Manufacturers Are Favoring Up-Scale Models as Widespread Shipping Delays and Labor Shortages Cut Into Profits

By Nathalie Voit

In a bid to make up for lost profitability, appliance makers are prioritizing higher-end models at the expense of lower-priced, low-margin ones.

The industry-wide decision to shift resources towards the production and distribution of upscale products is a direct response to the global supply-chain crisis that has inflated labor, shipping, and manufacturing costs. Manufacturers from the gardening industry to the home goods industry have to decide which products to prioritize due to low inventory.

“A combination of inflation and scarcity is pushing manufacturers toward higher-priced goods,” noted David Garfield, head of the consumer-products division at consulting firm AlixPartners. “If a manufacturer can’t get enough parts to make all the product they’d like, they may make more of a premium product to protect their profitability.”

Whirlpool Corp., the manufacturer of KitchenAid mixers and washing machines, said in July it would prioritize higher-end models to make up for soaring costs. Manufacturers from other industries are similarly directing scarce parts to their most high-end models, according to the Wall Street Journal. General Motors, for instance, altogether halted production of the Chevrolet Malibu midsize sedan for six months to funnel resources and limited components towards its most expensive SUVs.

The U.S. car industry has been particularly affected by supply-chain bottlenecks. Last spring, a two-month closure of car factories to help combat the spread of Covid-19 paused production, followed most recently by a global computer-chip shortage that has left auto dealers running out of inventory. To recoup costs, manufacturers have passed on the cost to consumers, in addition to sifting product assortment and “imposing purchase limits on retailers,” the WSJ reported.

Average transaction prices for a new vehicle in September, for example, peaked at $42,802, a record 19% higher than last year, according to research company J.D. Power.

Similarly, television prices have gone up. For the first time in the 25-year history of the Consumer Price Index (CPI) for TVs, TV prices increased by 8% compared to June of last year. LCD TV panels rose an average of 102% from June of 2020, data from the Bureau of Labor Statistics (BLS) reveals. TV prices typically decrease year after year.

The news comes amid the historically high levels of inflation that have hit consumers in 2021. In August, the BLS CPI Index for all goods rose 5.3% from a year before as pandemic-driven supply and labor shortages continued to bloat prices.

“If we only have so much of this or so much of that, we want to make sure components are allocated to the most popular lines or the lines that are most strategic for us,” said Group Vice President of Construction at the Toro Company Rick Rodier. “Let’s make sure we are building the right stuff at the right time.”