After street vendors, small shopkeepers and wholesalers, now unorganized mobile phone retailers claim they are feeling the heat from the entry of the deep-pocketed companies in India’s retail business even though the country’s mobile subscriber market remains the fastest growing in the world.
Several large Indian companies are lining up investment plans running into thousands of crores of rupees to open chains of stores selling mobile phones and accessories to capitalize on two of the country’s fastest growing sectors—modern retailing and mobile services.
While it has been great news for phone buyers with retailers continuing to drop prices, the unorganized retailers, who dominate the mobile retail business now, claim that their business is under threat, thanks to cheaper phone prices at stores operated by companies such as Subhiksha Trading Services Ltd, RPG Enterprises, Spice Group, Essar Group and Reliance Retail Ltd, which have already opened mobile phone stores nationwide and have aggressive expansion plans. Essar, Spice and RPG, collectively, have plans to invest about $800 million (Rs3,152 crore) in the next two-three years in mobile retail operations.
The price factor: A Subhiksha mobile outlet at Yusuf Sarai in New Delhi. Subhiksha, one of the firms vying for a big share of India’s mobile phone market that is expected to grow 32% in 2008, claims to have the lowest prices. It has started a toll-free number for consumers to compare prices. (Ramesh Pathania/Mint)
According to researcher International Data Corp’s (IDC) India Quarterly Mobile Handsets Tracker, 60.62 million mobile handsets were sold in India in 2006 and that is expected to go up to 80.28 million by the end of this year. IDC expects the phone market to grow 32.4% in 2008. Market watchers say India’s overall market for phones and related accessories is around Rs1 trillion at present and is expected to grow three-fold in the next three-four years.
Anecdotal evidence suggests that small mobile phone retailers, whose shops are in the vicinity of the organized chain stores, are not as likely to get a share of this growth.
Take the mood among a cluster of small mobile phone retailers in Savitri Market in New Delhi’s suburb of Noida, which is decidedly downbeat. Indeed, Noida’s mobile phone sellers went on a day-long strike in October to protest what they called unfair deals from mobile phone manufacturers. Swami, who uses only one name and is an employee of My Mobile store in Noida, recites how the mobile business at his store has been dwindling even though it is one of the most popular markets in the region for mobile phones and accessories.
Before January, My Mobile would sell goods worth about Rs2.5 lakh on any given Sunday, but sales started dipping about four to five months ago and, the Sunday before Christmas, which should been a busy period, sales were down to around Rs1 lakh.
“Our future is in danger,” says Swami, pointing to a Sony Ericsson Mobile Communications service centre that doubles as a mobile phone retail store located opposite his My Mobile outlet. The Sony store opened a year ago.
Swami says all the stores in Savitri Market pay a rent of at least Rs70,000 per month. “The (mobile phone) market is becoming centralized and our kind of retail will get wiped out,” he insists.
Rahul Gupta, general secretary of Noida Mobile Dealers Association, says small stores have to make purchases through distributors while the larger, branded chains buy directly from manufacturers, getting, he says, phones that are 4-5% cheaper.
“Mobile is such a competitive trade where 4% to 5% means hundreds of rupees difference...and we cannot match it even after reducing our margins,” says Gupta.
The decline in sales shouldn’t come as a surprise. Data from a yet-to-be released Indian Council for Research on International Economic Relations survey of nearly 1,600 small retailers in four cities showed double-digit sales and profits declines at small retailers who were in head-to-head competition with large, branded stores. The study was commissioned by the government in early 2007 on political concerns that small stores will be hurt by big retailers.
In south Delhi’s Yusuf Sarai market, Praveen Chadha of Hindustan Electronics echoes the same concerns as his counterparts across the Yamuna. Hindustan Electronics used to sell an average of between 25 and 30 mobile phones every day just three months ago. Now that has come down to 8-10 phones a day. “We have to close (shop) as many are already doing,” he predicts.
Chadha says branded stores undercut the mom-and-pop mobile retailers due to their sheer negotiation power with manufacturers. “Prices are the biggest factor, as they sell it on dealer price,” he said.
He appears to have a point. The Move & Talk store in Noida, for example, purchases Nokia’s N70M model of mobile phone from the distributor for Rs10,750 and sells it for between Rs10,800 and Rs10,900 while a Subhiksha Mobile store, in the nearby Centrestage Mall, is retailing the same phone at Rs10,750.
A few hundred metres away, Essar-owned The Mobile Store sells the phone for Rs10,872 but gives a 1 GB data card, worth Rs860, free. On top of that, The Mobile Store has a scheme that doles out a scratch card with every mobile purchase with lucky winners getting a family holiday to Thailand, Nepal or within India for two adults and two kids, or a Philips home theatre system, or digital cameras. Spice’s Hot Spot is selling the mobile for Rs11,050 along with a Bluetooth-enabled wireless hands-free gadget worth Rs1,900.
“These companies have reduced the mobile phone business to a farce,” complains Move & Talk store manager Raju Srivastava.
Subhiksha has even started a toll-free number for consumers to instantly compare prices, part of its claim to have the lowest prices.
“Obviously, when you buy anything in bulk, you cut out the middlemen… We are able to get things at reasonably low price from the manufacturers,” says Mohit Khattar, president for marketing at Subhiksha. “We obviously get better deals from the companies because we are large buyers. We are not a sundry buyer.”
For example, Khattar says Subhiksha purchases the Nokia N70M mobile for Rs10,734, which is only Rs16 lower than what the Noida retailers pay, but Subhiksha’s high volumes allow the retailer to sell it at a wafer-thin margin and still make profits.
Also, the retailer get annual incentive from mobile companies based on the number of handset sold.
At least in Noida, the small mobile sellers say they are considering pooling their purchases to have better negotiating and bargaining power with mobile manufacturers.
“We are thinking of something like this. If we don’t do it, we will be dead,” saysGupta of the Noida dealers association. “We all dealers are getting together and will form a collective group that will deal directly with the (mobile) companies.”
Pankaj Mishra contributed to the story.