New Delhi : Phone brands and retailers are at loggerheads over mounting stocks of unsold smartphones, with the former insisting that vendors clear the stock with discounts for upcoming products, while the latter fear the move will hurt their already low margins.
A weak economy and limited innovation have increased inventories. Smartphone shipments declined 10% in the September quarter, usually the strongest for phone makers, according to International Data Corp (IDC). Final quarterly numbers for December are yet to be announced.
Margins have halved, said a Delhi-based electronics retailer. “Until early 2022, the offline smartphone market was surviving on the strong retailer margins that two brands in particular – Oppo and Vivo – had offered so far. Their margins were of the order of 10-15% depending on the category of device being sold. In the last six-months, this margin has come down to a near-flat rate of 5%, irrespective of the category of phones we are selling, said the retailer on condition of anonymity.
Brands are also urging offline stores to offer cashback and discounts 500-2,000 per device offered by online platforms and large multi-brand retail chains. “However, the brands have significantly delayed the discount subsidy payment programme, and now it takes more than two months to pay the discount to the retailer. On top of that, the rebate entitles us to deduct 18% input credit of Goods and Services Tax (GST) before paying the subsidy, which leaves us with less cash in hand,” said the retailer.
To be sure, the GST input credit deducted can be claimed by a business while filing the annual tax return, but paying the amount in advance reduces the cash with the business.
Nitin Bangia, secretary general of industry body All India Mobile Retailers Association (AMIRA), said small and medium-sized offline smartphone retailers have seen Xiaomi halve their margins in the last six months.
However, a Xiaomi spokesperson denied that the company has reduced margins for offline retailers. Emailed queries to Samsung, Oppo and Vivo remained unanswered till press time.
“For example, take the Redmi 11 Prime 5G launched on September 6, which is Xiaomi’s most affordable 5G phone right now. Smartphone sales in offline market 13,000, the same price as online ( 12,999) now. While Xiaomi earlier offered a flat margin of 5% on its phones, today such devices are offered to offline retailers at a margin of 3%. The same applies for the Redmi 10A Sport – a popular budget smartphone priced at Rs. 11,000 offline, but 10,499 online,” said Bangia.
In response to an email, a Xiaomi spokesperson wrote: “We have recently increased margins for most of our models across all our offline partners. For every new launch, we ensure same day availability of our equipment across all channels. Our recently launched Redmi Note 12 5G series was made available offline and online on the same day and has received an overwhelming response, especially in the offline retail space.”
A leading retailer in Mumbai said that Samsung has slashed its sub-margins. 20,000 Galaxy M and Galaxy F series smartphones between 3-4% depending on the retailer. “This strategy is largely to ensure that these phones are sold mostly online, as they cannot officially sell them only through online retailers. At a margin of 3%, users for an offline retailer It is nearly impossible to offer discounts and deals, absorb the 2% merchant rate charged on credit card transactions and still make a profit,” the retailer said.
Retailers in Delhi also agreed, stating that the Galaxy M50, for example, currently sells in the offline market at a retailer margin of 2.5% – down from 4.5% in the past six months. The Mumbai-based retailer said that Samsung offers a flat margin of 6% for all their devices except for Galaxy M and F series phones.
“Previously, margins on Samsung devices could exceed 10% based on sales targets, which would become incrementally higher as the retailer sold more phones. Over the past year, Samsung has dropped sales targets and set a flat margin to reduce payouts amid falling demand,” he said.
Although retailers may eventually have to give in.
“Users are not buying new phones, and the 5G rollout has not yet managed to rejuvenate the smartphone industry. As a result, retailers will take different measures to liquidate existing inventory – which is at the highest level in over 10 weeks right now,” Prachir Singh, senior research analyst at market research firm Counterpoint India, told Mint on January 6. .
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