeing more of the basic lines out there because those were able to get more of those out faster. And I think, sometimes I think we get a little bit caught up in the fact that something new has come out and we make the assumption that everybody's going to run out and get the newest thing. And there definitely are people who always want the newest, but I think what you've been seeing is that what companies have tried to do is put add-on products onto older devices so that people may be wanting to buy something ancillary to a device they already had.

Ian Fredericks:

And that way they're able to get something new, but at the same time, not necessarily upgrade to the newest product. Whether it's TVs or your washer and dryer or refrigerator, not everybody's running out to get the latest. Certainly, the people with the most disposable income probably are, but otherwise, I think people are just fine. The TVs in my own house, we haven't bought a new TV in probably four or five years. The technology on its face looks like it's changing a lot, but when you actually dig down into it, it really didn't change that much. And as the average consumer, are you really going to notice that difference when you actually think about it? I think most consumers are coming to the realization that no, I don't need the latest and greatest. And maybe the one that's not so intense is actually better for me. And the shelves are stocked, they're just not stocked with the most advanced technology that would otherwise be available.

Steve Katz:

So what are examples, when you talk about these add-ons, can you give us some examples of that?

Ian Fredericks:

Yeah. If you think about it with some of your smart devices, as an example, different kinds of, typically if a new phone comes out and think about it, that new phone is going to have a particular size metric. And then there are cases that are developed. There are camera add-ons that are developed, but they very quickly become obsolete if the next phone comes out with a different sizing or different features. So by keeping your older device, you're actually able to go and add on different kinds of bells and whistles for your camera, would be an example.

Ian Fredericks:

They're also, one of the things they're doing is they're selling more extended warranties. So I think, actually just went through this, I called my AT&T, which uses Asurion as their warranty provider because my son lost his phone. And when I called up to get the new phone, they were going to give me the new phone, but then they were like, hey, by the way, do you want to buy a warranty for your home computer or all the electronics in your house or things like that? So they're figuring out different ways to generate revenue that are just ancillary. And while they have the consumer's attention, they're pushing those products onto them.

Steve Katz:

Interesting. I've seen a lot of that too. And it's difficult to get some of, you talk about things like phone cases, you got a phone that's a couple of generations old, you try to find a new case for it. Good luck. Especially from the OEM, right? The interesting challenge at times. I think everybody thought by now everyone would be back in the office working and it doesn't seem to be happening. One of my daughters who's in the workforce essentially has been working from home, even though her company built out a brand new space and everybody's eager to go back. They just haven't pulled the trigger on it. So you've got everybody working from home and we've covered this from a couple of other topics, like home furnishings, where people had to buy desks and chairs and things like that. But what about, how does that play into either supply or the continued demand for things that are either electronics focused like computers or even microwaves and things like that that people need in their home offices.

Ian Fredericks:

By this time, I would've expected a lot of that demand to dwindle. I think it has been some demand that has dwindled to a certain extent as people started spending their disposable income on other types of consumer products. Today they found the first confirmed US case of the Omicron variant. And what is the impact that the Omicron variant is going to have, various plans? If you go back to the summertime, you had a situation where the Delta variant made certain companies push out their back-to-work requirements to the point where we are at now. And now again, you have it being pushed back out. So I don't know what impact that's going to have. I think, for the most part, people probably have all of the home office-related things that they need at this point. Probably the focus that you're seeing right now on the holidays is really the gift-giving thing and not so much what you need to sort of build out your home office if that answers the question.

Steve Katz:

I mean, that does make sense. You'd think by now people would have that. But I don't know, I was just wondering, I think if people expected to go back so maybe they really didn't fully equip their offices, but now they're kind of coming to the conclusion, I've been sitting here long enough, maybe I need the bigger monitor or the more powerful computer or something.

Ian Fredericks:

I could certainly see that, especially in the gift-giving context, where if that existed, people are giving gifts within the family to improve that home office experience. Especially if people have decided, and you've seen a lot of this in the labor force right now, where some people have just said, I'm only going to work from home. I mean, one of the biggest challenges facing all these manufacturers and retailers are labor shortages. And sometimes I just sit back and wonder, you didn't have this type of labor shortage before the pandemic. What has actually, where have all the employees gone? Some of it is people have exited the workforce altogether. Maybe they retired early or maybe they lost their childcare or their childcare became too expensive and so they decided to just work from home or exit the workforce because the cost-benefit no longer works. Going back to your question, I could see a situation where some people do get upgraded equipment as part of holiday gift-giving.

