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Deficit, underdelivery, price growth — the top manager of Citylink shared the forecast for the beginning of 2021
The situation in the computer market this year is very different from the usual. At first, the coronavirus pandemic and the resulting consequences in the form of production stops, disruption of supply chains and changes in the structure of demand had a great impact on what was happening. Then all this grew into a serious shortage of components, consoles and laptops. To understand the situation, we talked with Oleg Pchelnikov, the procurement director of Citylink.
Although Oleg came to work at Citylink only in February of this year, he has vast experience in computer retail. His track record includes many years of work as a purchasing director at Ultra, as well as a long-term procurement management in the Yulmart group of companies. In other words, Oleg Pchelnikov is just that expert who should be able to explain where the observed deficit came from, what is the situation with supplies now, and what buyers should expect in the coming months.
— Please tell us how you assess what is happening on the computer market this year. What makes 2021 unique?
— The PC market fell for a long time, but the situation with the covid gave it a noticeable positive impetus. There have been tectonic changes in the market of laptops, computers, monoblocks and computer components. Because people have to work from home, the perception of home computers and laptops has changed a lot. In recent years, the need to own a computer has significantly decreased, and even more so the need to update it (except for the gaming segment). Most users were quite able to get by with systems five or seven years ago. But now people have had to work fully from home, and this has led to the fact that the requirements for home systems have increased dramatically. Many did without a home PC altogether, being content with smartphones and tablets, but this year they still needed devices of a fundamentally different level. As a result, a fairly large audience had to buy new computers and laptops.
The growth in demand for computers and components is associated not only with working from home. The demand for gaming-grade systems has also increased. Firstly, many are simply bored sitting in quarantine, and games are an excellent and affordable leisure time in any situation. Secondly, for those who switched to a remote location, games became an opportunity to distract themselves, switch to something else in the pauses in the workflow. In other words, people stuck at home often updated their systems in such a way as to get not just a working PC, but a universal system that is also applicable for games.
— Can you illustrate how serious these changes are? Did computer retail feel some kind of reversal in the interests of buyers??
— Everything is perfectly visible on the change in demand. For example, at Citylink, sales of gaming hardware have grown 2-2.5 times this year. In terms of the market, this growth is slightly lower, but it is still very noticeable. For laptops, there is also a huge increase in sales this year, and it is also more than doubled.
There are, of course, funny moments associated with the changes that have taken place. For example, when quarantine began, we saw a massive surge in webcam sales. Believe it or not, we sold 10 times more webcams this year in some months than a year ago. It seemed that this is generally a dying category of devices, but with the transition to work from home, many needed more or less high-quality webcams.
And it should be noted separately that the events of this year have greatly helped the growth of online trading. At the moment when offline trade was quarantined, the share of Citylink in the entire consumer electronics market increased from 5 to 9% largely due to the fact that online is our most important sales channel. But this, of course, did not happen automatically and by itself. Citylink made serious efforts: we expanded the geography of presence, optimized logistics, increased the number of warehouse stores where the buyer can immediately purchase the product of interest, improved delivery options, including urgent delivery of purchases.
— Another sign of the second half of 2021 is a serious shortage of components, laptops and consumer electronics in general. How serious is this problem on the scale of a large federal network??
— In reality, the deficit to one degree or another is observed not only in the electronics market. It affects in general everything that is not produced in the country. First, production chains have been disrupted due to covid, and production itself in Southeast Asia has declined this year. Secondly, at the end of the year, the United States began to prepare for the exit from the coronavirus crisis and significantly increased its orders. Since the American market is a key one for manufacturers, shipments to other countries naturally suffered.
In general, the situation with supplies is already difficult, but we need to mentally prepare for the fact that at the beginning of next year the deficit will only increase and affect almost the entire main assortment of consumer electronics. As an example, I can say that for some product categories, our orders are now satisfied only by 5-10%.
The scale of the disaster is illustrated by the situation in the laptop market. After a problematic fourth quarter in terms of supply, we expect an even greater deficit in the future. Judge for yourself: vendors confirmed only 30-40% of our orders for the first quarter. And ultimately, this means that at least one in two potential buyers will not be able to buy a new laptop.
But we at Citylink tried to prepare for the situation with a deficit as much as possible. We have set ourselves the goal of focusing on providing a wide range of products even in the face of underdelivery and increased demand, and have formed an extensive inventory. New video cards can be cited as an example. If we talk about the representatives of the GeForce RTX 3000 and Radeon RX 6000 series, now we have the widest selection among all Russian sellers. While our competitors have such video cards appearing and quickly disappearing, we have almost always had these video cards in stock for several weeks since the announcement.
— If the situation with shortages is so dramatic, then what will happen next with prices??
— Prices will inevitably rise. Actually, they are already growing. At the same time, the increase in prices is not only due to a shortage in our local market or because of the greed of our sellers. They are increased by the suppliers and manufacturers themselves.
Just because of such global trends, prices for equipment built using medium-format panels of 24-32 inches will be especially strong in the near future: TVs, monitors, monoblocks — everything that uses such panels will rise in price by tens of percent. And the situation on the Russian market will have nothing to do with it.
— What can you say about new generation video cards? Prices for them seem to be greatly inflated now, and besides, many believe that Citylink, taking advantage of the deficit, additionally «winds up» prices.
