This analyst opinion article suggests that despite strong US TV sales in May 2020, retailers are unclear about TV demand forecasts, amid struggling supply chains resuming production and economic uncertainties due to COVID-19.

Key findings

  • The failure to contain the spread of COVID-19 is triggering fears of a global recession in the second quarter of 2020 (2Q20).
  • There was a huge growth in TV sales in the US, particularly during the week of April 15, 2020 when the first stimulus checks were deposited, but retailers are still unable to forecast how the third (3Q20) and fourth quarter of 2020 (4Q20) will turn out.
  • TV sales growth has been slowing down since early May 2020, and retailers foresee the sales will fall in 3Q20 as some demand is pulled in and the rising unemployment or economic crash will change consumer spending patterns drastically as the economic reality starts to set in.
  • Retailers are currently planning the Black Friday 2020 promotions, but they are struggling with the prevention of COVID-19 as there will be millions of people rushing into stores for Thanksgiving shopping.
  • Considering the supply chain lead times, panel makers could be short of orders starting from the middle of 2Q20. Panel makers are offering a price concession to pull some panel demand into 2Q20 from 3Q20.

The overall scale and impact of COVID-19 is difficult to gauge, and virtually every global industry will be fighting for survival. The sudden halt in activity in 2Q20 has led to the largest ever contraction, and unemployment rates may jump into the mid-teens or higher over the coming months.

To alleviate the economic damage, more synchronized global fiscal stimulus and virus containment policies from governments across the globe will be necessary. However, it is unclear whether these efforts will be enough to repair global supply chains and resuscitate consumer demand and restore the global economy. Whether governments take dramatic enough steps to soften the economic blow is critical.

The failure to contain the spread of COVID-19 is triggering fears of a global recession in 2Q20

  • In mid-March 2020, the IMF indicated that the spread of COVID-19 would lead to a global recession in 2020 and that it could be worse than the one triggered by the global financial crisis of 2008–09, but world economic output should recover in 2021.
  • In early April 2020, Bloomberg Economics reported that its US recession model confirms a downturn with 100% certainty.
  • On April 14, 2020, IMF issued a stark warning that the COVID-19 outbreak would result in the world facing its worst downturn since the Great Depression during the 1930s, as shuttered factories, quarantines, and national lockdowns lead to a collapse of economic output. The new projection that the global economy will contract by 3% in 2020 is an extraordinary reversal from earlier this year when the IMF forecast that the world economy would outpace 2019 and grow by 3.3%. The IMF predicted that the global economy would expand by 5.8% in 2021, as economic activity normalizes. However, the risk that there will be an even more severe outcome is substantial.

There was a huge growth in TV sales in the US in March–April 2020, but retailers are unable to forecast how 3Q20 and 4Q20 will turn out

Key supply chain participants, particularly retailers in the US, have indicated that they are unable to provide guidance for the TV demand forecast for 3Q20 and 4Q20 as a result of the uncertainties surrounding the COVID-19 pandemic. The impact on consumer spending and business investment may be far more serious than they can imagine.     

