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Retail Remix: Smartphone companies complement online growth with offline sales

June 25, 2018

E-commerce has changed the approach to shopping, disrupting the traditional brick-and-mortar business in India. In a relatively short span of time, the country has rapidly taken to online shopping due to which a significant portion of business is taking place on e-commerce platforms. According to Morgan Stanley, India’s e-commerce market is estimated to grow at a compound annual growth rate of 30 per cent with gross merchandise value of around $200 billion by 2026.

 

Owing to its immense growth potential, e-commerce has found favour with smartphone companies, which have been moving to online platforms as part of their sales strategies to catapult sales. Online sales account for a significant share of the total smartphone sales. With e-commerce platforms, companies do not have to worry about distribution and associated costs. This allows them to solely focus on the product and deliver good quality devices at lower costs.

Online-offline mix

A number of smartphone manufacturers have traced their growth trajectory primarily on online channels of distribution. Online retail has seen the revival of Motorola and the ascension of Xiaomi to capture the largest share in the Indian smartphone market, in a relatively short span of three years. Nearly 100 smartphone brands were launched exclusively through online platforms during 2017. On the other hand, a number of players such as Samsung, Oppo, Vivo and Micromax had entered the offline retail space early in the race. These companies have been able to reach the smallest of towns and villages and attribute much of their success to offline selling.

However, while online selling has satisfied the needs of these companies so far, it accounts for approximately one-third of the total smartphone sales in the country. Although this figure is amongst the highest across the globe, a larger portion of smartphones is still sold offline. Online selling puts limitations on companies in terms of the people they can reach and the volume of products they can float. Further, online sales have reached a ceiling of sorts, another reason to worry for companies that are purely sticking to online channels of distribution.

Therefore, smartphone companies are aggressively expanding their offline presence. Motorola and Xiaomi, which were once pure play online companies, are now moving to offline retail as their next growth avenue. The fact that more than two-thirds of smartphones are sold offline makes a strong case for companies to expedite expansion of their offline networks.

Moreover, there is a demographic divide between the people who prefer purchasing phones online versus those that buy offline. While millennials and tech savvy individuals opt for bundled offers and lower prices of online channels, a clear majority of consumers prefer going to brick and mortar stores, regardless of the premium they may have to pay.

An added benefit of selling offline is that companies can demonstrate special features in terms of durability, which is not possible on online platforms. For instance, Motorola has launched phones with a unique feature of shatter-proof screen. The company can demonstrate its durability in stores by conducting drop tests and durability tests to use that as an ultimate selling point for customers to purchase the phone.

Retail strategies of handset players

Motorola

Approximately two-thirds of Motorola’s sales are online. Going forward, the company aims to equalise the share of sales from both online and offline channels of distribution. To this end, Motorola has been aggressively expanding its offline retail network with the launch of “Moto Hubs”, which are dedicated spaces displaying the company’s product portfolio in multi-brand mobile phone showrooms. The company has also been creating stand-alone outlets across select malls in cities.

According to Motorola, the majority of consumers want to touch, feel and experience the product before making a purchase. The company has signed partnerships with Big C and Lot Mobiles, which together have 325 stores in Andhra Pradesh and Telangana. For Tamil Nadu and Karnataka, it has tied up with Poorvika, which has a base of about 250 stores.

Going forward, Motorola aims to partner with more retail chains and establish 1,000 Moto Hubs across the country. So far, Motorola has opened 50 Moto Hubs in Uttar Pradesh (West), 100 across Tamil Nadu and 100 in Karnataka. The company has also announced that it will establish 60 Moto Hubs in Madhya Pradesh, 50 in Mumbai and 25 in Kolkata. Further, the number of stand-alone formats at malls would be taken to 50 across eight major cities.

Xiaomi

Approximately 80 per cent of the company’s sales come from the online platform. However, the share has decreased from about 95 per cent in less than a year. In June 2017, Xiaomi announced its plans to strengthen its offline presence by opening a chain of exclusive offline retail stores called “Mi Homes” across the country. It has come a long way since then and currently operates 36 Mi Home stores across the country. In order to further expand its offline network, Xiaomi aims to open 100 Mi Home stores in cities including Delhi, Hyderabad, Chandigarh, Mumbai and Jaipur in 2018.

Apart from exclusive Mi Home stores, the company’s offline network comprises “preferred partner stores”. Xiaomi has partnered with offline retail giants such as Croma, Vijay Sales and Sangeetha. Betting big on offline retail, Xiaomi will offer products at the same price at its offline retail stores as that on online channels.

OnePlus

Chinese smartphone manufacturer, OnePlus, began with a purely online sales campaign and was able to acquire a 48 per cent share in the premium phone segment (phones priced above Rs 30,000) during the quarter ended December 2017, beating the likes of Samsung and Apple. Although online channels of distribution have served it well, the company has changed its course to embrace offline distribution as part of a two-pronged sales strategy.

In September 2017, the company partnered with Croma to bolster its offline presence and provide an easy access to customers who preferred offline purchasing. It is planning to expand its presence in the Croma retail stores from 20 stores at present to 100 stores across different cities in the country. In a unique venture, the company opened its first “experience store” in January 2017 in Bengaluru. These stores allow customers to experience the device before purchasing it online. In January 2018, OnePlus announced the launch of its first “OnePlus Authorised Store” in Mumbai, where customers can purchase devices and accessories. With the successful launch of its first offline retail store, the company is now looking to open retail stores across 10 cities in the country.

High competition in the offline space

While many smartphone companies have recently forayed into the offline retail space, a few companies had made early investments in the space and cemented their offline presence. Dominant offline players such as Samsung, Oppo and Vivo have large retail budgets and have been able to grow their presence in the smallest of towns across the country. These players have an upper hand when it comes to offline retail and taking a piece of the market from them will be a daunting task.

This will also lead to intense competition in the market. For instance, in September 2017, Samsung was displeased with two leading retail chains promoting Xiaomi’s smartphones through store-front signages and in-store branding, and therefore stopped supplying handsets to them for almost two months. As a result, several disgruntled retail stores teamed up to take Samsung to the Competition Commission of India. Their contention was that Samsung and its distributors were not allowing them to do business with other brands.

The way forward

Players that have purely focused on online selling so far, are now making attempts to enter the offline retail space. This will allow them to capitalise on the untapped offline potential and augment revenues. Having built a reputation for high quality and competitively priced devices, these companies can expect high offline sales, driven partly by the sheer size of the population buying devices offline.

Aditya Kumar

 
 

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