Offline beats online retail in sale of electronics

Shipment estimates shared with Mint by market researcher International Data Corp. (IDC) India projects 35 million-37 million units to be shipped in the December quarter, which could be a 17% y-o-y growth. The latter is expected to be the result of better-than-expected festival season smartphone sales, which has helped brands clear inventories better than last year.

This, however, would not be enough to compensate for the overall drop in organic demand for smartphones—full-year shipment projections by IDC peg 2023’s smartphone sales to be around 143 million units, marking a 1% y-o-y decline.

Physical retailers, however, are seeing a stronger overall year—IDC’s H1CY23 smartphone report from 3 August said while smartphone shipments to online retailers declined 15% y-o-y, those to physical retailers grew 11% y-o-y in the first half. A similar trend is expected to play out in the second half as well.

Nilesh Gupta, managing director of multi-brand electronics retail chain Vijay Sales, said smartphones were the strongest driving factor behind a y-o-y growth in festival season sales for the company. “Festive season sales driven by smartphones, saw a growth of over 40% y-o-y. This grew even as a few other categories remained flat, and were driven by easy affordability options of smartphones in the premium segment that are now available in offline retail, too," he said.

Industry stakeholders further said the growth in physical retail is more of a revenue growth, and not volume-driven. Kailash Lakhyani, founder and president of industry body, All India Mobile Retailers Association (Aimra), said, “This year, festive season sales for physical retailers were very strong, as brands brought better parity between offers, financing and deals between them and online sellers. This has helped businesses with physical electronics outlets compete on an even footing—many even came up with bundled product offerings, such as complimentary earphones, to give buyers a better deal."

Analysts believe that a change in dynamics in the overall market is a key reason behind this. Upasana Joshi, research manager at IDC India, said an overall shipment decline for online-first brands such as Xiaomi and Realme, two of India’s top five smartphone brands, is a major contributing factor. “Consumers are not organically buying new phones, driven by better longevity of devices, and a lack of compelling features in devices for most buyers. Plus, many product portfolios for online-first brands were cluttered, leading to confusion among buyers for which device they should opt for. As shipments for Xiaomi and Realme dropped, online sellers may see a second consecutive year of fall in sales, while sales for physical retailers could grow y-o-y," she said.

This dynamic is playing out in India’s smartwatch industry as well, which saw shipments grow 32% y-o-y to 16.9 million units in the September quarter. Amid this growth, smartwatch sales to physical retailers rose by 58% y-o-y in this quarter, as homegrown brands chase better margins and new customers. Next year, smartwatch sales are seen further penetrating physical retailers—particularly in tier-III cities and beyond.

By the end of 2024, industry stakeholders expect nearly 40% of all smartwatch sales in the country to come from physical retailers, before plateauing.

Smartphone market stakeholders, too, are projecting caution despite a decent year for physical sellers. Manish Khatri, partner at Mumbai-based retailer Mahesh Telecom, said that while hype-driven customer footfall did see an increase during the festive season, the remaining months of the ongoing quarter are continuing on a very muted note.

“There’s no reason for consumers to buy new devices—the only demand is in premium phones, for which the market is still small, and in refurbished (or second-hand) phones, for which there isn’t enough supply in the market," Khatri said.