Smartphone brands brace for 9-10% festive sales drop as higher prices dampen demand

New Delhi | Kolkata: Smartphone brands are expecting a tepid festive season, with sales expected to decline 9-10% compared to last year, as sustained handset price hikes are weighing on demand, said industry executives and market trackers.

Executives said brands are still finalising their festive season strategies. Their plans are getting hampered by persistent smartphone price increases and uncertainty over component spot prices next quarter. The expectation is that handset makers will still offer festive discounts, which has emerged as a crucial lever of driving sales in the Indian market. However, due to the baseline prices of phones going up, consumers will effectively get a discount on the higher price rather than a true markdown from current costs, analysts said.

Plans Not Final

Handset brands are also procuring inventory of components well in advance this year to be able to afford giving discounts when overall component prices are rising. "They (brands) are building and billing inventory to their partners in June-July to lock in lower manufacturing and memory costs," an industry executive told ET, asking not to be named. "By doing so, they can secure a 15-20% cost advantage than if they leave procurement for the next quarter." Dixon Technologies managing director Atul Lall noted a muted order book for festive season mobile phone production.

"Companies are assessing the situation and may place orders a bit late this year depending on memory chip prices and demand," he said. Dixon produces smartphones for multiple brands including Samsung, Xiaomi, Google, Motorola, and Transsion.

Meanwhile, brands are expected to continue raising prices of existing models before dropping them during the festive period to create an impression of lower prices in a bid to entice buyers.

"Market prices are going to increase further by 20-25% before Diwali," said the executive cited above. "During the festive period, brands will use their locked-in cost buffer to offer at least 10-15% discounts and pocket a 5-10% margin on those sales."

Trimming Budgets

A second industry executive said brands are also trimming marketing and discounting budgets as adverse currency fluctuations and rising memory costs have negatively impacted balance sheets, leaving little room to boost spending.

"Planning for the festive season began a month ago in May, but we are still doing a lot of internal iterations to finalise an executable plan," the executive said. "The exact discount budgets have not been decided yet. We are waiting for the next price hike information expected by the end of the month, which will dictate if the margins are comfortable enough to allow for substantial discounts."

Counterpoint Research, in its early estimates, expects festive season sales to drop due to the prevailing weak demand scenario.

"We are estimating a 9-10% decline in festive season sales this year as compared to last year," said Tarun Pathak, research director, Counterpoint Research. "From a consumer's perspective, we expect them to open up their wallets seeing the financing options being offered, so some uptick in sales activity will happen as compared to the first half."

Pathak said direct cashbacks may not be as high as in the past, but brands will rely heavily on affordability as the main lever to drive sales. "They are planning to offer multiple financing options, no-cost EMIs, and are even looking into increasing the tenure of these financing plans," he said.