  • The market views and attitudes of retailers are vital to every supply chain player. Retailers have said that their demand forecasts cannot keep pace with the ever-changing market environment during the COVID-19 pandemic, but most have gone from cautiously optimistic to being pessimistic about demand after 2Q20.
  • A US retail giant said that it would take about one and a half years or longer for the market to return to normal. This makes sense as producing a vaccine could take that long.
    • States are rushing to reopen businesses, but without a vaccine and far too little testing, there is quite likely going to be a strong resurgence in the virus that may cause a reclosure of states, which would surely be a shocking blow to consumer confidence.
  • However, according to retailers, TV sales in the US surged significantly for three weeks (from the third week of March 2020 to early April 2020), increasing by 50–70% year-over-year (YoY) on a unit basis. Moreover, there was a significant growth during the week of April 15, 2020 when the first stimulus checks of $1,200+ per household were electronically deposited. Many other typical monthly budget expenses have been drastically cut, like fuel, restaurants, coffee shops, movie theaters, etc. Therefore, some consumers who are still employed had a sharp increase in their bank accounts in March–April 2020.
    • Retailers in the US, particularly Walmart which continues to gain a larger share of the TV market, enjoyed an unexpected surge in sales. Regardless, they are worried, being especially concerned over supply chain disruptions. They know that the current strong buying is due to more people working from home and more frequent onsite shopping to quickly secure groceries, healthcare items, and devices for home entertainment amid the COVID-19 lockdowns, and they are aware that this surge will not last long. Consumers will eventually be pressured to spend money more cautiously in early 3Q20, when jobs will be cut or their wealth will be further reduced.
      • According to US retailers, the best-selling TV products have been the
        32-, 55-, 50-, 65-, and 40–43-inch models.
  • The recent TV sales increase does not look like a replacement cycle, but appears to be more of a surge in extra sets per household.
  • After the "unexpected" surge in TV sales in March–April 2020, retailers are presently short of the TV supply. Moving forward, considering the supply chain lead time and availability, they are not in any hurry to place rush orders. Instead, they have little intention of refilling their pipelines aggressively in the next couple of months as they are not optimistic about the demand outlook in 3Q20 and 420 unless there are more stimulus programs from the government.
    • In response to the US-China trade war disputes, many retailers in the US have made changes to their TV sourcing portfolio from China to Mexico, Vietnam, and other regions since the fourth quarter of 2019 (4Q19). However, the TV supply from the Mexican factory sites are still constrained by the COVID-19 pandemic and cannot meet the current demand on time. While there is plenty of TV supply from China, retailers are not willing to source from the country given that the tariff remains a remarkable cost item. 
  • TV sales growth has been slowing down since early May 2020, and retailers foresee the sales will fall in 3Q20 as some demand is pulled in and the rising unemployment or economic crash will change consumer spending patterns drastically as the economic reality starts to set in.
  • Despite the negative view of consumer demand in the second half of 2020 (2H20), retailers are just starting to develop sourcing plans for Black Friday, but they cannot offer clear guidance as to the demand for regular stock-keeping units (SKUs) in 2020.
    • Retailers are currently planning the Black Friday 2020 promotions, but they are struggling with the prevention of COVID-19 as there will be millions of people rushing into stores for Thanksgiving shopping. 
      • Retailers are expecting the price offers from TV makers for Black Friday to be more aggressive in May 2020 given that there is an increasing risk of panel price reductions in April 2020. In addition, market uncertainty and competition will make TV makers desperate to lock in some volumes for the promotional seasons. TV makers are expected to push panel makers to provide more price concessions in 2Q20, particularly for the larger sizes which are hot promotional items.
      • In the event that retailers cannot ensure a safe shopping environment for millions of consumers doing their Thanksgiving shopping, they may have to choose to play it safe for their promotional activities in 2020.    

Considering the supply chain lead times, panel makers could be short of orders starting from the middle of 2Q20

According to the recent update of the Omdia TV Display & OEM Market Tracker - Monthly - March 2020 (please refer to the link in the Further reading section of the Appendix for more details), the global TV makers including the top tier makers estimate that their shipments in April 2020 will be 25–40% below previous estimates. The demand outlook throughout the forecast period is also worrisome.

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To minimize the risk of a huge order cut in 2Q20, some panel makers are offering greater price concessions in May 2020 to the TV makers that have agreed to pull in some panel demand from 3Q20 to 2Q20. Panel makers are doing this to ensure these TV makers feel comfortable about the panel price negotiation and to eliminate the concerns of any potential panel supply disruption in 3Q20.  

  • This can be considered a win-win approach for both panel makers and TV makers as panel makers will be able to push out their TV panel shipments in 2Q20, which will keep their fab usage at a cost-efficient scale and capture business opportunities as long as overall costs can be managed below the selling prices. Meanwhile, TV makers also benefit as they are sure to receive the competitive panel supply resources in 2Q20 and 3Q20 to drive the TV shipments in 2H20.