Rising trend of e-commerce players selling smartphones: David to brick & mortar Goliath?

Rising trend of e-commerce players selling smartphones: David to brick & mortar Goliath?

Author | Abhinn Shreshtha | Friday, Jul 25,2014 8:03 AM

Rising trend of e-commerce players selling smartphones: David to brick & mortar Goliath?

The e-commerce industry in India has been growing at a rapid pace for years and it seems that gadgets, especially tablets and smartphones, are fast finding themselves a perfect fit for this disruptive retail model.

When Flipkart announced registration for the exclusive launch of Chinese phone maker Xiaomi’s Mi 3 smartphone, it received 100,000 registrations. On the day when the phone was actually launched, Flipkart’s website crashed temporarily due to the traffic. Earlier this year, something similar occurred with the exclusive launch of Motorola Moto E. The entire stock, in case of Xiaomi, was sold out in less than 38 minutes, showing how well the association seems to be working for both parties.

What is interesting is that it is not only the big MNCs but even the indigenous brands that are hopping on to the bandwagon.

For example, smaller brands like XOLO and Celkon have had deals with Snapdeal to launch their products exclusively on the website.

“At Snapdeal.com, we have seen a 20 per cent growth month on month in the 12 months in this category (smartphones and tablets). Partnerships have proved to be immensely successful for us as well as the partnering brands. For instance, XOLO Q600S saw a tremendous response. We sold the first 10,000 pieces of this handset within the first few days of the launch,” said Tony Navin, VP, Electonics at Snapdeal.com. Snapdeal also has an exclusive launch partnership with Finnish company Jolla for their debut Indian launch which will take place next month.

So, what is driving smartphone makers to e-commerce? A number of reasons. One is that the tech savvy customer, which is the usual target audience have no qualms about purchasing online, especially since it’s tough at times to get the device in a brick and mortar store as soon as it launches, a case in point is the LG Nexus 4 launch in 2013.

Xiaomi, which entered India earlier this month encapsulates this trend. The company, which is quite popular in China and other nations, must have known it might be tough to penetrate the crowded Indian market. Instead of spending money on expensive marketing campaigns, it depended on its dedicated community of enthusiasts and word of mouth publicity. Hugo Barra, VP (International) for Xiaomi told us that the company has no plans to spend money on marketing, at least in the near future.  “Our growth will be organic,” he added. The only thing they did was tie up with Flipkart for the launch of the Mi 3, an experiment that seems to have succeeded.

BlackBerry too, tied up with Flipkart and The Mobile Store for the recent launch of the Z3, one of the company’s success stories this year. Says Sameer Bhatia, Director (Distribution) BlackBerry India, “It is imperative to look at omni-channel presence and leverage both traditional as well as new age formats to reach out to consumers across segments. In fact, as per industry statistics, gadgets & smartphones are the largest selling categories for e-commerce players. Hence, for brands, e-commerce platforms have become an integral part of their retail strategy.”

Companies, including smartphone and tablet brands, are fast realizing the advantage e-commerce offers. These include, according to Navin, deeper consumer reach especially in tier 2 and 3 cities and a more cost effective distribution channel as compared to the offline stores. For example, Flipkart claims Motorola sold over 1 million phones in India in the first five months through their website, which gives an idea of the potential of e-commerce.

“The Flipkart – Motorola association along with our recent Xiaomi association have seen a great response from our customers – and are examples of how online launches are the way forward for brands looking for great technology, unparalleled reach and flawless customer support,” said Michael Adnani, VP (Retail) & Head (Brand Alliances) of Flipkart.

However, Anshul Gupta, Principal Analyst at Gartner suggests that it is still too early to depend solely on e-commerce. In India, says Gupta, 93-95 per cent of all devices are still sold through traditional retail and this will take some time to change. “For new vendors like Xiaomi, it will take a long time to set up a retail network, so it makes sense to tie up with e-commerce players who already have a presence in the market. Even for vendors like Motorola, setting up a retail channel is a significant investment. However, if they really want to expand and grow, then they need to have brick and mortar stores,” he opined.

Blackberry’s Bhatia agrees with this. He admits e-commerce provides ease of distribution as well as wider network and presence. However, he cautions, “Traditional retail outlets and e-commerce are complementary strategies that brands need to harness to ensure complete consumer access and reach.”

According to a 2012 eBay report, electronics constituted 48 per cent of all online transactions in the country, making them the most popular product category. The top five transacted brands on eBay India were Samsung, Apple, Sony, Nokia and Sandisk, of which four are also smartphone/ tablet brands.

An Accel Partners report released earlier this year stated that though mobiles, tablets and accessories contributed to only 9 per cent of all transactions online, they contributed to 35 per cent to the Gross Merchandise Volume (GMV), the most among all categories. This could indicate why players like Flipkart and Snapdeal are so keen to tie-up with smartphone/tablet companies.

“We are confident that exclusive associations are here to stay – it’s a win-win format for both brands and customers,” said Adnani.

The current scenario, at least for the larger players, seems to be one of using e-commerce as an additional sales channel. However, with the e-commerce sector in India expected to grow to be a $8-9 billion industry by 2016 (depending on which report we refer to) there seems to be plenty of headroom for everyone to grow and leverage.

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