Phone cos clash with retailers – Crypto News

A weak economy and limited innovation have driven up inventories. According to International Data Corp. (IDC), smartphone shipments fell 10% in the September quarter, typically the strongest for phone makers. The final quarterly numbers for December are yet to be announced.

A Delhi-based electronics retailer said margins have been halved. “Until early 2022, the offline smartphone market was surviving on strong retailer margins that two brands in particular — Oppo and Vivo — so far offered. Their margins were of the order of 10-15%, depending on the category of the device being sold. Over the past six-odd months, this margin has declined to a near-flat rate of 5% irrespective of which category of phone we are selling,” the retailer said on condition of anonymity.

Brands are also urging offline stores to offer cashbacks and discounts of 500-2,000 per device offered by online platforms and large multi-brand retail chains. “However, brands have significantly delayed the discount subsidy payout schedule, and now take over two months to pay a retailer back the discounts. On top of that, the discounts further deduct an 18% input credit of goods and service taxes (GST) before paying us the subsidies, leaving us with less cash in hand,” the retailer added.

To be sure, the deducted GST input credit can be claimed by a business while filing annual tax returns but paying the amount upfront reduces the cash that a business would have in hand.

Nitin Bangia, general secretary of industry body All India Mobile Retailers’ Association (Aimra), said small and mid-sized offline smartphone retailers have seen Xiaomi halve their margins in the past six months.

However, a Xiaomi spokesperson denied that the company has reduced margins for offline retailers. Queries emailed to Samsung, Oppo and Vivo remained unanswered till press time.

“For instance, take the Redmi 11 Prime 5G that was launched on September 6, which is Xiaomi’s most affordable 5G phone right now. In the offline market, the smartphone is sold at 13,000, the same price as it is online ( 12,999) right now. While Xiaomi previously offered a flat margin of 5% on its phones, such a device is today offered to offline retailers at a margin of 3%. The same also applies for the Redmi 10A Sport — a popular budget smartphone that costs 11,000 offline, but 10,499 online,” Bangia said.

In an emailed response, a Xiaomi spokesperson wrote: “We have recently increased margins for a majority of our models for all our offline partners. For every new launch, we ensure the same-day availability of our devices across channels. Our recently launched Redmi Note 12 5G series was made available offline and online on the same day and has received a great response, especially in the offline retail space.”

A leading retailer in Mumbai said Samsung has dropped the margins of its sub- 20,000 Galaxy M and Galaxy F series smartphones to between 3-4%, depending on retailers. “This strategy is largely to ensure that these phones are mostly sold online, since they cannot officially sell them through online retailers only. At a margin of 3%, it is nearly impossible for an offline retailer to offer users discounts and deals, absorb the 2% merchant rate levied on credit card transactions, and still earn a profit,” the retailer said.

Retailers in Delhi also concurred, stating that the Galaxy M50, for instance, currently sells in the offline market at a retailer margin of 2.5% — down from 4.5% over the past six months. The Mumbai-based retailer said that Samsung pays a flat margin of 6% for all of its devices apart from the Galaxy M and F series phones.

“Previously, margins on Samsung devices could extend to above 10%, depending on sales targets that would get incrementally higher as a retailer sold more phones. Over the past one year, to decrease payouts amid falling demand, Samsung has removed sales targets and set a flat margin” they said.

Retailers may have to give in eventually though.

“Users are not buying new phones, and the 5G rollout has not managed to rejuvenate the smartphone industry as of now. As a result, retailers will look to take on different measures in a bid to clear out existing inventories — which stand at all-time highs of over 10 weeks right now,” said Prachir Singh, senior research analyst at market research firm Counterpoint India. told Mint on January 6.