One week after Finance Minister Chrystia Freeland said she is concerned about the challenges facing global supply chains and how it would affect Canada, RSM, a leading global provider of audit, tax and consulting services focused on middle market businesses, released The Real Economy, Canada Fall 2021 report. The report revealed serious Canadian economic impacts resulting from the global health crisis. Naturally, there will be consequences for the advertising industry. We begin to explore them here.
Demand for supplies across virtually all goods in Canada and the rest of the world has been pent up during the extended lockdowns. As the world recovers from the Covid 19 pandemic and vaccines have become globally accessible, the supply chain is struggling to recover from several realities. While practically all goods are affected, one of the most pressing problems is the shortage of semiconductor chips which has damaged many sectors and is expected to last beyond 2022. This is the most critical shortage impacting manufacturing because it impacts all electronic products. The knock-on effect will have a significant impact on the automotive industry given its dependence on semiconductor chips with one US report suggesting that an estimated 7.7 million cars will not be produced this year because of the shortage.
Following are key highlights from the RMS report:
- Increased globalization and the resurgent coronavirus have created another supply crisis, with Canadian businesses scrambling to locate alternative resources with the ramp up to the critical holiday season.
- Disruptions due to port closures, factory shutdowns, product halts and labour shortages will likely delay return of full production until mid-2022.
- In addition, the property sector crisis in China, the showdown over the raising the debt ceiling in the United States, and disruptions to the global supply chain have all contributed to volatility in global financial conditions.
Canadian businesses will face higher international shipping costs and depleted inventories for foreseeable future
- Imports from China—Canada’s second biggest trading partner—dropped 30.9 per cent to $3.9 billion in July, from the record high of $5.6 billion in March.
- The average price to ship a container from Asia Pacific—which accounts for 68 per cent of all monthly shipping volume to North America–increased by 63 per cent in the March-July period, while the same cost from Europe increased by 79 per cent.
- Many Canadian businesses have been forced to look for alternative domestic suppliers that can compete in terms of pricing.
- The lack of options may provide the federal government with the incentive to address interprovincial trade barriers.
Shortages in the labour force will pose challenges for recovery
- Declining labour force participation rates and labour shortages will become a more acute problem over the next year.
- There was a significant increase in job vacancies this year, from 550,000 in the first quarter of 2021 to 730,000 in the second quarter.
- The positive impact of Quebec’s child-care program – especially on women labour participation rates – suggest that a national program would be in the best interests of the Trudeau government.
- Greater numbers of women in the labour force could help address worker shortage issues that are threatening the recovery.
Joe Bruselas, chief economist with RSM US LLP said “The global supply chain is already in a very fragile place and further disruption is going to delay the return of full production within the Canadian economy until the middle of 2022. This would create conditions for further price volatility, at least until hesitations over the delta variant eases and businesses should be prepared for prices to potentially increase further”. Brusuelas continues:
“Businesses should prepare for disruptions as they prepare for the critical holiday season. Finding alternative domestic suppliers and adopting dynamic pricing strategies will present firms embedded in the real economy with the best approaches to contend with rising prices and the shifting composition of supply and demand.”
IAB Canada has been discussing the issue with members to assess the impact on our industry. Heading into the holiday season, the supply chain crisis will have several implications for marketers in the coming weeks and months. Following are a few key considerations for advertisers as we weather the supply storm:
Move up holiday campaigns – many brands have been preparing for these issues and have managed to secure enough supply ahead of the busy holiday season. Shoppers are already beginning to panic shop, and this means that advertising campaigns can help assure buyers that the products are available now. For those retailers in strong positions, the situation poses a strong opportunity to win new customers at an important moment.
Dynamic creative – will become increasingly important to ensure that the ads are reflecting available stock. Retailers with sophisticated inventory systems are well served by connecting their real time stock to their corresponding ad content. For retailers facing shortages, it would be a great time to implement recommendation engines to offer customers the next best options to their original choices (alternate colours, models etc.).
Buy strategy – focusing investments on available stock will become increasingly important. Ensure that media spend reflects available inventories and develop a waitlist solution to capture future orders when supplies are recovered. Those retailers focusing heavily on ROAS may look to make some adjustments as conversions may be fulfilled at higher price points than are usual during this holiday season.
Pricing strategy – consumers are facing increased costs in their every day lives. While discount strategies are generally recommended as a short-term acquisition play, being sensitive to general buyer budget constraints for the months ahead would be wise. Another suggestion would be to focus on gift cards this season which could allow customers to wait until inventory levels return to normal.
Given the global scale of the crisis, we anticipate increased investment in digital channels due to the flexibility it offers advertisers. However, we may experience some shorter-term commitments and must be prepared for an agile approach to media executions. Uncertainty calls for added vigilance and we highly recommend working with your media agency to plan accordingly.
Finally, we may see an upswing in competitive bidding across certain categories online. Advertisers must consider a balanced approach to performance advertising and brand support during this challenging period. As learned during the health crisis, an always-on approach is favored as long as it conveys the appropriate message. The coming year will provide a great opportunity to develop teaser campaigns addressing the continued pent up demand energy from Canadian consumers.
If you are interested in participating in discussions about the supply chain crisis in Canada with the IAB Canada community, please reach out to firstname.lastname@example.org