India recently overtook the US to become the second largest smartphone market in the world, second only to China. The overall growth in smartphone usage, along with evolving market dynamics such as increasing affordability, shorter upgrade cycle and higher aspirations, has led to a greater uptake of “refurbished” smartphones. While many customers still believe that refurbished products are used or damaged, in reality, the products may just be a case of a broken seal or an opened box, which makes them ineligible to be sold as new. The refurbished market also covers factory seconds, returned phones from retailers and e-commerce companies, second-hand and repaired phones. These phones provide value to those customers who want a premium experience without paying the full price. As per Deloitte estimates, the refurbished smartphone market will grow at a compound annual growth rate of 32 per cent and generate revenue of $4 billion with a total of 46 million units in 2020.
Towards an organised marketplace
The refurbished smartphone market in India has largely been dominated by grey market players and online classified sites. Under such models, the buyer and the seller are required to meet in person in order to complete the transaction. OLX and Quikr were among the first players to enter this space. The scenario has changed in recent years with the entry of organised players, which provide warranty, repairs with genuine parts and after-sales services. Big e-commerce companies such as Flipkart, Amazon and Shopclues see the refurbished smartphone segment as a potential growth area. Various recommerce companies are also working to build trust in the second-hand market. The business model of such players is vastly different from that of online classified sites, and offers better margins to sellers, and better prices to buyers as compared to new smartphones. While brand new mobile phones may provide a 5 per cent margin, refurbished models sell at a margin close to 10 per cent and sometimes even higher.
In 2017, Amazon threw its hat in the ring with the launch of the certified refurbished category, which has already become a rapidly growing segment for the company. Amazon sold as many certified refurbished products in the first three months of 2018 as it did in the first nine months since the launch of the new category.
Shopclues is yet another e-commerce player that has been selling refurbished mobile phones ranging from inexpensive feature phones to the latest smartphones on its platform. All devices sold on the platform undergo a 7-level quality check by industry experts. Shopclues offers ease of return and replacement. Customers can place a request up to 10 days from the date of placing the order.
In August 2018, Flipkart entered the fray with the launch of its online selling platform, 2GUD. The platform will initially feature refurbished smartphones, laptops and accessories and later expand to other categories. The products featured on the platform undergo thorough testing and come with certified warranty. Flipkart also provides after-sales services via an extensive network of service centres across the country. It also ensures ease of payment and logistics as the seller need not meet with the buyer as in the case of other consumer-to-consumer platforms.
Apart from these large e-commerce companies, several smaller startups and re-commerce players have undertaken the task of selling and buying second-hand phones. Such players have also partnered with third-party warranty providers to offer after-sales service to customers. For instance, Togofogo has partnered with Warranty Bazaar to offer 12 months warranty on its phones. Meanwhile, Cashify undertakes the purchase of used smartphones from consumers. The process is hassle-free and seamless, where users only need to place a request for pick-up and once the device is collected, the user receives instant payment. Top electronics distributors such as Ingram Micro and Redington have also shown a keen interest in the market.
While the refurbished smartphone segment is becoming more attractive to sellers and users alike, it is also facing a number of challenges. The biggest challenge is excess and redundant inventory that blocks capital. Companies are usually able to sell the majority of the inventory, but fail to offload the bottom lot. In most cases, if a device remains unsold in the first six months, it is most likely to result in a loss for the company. A number of online platforms including Overcart and Surpluss have had to stop selling refurbished phones due to this factor.
Pricing is yet another hurdle since customers expect heavy discounts on second-hand products. This becomes difficult after factoring in refurbishment costs and the profit margin. Another challenge is the lack of trust in used mobile phones from smaller platforms. While the entry of larger e-commerce players is helping build trust in the second-hand market, the segment still suffers due to trust issues. Offering warranty on devices is not enough, and sellers need to ensure that the process is customer friendly and seamless.
The refurbished market is still at a nascent stage as around 72 per cent of the devices sold in the country do not make it to the refurbished market. This also implies a huge opportunity for the segment. Going forward, the refurbished goods market is expected to witness significant growth as a large number of first-time mobile phone users come onboard. Several feature phone users are migrating to smartphones, many of whom may opt for refurbished devices. Moreover, the shift in consumption trends in the electronics market such as shorter upgrade cycles and the desire to buy the latest and the best phone without having to pay a premium will contribute to market growth. Offerings such as after-sales services and warranty are making the market more transparent and helping overcome the stigma and trust issues associated with used and second-hand products. That said, more innovative business strategies for inventory acquisition and offloading will be needed along with attractive pricing mechanisms to increase the appeal of such devices across the country.