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Phone Brands Shifting Focus To Brick And Mortar Stores In India - Here's Why

13 Apr, 2017
Phone Brands Shifting Focus To Brick And Mortal Stores In India - Here Why

The differences in the prices of smartphones between online and offline stores are expected to diminish soon, with the implementation of the Goods and Service Tax (GST) – which is due to roll out on July 1.

In preparation of this transition, smartphone companies such as Asus, InFocus, Xiaomi, Motorola, ZTE and Huawei have had to come up with a new and more efficient strategy to retain the demand for their smartphones, in the offline market.

Currently, when you buy a device online, you find it at least a couple thousand bucks cheaper than you would in a neighborhood store. For brands like Xiaomi, and Motorola, that have majorly stuck to online stores so far, this plays into their court; they already have comparatively lower prices, and they can sell their devices at a lower tax rate online.

Presently, online sellers based in areas like Bengaluru and Hyderabad sell smartphones at a lower VAT (Value Added Tax) i.e. 5%, than those who are based in locations where the VAT% on smartphone devices are much higher (usually in the 10-15% range).
The national average is about 12%.

It is this imbalance in the VAT levied, that will soon become uniform across the nation via the GST since it is a national tax, and not a state-drive one.

So, even though these brands have off and on, been working on their offline sales strategies, to sell to the larger group of Indians that are not online, their focus has been the urban educated buyer who is already online. A change in this focus seems around the corner now, but the reason might not necessarily be a want for further expansion into the market; the reason this time is the need to get a better grip on the offline market before the playing field is leveled.

These brands have chalked out some novel plans of action to enhance the sale of their devices in India’s challenging market. Direct distribution, a partnership with large-format retail, building separate models for the offline market, putting together their own stores, expanding marketing expenditure – are some of the ways in which the smartphone makers are planning their extension.

There is a scramble amongst online smartphone brands to expand into offline retail. While a couple of brands like Xiaomi and Huawei are intensifying efforts, most others are making fresh attempts. With GST, the value added tax (VAT) advantage, which the online sellers enjoy, will disappear completely, making online and offline a much more level playing field”, announced cellphone retail chain Hotspot’s director, Subhasish Mohanty.

With the new approach that the brands are gearing up to adopt, they would directly sell the smartphone to the retail stores – not just any retail stores though – only stores that they have collaborated with.

Xiaomi, for the same, has recently collaborated with four of the major South Indian retail stores, namely, Sangeetha, Poorvika, BigC and LOT. The Chinese budget brand also plans to set up self-owned Mi Home stores in India, just like the ones they have in China.

Asus is another Chinese brand that has mostly had an online presence in the country so far, and is now planning on expanding into the offline market.
InFocus, a Foxconn-owned brand, which plans to invest big money in offline trade and marketing replicating the strategy of Chinese rivals, Oppo and Vivo, too, is re-launching its offline business and building a portfolio of models.
ZTE is also going into offline expansion, including expansion into smaller towns, and so is Huawei.

These changes are going to be interesting not just for the smartphones they bring, but also for the Indian e-commerce market, given that the business of smartphones is quite a chunk of it. It is because of that, that companies such as Amazon and Flipkart are drawing up plans to foray into the offline distribution of smartphones for brands like Coolpad, OnePlus and Lenovo.

This, altogether, could be an interesting change in the smartphone world. Bigger brands such as Samsung, LG, HTC etc., already sell through their offline stores heavily in India. Even Apple has third party reseller stores in the country and is soon opening up its own stores.

Thus, these “economical” brands might find it difficult to sink their teeth in to a market that is already quite populated, and to an extent, these brands may be outclassed by the larger ones.

On the other hand, they might also be welcomed open armed, given how well they’ve done through their online channels so far.