Steve Katz:

And would that, are there certain types of items, whether in appliances like refrigerators versus dishwashers or ranges versus something else that are tougher to get right now for some reason? Or is it pretty much universal, if it's got a chip in it, it's going to be tougher to get, or if it's new, it's going to be tougher to get? Or is any kind of category of appliance or electronics for that matter that's more difficult than others to get?

Ian Fredericks:

So the higher-end appliances are definitely much more difficult to get. And what I would say is the more chips and more electronic components you have, the more difficult it is to get that particular line. I was talking to somebody about dishwashers as an example, right? And if you go into a store, they might have 20 dishwashers on display, but you may only be able to get one or two of those dishwashers in a timely manner. If you want, you can order it. You might wait 12 to 14 weeks for it. But if you actually, most people, when they go to buy a dishwasher, they're either remodeling their home or their dishwasher broke and they need a new dishwasher. And so definitely the appliances that you rely on every day are going to be the ones that are going to be the most difficult to get.

Ian Fredericks:

And then depending on the brand name for the manufacturer, who has the purchasing power, and who are the clients that the manufacturers don't want to hurt? We've seen reports, for example, that Apple products are actually shortening what they had originally projected as the lead time if you bought one of their new products. So pay attention to the brand, this might be an instance where you actually end up buying a better, more well-known brand because that's the one that has the purchasing power and has been able to get their products into the stores. And you're seeing it with inflationary discussions. You're probably going to have to pay more to get what you want, but overall, you are able to get stuff. You just don't have the variety and selection that you once did.

Steve Katz:

Right. Interesting that you say that because my surround sound receiver died, which I had forever. I went to find a new one at a big retailer here in the Chicago area and there were literally probably 25 different surround sound receivers on the shelf. But the sales guy told me there's only three were available, only three that you could get with any kind of reasonable lead time. And they were all big-name items, less sort of specialty, and fairly expensive. So interesting. It's obviously playing out that way.

Ian Fredericks:

Able to find something.

Steve Katz:

Exactly.

Ian Fredericks:

Nothing worse than when the surround sound goes down. And I don't know how to get my TV to work things.

Steve Katz:

I know, I know, especially since I got a new TV, got to be able to play the movie. So I know, well, the retail group is involved in all sorts of efforts right now on behalf of a variety of clients. Maybe you can just give us a sense of the kinds of ways that you're helping retailers, manufacturers right now during this time. Or one of the things a lot of people are looking to right now is if shipments missed the deadline, they didn't get on the shelves, people are sitting on productive inventory, I know you guys can help with things like that. Maybe just give us a sense of how companies can plug you in.

Ian Fredericks:

Sure. It's been interesting, consider our sort of core business was running some type of inventory sale event, whether that was a store closing or some type of short term promotional clearance sale, that segment of the business has been very slow this year as compared to last year, which was probably one of the busiest years and it was all condensed into about six or seven month period once things reopened. We've had to get pretty creative in the ways that we support our clients. Some clients reached out and they needed sort of temporary labor solutions. And over the last several years, this has been a focus for us, and trying to help clients with that. And we brand it Career Flex. And with our Career Flex team, we basically created what we call retail SWAT teams to go in and provide any kind of support needed to a retailer in the store.

Ian Fredericks:

So we've got some clients where they're like, look, we had too much inbound freight arrive all at once and our store teams are understaffed because of labor shortages, we can't possibly service the customer and at the same time unpack and get this new, fresh inventory out to the floor. So we've had a series of teams go in and basically just focus on whatever the retailer needs. So the store management team tells us what they want done and we execute for them so they can focus on the consumer. And it's proven really successful. One of our clients was able to really have a tremendous black Friday Thanksgiving holiday weekend because the stores had all of the fresh inventory out that the consumer would want and really were well set up for that period of time.

