Chinese phone brands Oppo and Vivo are feeling the heat after they cut down the margins paid to retails stores selling their phones and many of these outlets have stopped selling their devices.
According to a report in the Economic Times, margins have been reduced from 23-25% to 14-15%. If the stores were standalone stores selling only their brands, then the reduction was from 15-16% to 5-6%. This amounts to a 40% cut in the margins.
It must be clarified that the two brands have ramped up their share in the Indian mobile phone market to around 17% and had also registered one of the highest jump in sales during the last year, compared to the previous 12 months. However, this new move to bring down the trade margins and the resistance from the trade to actively push their models across their counters may affect their numbers in the coming months.
To quote the numbers, around 70,000 stores have been selling the Oppo and Vivo brand phones across the country, out of which 10,000 are reported to have dropped out of the map. It is not clear if more may follow. It is believed that many leading chain-stores in the trade, like Sangeetha Mobiles, Big C, Lot Mobiles, Poorvika, Mobiliti World and Hotspot have either stopped selling the 2 brands or are not keen on pushing them.
Oppo and Vivo, which belong to the same Chinese billionaire, Duan Yongping, have set up units within the country to make the smartphones. In the case of Oppo, its own unit is yet to be fully ready and it sources the devices through third-party vendors who assemble and deliver the handsets. Vivo has its manufacturing or assembly plant in Greater Noida on the outskirts of Delhi.
Presenting their side of this important policy decision to cut down the trade margins, the Oppo spokesperson indicated that there is a shift in their overall strategy and were looking at concentrating on their mid-to-higher segment models rather than the lower segments and this is part of that operation. They also felt some stores could not manage after the introduction of GST for whatever reasons and had to be shed.
In the case of Vivo also, the cut in the trade margins was broadly attributed to the overall review and shift in the strategy and possibly the companies follow the practice they adopt in China is replicated here as well. The practice is to scale down after a high level of investment and cut down on the losses. Both the firms have been reporting massive jumps in turnover in the Indian market but are still registering losses. They have reduced their expenses in marketing and promotions also with a drastic cut in advertisements across different media.
The move to reduce trade margins may not go well with the retailer in the brick and mortar model and there are other brands like Xiaomi and Motorola waiting to gobble up the space vacated by Oppo and Vivo.