The microchip shortage is not going away soon, and it's affecting way more than cars
COLUMBUS, Ohio — Matthew McClellan has one piece of advice for anyone planning to buy a video game console for the holidays.
“Buy now,” he said from inside his store Forever Games.
The shop owner spoke from a table covered in fantasy images, surrounded by shelves stocked with board games, trading cards and video games. But the store is light on consoles, particularly the newest ones, which sell almost as fast as McClellan can restock them.
Once the holidays arrive, “you’re going to see nothing on store shelves,” he said.
A shortage of microchips and semiconductors is to blame, caused by the same supply chain issues that have hampered industries across the economy and impeded a fragile economic recovery.
Much of the reporting on the shortage focuses on car companies and computer makers, but the problem is trickling down to some of the smallest businesses, too.
Microchips are so ubiquitous, most would be surprised by the amount of household items sold at mom-and-pop stores that contain them.
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“Printers and phones have the same problem, they all require chips,” said Jeff Taubman, who owns Downtown Computers in Downtown Columbus, which sells electronic devices and provides technical support to businesses.
The issue extends to home goods, said Robert Handfield, a professor of supply chain management at North Carolina State University.
“With the electrification of everything today, good gosh, we’ve got chips in our refrigerators and thermostats,” he said.
Labor shortages and shutdowns, the same issues that have bedeviled industry since the pandemic began, are largely to blame for the shortage.
Factories that produce these key components were forced to close or work at limited capacity for months at the onset of COVID, and “increased demand for consumer electronics and automotive products caused a ripple effect throughout the entire supply chain,” said Paul Hong, a distinguished professor of supply chain management at the University of Toledo.
Adding to the stress on the supply chain, manufacturers don’t want to build new factories or increase production at existing ones, worrying that they’ll incur debt and unsold product once the supply chain returns to normal.
“The industry is always hesitant to add capacity,” Handfield said. “It’s expensive. And if you don’t utilize it, it just sits there.”
That means consumers and entrepreneurs shouldn’t expect the problem to go away.
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“You’re most likely going to see continued out-of-stocks through at least the end of quarter two of 2022,” said Michael Levin, a professor of marketing at Otterbein.
During any supply chain shortage, the smallest companies are typically the first to lose out, Hong said. Manufacturers favor large corporations that submit the most profitable orders.
The newest trucks are equipped with advanced computers that require microchips, and to add insult to injury, the used car market is in disarray as consumers flock to used vehicles when new ones are unavailable.
Business owners “are now probably finding it extremely difficult to buy a vehicle, and it’s going to cost you more than it did previously,” said Luke Pittaway, a professor of entrepreneurship at Ohio University.
Video game merchants say requests for consoles and video games skyrocketed when coronavirus first struck Ohio and sales of those items remain above average.
“People want stuff they can do at home since we can't do a lot of the different things that are entertaining outside of home,” said Chris Sebastian, who co-owns Play It! Games, which has three Columbus locations.
The difference now is that some newer generation video game consoles are harder to come by because manufacturers aren’t making as many of them.
“We've had access to some of them,” Sebastian said. “But we had to pay a higher price and the demand is much, much, much greater than the supply right now.”
Most video game merchants sell other items like trading cards and board games, so the console shortage likely won’t drive them out of business, but the extra sales would be nice to have, Sebastian said.
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“We're seeing record sales,” Sebastian said. “But it would be great if we could get the most recent consoles.”
Small businesses have few options in the face of the shortage. Most resort to helping customers find the second best option when the first is unavailable.
This is difficult for Taubman, whose customers have highly specific needs.
“You run into issues where you will go to a company and they are going to change their software and the software requires faster computers,” he said.
All of those computers need to be the same model to ensure uniformity within the company, he said, but Downtown Computers might not have the right model, or doesn't have enough to suit the customer's needs.
Taubman said his clients are loyal, but he acknowledged that he lost some business when longtime patrons couldn’t wait and had to go elsewhere.
Those who are able to stock in-demand goods have to charge higher prices for them. Those extra costs are passed to customers, experts say.
“This is pure economics,” Handfield said. “If demand is greater than supply, the prices go up.”
And when needed items are out of stock, business owners lose out on the revenue they need to make up for pandemic-era losses, he said.
Follow Patrick Cooley on Twitter: @PatrickACooley.
A look at how the microchip shortage is affecting Columbus small businesses.