Ian Fredericks:

And then we were also there to help them recover after those busy days and get ready for the next day. So that's one of the areas we've been really trying to help. Been focused on some technology development to also help stores deal with some of these staffing challenges, where they can actually get visibility and more support from the corporate team and the corporate team can have more data and analytics to help influence decisions. So we've been just doing things to really try to support them in ways we probably haven't before but found ways to really embrace the current environment and make sure that our clients have the kind of success they were anticipating.

Steve Katz:

Yeah, that's terrific. And how quickly can those SWAT teams be deployed? Like a pretty quick turnaround?

Ian Fredericks:

Yeah. I'm glad you asked. Actually, we've been able to deploy them between 48 and 72 hours. So they can go really quickly. And we give the retailer a lot of flexibility in terms of either ending it quickly or transitioning to a different store. So I would say we're making changes, not necessarily on a daily basis, but with some of our retailers, as we solve the problem in one store, they're coming to us and saying, all right, we now need you to move over to this store. So the program's designed to give them maximum flexibility and we have no clear mandate on what we need to do. We go to the store, we support the store team.

Steve Katz:

That's terrific. Okay. I guess we're running out of time here. Seemed to go quickly, so much good info. But anything else we didn't touch on that you want to convey to the audience?

Ian Fredericks:

Look, I would say the most important thing for anybody who's listening to this, whether you're a consumer who is out in the market trying to buy things, or you're a lender, a retailer, or a wholesaler, there are going to be a lot of things that happen over this holiday season that you may not have expected, or you haven't seen before, or are going to be completely different than last year. We all like to think we have a plan for this, with this newest Omicron variant, there's a lot of different ways this pandemic could shift on us. So the most important thing is to stay nimble and where you need help or resources or things like that, don't be afraid to pick up the phone and give us a call. We're happy to talk through things. We see a lot of different challenges that a lot of different clients face.

Ian Fredericks:

And so we may have a solution that we've already developed and we may not, but we're here as a resource for you. We're happy to have a conversation and there's no commitment needed to do that, but we're here to support healthy or more stressed retailers, doesn't matter. We can craft a solution to try to solve your problem. We can do it quickly. One of the things, I meant to probably say this earlier and we're working on it is, we expect there's going to be some inventory that arrives after the holidays and so miss that selling window. We're here to buy that up and we can store it. We can process it in our 3PLs and then we can monetize it later when it's seasonally appropriate again. So regardless of what challenge you're having, feel free to reach out to myself or anybody on our team and we're happy to bounce ideas off you and try to be helpful in any way we can.

Steve Katz:

And you guys have capital on hand to do that. You don't necessarily need to turn around and sell? You guys can actually buy it outright?

Ian Fredericks:

Correct. We have plenty of capital. We've actually been using that capital in several different ways. In addition to buying inventory, we have a lending business where we've been supporting retailers and consumer goods companies as well. Whether that's with sort of a short-term bridge loan or something longer term, provide them with the capital they need for growth so we can manufacture any kind of solution. Our goal is to come up with a solution that fits for you. We have a lot of different creative solutions we've done over the years and we're always willing to adapt and come up with something new to support our clients. This isn't a cookie-cutter, come in and pick out what you need and that's all we can do. Any way we can be helpful, we're here.

Steve Katz:

Fantastic. Well, Ian, it was great to have you on again, such good information. Why don't you tell the listeners how they can get ahold of you? What's your best email for contact?

Ian Fredericks:

Sure, my Best email is ifredericks@Hilcoglobal.com. That's I-F-R-E-D-E-R-I-C-K-S at Hilcoglobal.com. And then I'm always reachable on my mobile as well, which is 847-687-9375.

Steve Katz:

Okay, perfect. Yeah, I think you have someone wants to reach out just for a point of view, a little perspective on what they've got going on. Sounds like you guys would always be willing to take a listen on that and advise as needed, right?

Ian Fredericks:

Definitely.

Steve Katz:

Okay. Awesome.

Ian Fredericks:

Well said.

Steve Katz:

Listeners, we hope that today's Hilco Global Smarter Perspective podcast provided you with at least one key takeaway that you can put to good use in your business or share with a colleague or client to make them much more successful moving forward. Until next time, for Hilco Global, I'm Steve Katz