— You shouldn’t be like that, we have just the right prices. For example, the cheapest GeForce RTX 3070, for which the manufacturer announced a price of $ 500, are actually sold in the United States for $ 750 and more. And our cost of such models is around $ 700, that is, cheaper than in America. At the same time, even in Malaysia, where the prices for video cards are now the lowest, the same GeForce RTX 3070 will cost around $ 620, which is still far from the price originally called by the manufacturer. But the fact is that our prices are between America and Malaysia, that is, quite market prices.
There are, of course, stores that charge video cards lower than we do. But this is a marketing element. If you do not have availability, then the retail price can be called any. To shine in price aggregators with a very favorable price, it is enough to periodically throw out one or two video cards on sale at a low price, and that’s it. But in fact, no mass sales will work that way, and all this is just advertising.
We prioritize not low prices, but availability. Therefore, we, for example, buy video cards not only from our general distributor, «Merlion». We buy video cards all over the market, and the purchase prices from this turn out to be completely different. In fact, sometimes the price of a wholesale purchase turns out to be even higher than indicated in the price list of some retail stores that are not interested in constantly having video cards in stock.
It is important to understand that there is currently no fixed entry price set by the vendor for video cards. And due to a shortage in prices, wholesalers are completely confused. Our retail price is based on the average purchase price, which is very variable. And I can assure you that we do not make any extra charges when selling a scarce product.
In addition, none of the retailers who actually have these video cards in stock have lower prices for video cards. If you want to buy a scarce video card here and now — contact Citylink. We have both the best assortment and the most favorable prices, provided that it is not possible to pre-order, but to buy. And by the way, we have an automatic pricing system. Its essence is that the final price in stores depends not only on availability and demand, but is also adjusted in accordance with the prices of competitors, and it is configured in such a way that we simply cannot have overpriced and non-market prices.
— It turns out that in «Citylink» scarce video cards are available, and their prices are competitive. What are the volumes of sales?
At the moment, in total, we managed to purchase about 5 thousand video cards of the new GeForce RTX 3000 and Radeon RX 6000 series. Most of them have already been sold. But this is, of course, a drop in the ocean. For example, Citylink sells somewhere around 500 thousand video cards a year. That is, while new video cards from AMD and NVIDIA have formed about 1% of our sales this year (in quantitative terms). As a result, we estimate that the demand for new generation video cards now exceeds the supply of commercials by five times. Therefore, there is no need to be offended by the existing prices, they just provide a balance of supply and demand.
And we also need to keep in mind that in addition to demand from gamers, we also see an increase in demand for video cards from miners. Bitcoin is growing, mining has become profitable again, and miners naturally joined in the competition for video cards with players. But we are trying to deal with such «serial» buyers, which can be both miners and ordinary resellers. We sell those positions for which we do not have a full warehouse according to the passport — one piece per hand.
— It turns out that now is a completely unfortunate time to update your computer. But will the «wait» strategy work?? Will the prices for video cards go down, or maybe while it makes sense to update other components of the system, for which prices have not jumped so much?
— It all strongly depends on how urgent the issue of upgrading the PC is. It is almost guaranteed that everything will be more expensive in the first quarter. During the pre-New Year sales, stocks will be depleted, underdelivery will worsen, and a shortage of goods in warehouses will provoke an increase in prices. One would think that during the spring surges in sales, provoked by the introduction of quarantine, the market was saturated, but no. Now we are witnessing the traditional pre-New Year rush — sales are just excellent. So we will definitely not enter the new year with full warehouses.
If we talk about a longer period of time, then in order to save the budget with the purchase of new products, it makes sense to wait at least one or two quarters. In general, the principle that new trendy things become twice as cheap in a year has not gone away. The degradation of prices in normal conditions begins a quarter after the release. Therefore, from the video cards released in November, if we take into account the existing situation of serious underdelivery, one can quite expect a reduction in price somewhere in March, not earlier. But I’ll make a reservation again, in the first quarter, pricing will be heavily pressured by problems with availability.
It would be appropriate to touch upon the situation with AMD Zen 3 generation processors, which were very positively evaluated by the market. Just because they turned out to be so successful, the demand for them greatly outstrips supply on a global scale, so there is no need to expect any fundamental improvement in availability and prices either.
— But still, are there any positive trends in the computer market for ordinary buyers??
— To be honest, I don’t really have much to reassure buyers. Unfortunately, we do not expect any fundamental changes in supplies for the next quarter. Therefore, for now, everything will be about the same as now: limited assortment, periodic disappearance of certain models from sale, high prices, etc. P. Therefore, if you want to buy Ryzen 5000, GeForce RTX 3000 or Radeon RX 6000 during the winter, there is no point in waiting. In the first quarter, we already see for sure that the volume of goods that goes to our address is noticeably less than it would be necessary to meet demand.
This also applies to many other consumer electronics. Moreover, in terms of product categories, it is already quite clear that nothing good will happen not only in the first, but also in the second quarter. For example laptops. According to them, placing orders and planning deliveries takes place for a long time ahead, and already now we see that vendors will not be able to deliver the requested volumes of products not only in the first, but also in the second quarter of 2021.
The situation with the prices of memory can become an outlet. At least, with memory, much simpler logistics, and as a result, the global trend to reduce the cost should somehow manifest itself in the Russian market.