Smartphones Retailers Are Hoping For A Redeeming Festive Season

A growth in sales volumes buoyed by festive discounts is expected for smartphone sales in India this year. Retailers are also hoping that the festive season pushes big sales volumes after a muted performance especially in the second quarter of the calendar year.

In India the festival season starting with Ganesh Chaturthi and ending with Diwali is a big season for all retailers including those selling smartphones. Gifting season coupled with heavy discounts often lead to higher sales.

Two e-commerce giants, Amazon and Flipkart are expected to hold their annual sales namely Amazon Great Indian Festival and Flipkart Big Billion like every year in October. But that’s not all. Before these, there are usually big sales events online and offline for Independence Day, Navratri and Dussehra.

According to Tarun Pathak, research director at Counterpoint Research, India’s smartphone shipments will reach 157 million units this year, surpassing last year’s 153 million units. “We are expecting 4-5% (growth) in terms of numbers,(that is) shipments. Value wise, it will be close to 8-9% as ASP is growing,” he said in an earlier interview with The Core.

The Union Budget 2024 tabled by finance minister Nirmala Sitharaman in the parliament last week proposed slashing customs duty on mobile phones, chargers, and printed circuit board assemblies (PCBAs) were reduced from 20% to 15%. However, analysts say that this won’t have an immediate impact this festive season.

“We may expect a price cut of 1-2% on average from this move, however, this depends on OEMs(original equipment manufacturers) if they want to pass this to end consumers. In the lower price segments, we may not see this as in these price segments, the margins are very low,” Shilpi Jain, senior analyst at Counterpoint Research told The Core. Jain also noted that savings could come for companies that are importing completely built units like Apple or new entrants who don’t have manufacturing set up yet.

Apple has announced a reduction in iPhone prices after the cut in customs duty ranging from Rs 300 for its base and non-pro models up to Rs 6,000 in high end Pro models.

Expectations from Festive Season

Canalys, a market analyst firm anticipates mid-single-digit growth in both the upcoming festive season and overall shipments this year, as a study by the market analyst firm showed that 44% consumers expect to purchase a device within the next 12 months with a majority being ‘upgrade-buyers’.

The upcoming festive season is also expected to see more movement in the premium segment and according to Jain, consumers who purchased their devices right after the pandemic year are expected to upgrade their devices. While replacement cycles of phones have reduced over time, tech upgrades like AI integrations are expected to bump up sales this festive season.

However, sales representatives say that AI as a feature is not being sought after as much by consumers and is something that they need to push consumers for. “They don’t know how to use AI features and how they work yet, we have to pitch it to them but it does help in converting sales,” a sales representative told The Core requesting anonymity.

Pre-Festive Clearance

To make space for stock as the festive season approaches, retailers are holding pre-festive offers and clearance sales. A manager at a Croma store in Mumbai told The Core that these sales are meant to move the hard to sell pieces and clear inventory. However, the benefits are not being offered as upfront discounts.

“The discounts are being offered to clear inventory, but they are less in the form of price cuts and more on the lines of cashback and finance schemes,” Jain said.

The roll out of affordable 5G phones is also pushing brands to clear older inventory. “The brands are trying to balance their current inventories with the planned new launches to ensure balanced business,” Navneet Pathak, national joint general secretary of All the India Mobile Retailers Association told The Core.

In The Slow Lane

Smartphone shipments in India, especially in the mass market segment, were flat in 2023, as consumers looked for upgrades and graduated to premium phones. This led to inventory build up as volumes dropped while average selling prices (ASP) rose. The festive season last year provided some relief. Shipments in Q4 CY23 rose to 38.9 million units which was a 20% increase year-on year, according to data from Canalys.

In the first half of CY24 however, this momentum was lost in the absence of big sales and consumer demand. “Response to sales events like ‘Republic Day sale’ and ‘Summer sale’ has been average. Especially in Q2 2024, sales were impacted by heatwave conditions in the offline channel,” Jain said.

According to Canalys data, in Q1 2024, shipments were lower at 35.3 million units, but grew by 15% year-on-year majorly because of a lower base in Q1 2023 when vendors were facing inventory piling issues, inflationary pressures and weak demand. In Q2 2024, the shipments inched up to 36.4 million units but year-on-year this was just 1% growth.

The retailers that The Core spoke to said that there were also other reasons why consumers refrained from purchasing new phones in the first half of this year. One being that the premium phones that were purchased upto four or five years ago are also supporting new software updates.

“The upgrades in new models being launched are mostly hardware with little to no difference in the software, so consumers don’t feel the need to upgrade their phones as much,” manager of a Vijay Sales store in Mumbai told The Core.

The smartphone market is moving towards premiumisation and there is a lot of activity in the second-hand or used smartphone space as well. This premiumisation is also driven by brand names and prestige more than features, which also explains the thriving used mobile phone market, where consumers can get a branded phone for cheaper.

“The market is grappling with challenges such as fluctuating demand in the mass-market segment, slow migration from feature phones to smartphones and increasing adoption of second-hand smartphones,” Sanyam Chaurasia, senior analyst at Canalys said in a press statement.

Changing Purchasing Cycles

In this context, festive seasons have come to be important events for smartphone retailers and brands to create demand and bump up volumes. Consumers are now increasingly basing their purchasing decisions on deals being offered. According to Pathak, until a couple of years back, smartphone purchases were split throughout the year. But now we have seen smartphone purchases concentrated towards sales events.

However, this precedent of offering sharp discounts and attractive offers for selected time periods has analysts worried about the sustainability of the category. According to them, these frequent discounts set a precedent for consumers to expect price cuts which dilutes brand values and squeezes brands’ margins.

“Brands must prioritise product innovation, ecosystem development and personalised experiences to ensure consistent year-round shipment upgrades, forging a sustainable business model beyond seasonal demand and deep discounts,” Chaurasia said.