Apple has reduced retail margins on the iPhone X by nearly 30%, frustrating large format chain owners and small-scale retailers that are crying foul that the Cupertino-based company does not want its retail partners to benefit while the company itself profits from the massive margins it makes.
Some like Bengaluru-based Sangeetha Mobiles have stopped taking orders of the new flagship, even as the costliest iPhone ever faces huge supply-demand mismatch in India, leading analysts tosay that Apple should slot India far higher in its priority list and bring in larger shipments of the iPhone X.
“Apple has cut margins on the iPhone X from 6.5% to 4.5% for large retailers like us, and if a customer pays by card, which is usually the case, the margin reduces to almost 1.5-2%,” said Subhash Chandra, managing director at Sangeetha Mobiles, which has 400 stores across the country.
“Apple gives the least margins… How on earth do they expect the retailer to work for them for free — our overheads are anywhere around 10%,” Chandra explained.
Apple declined to comment on the margin cuts and supply issues in India.
Industry insiders reveal that typically, brands such as Samsung or Xiaomi offer more than double the margin that Apple offers, around 12-15%. To gain share from competition, players like Oppo and Vivo were also giving higher than usual margins to retailers, but Apple has refrained from this practice.
Further, offline retailers complain that while they are facing the issue of margin cuts, online players are giving cashbacks and other discounts on iPhones, including the iPhone X, distorting a level playing field.
A chief executive of another top retail chain in India added that it had stopped stocking iPhones across its 300 stores due to the cut in margins and owing to lack of control on retail pricing in the online and offline markets.Those in the unorganised trade also complain of Apple having cut margins on the iPhone X at a time when the device is under severe supply constraint.
“People are ready to give a premium on the phone, so we don’t have an option but to work with Apple’s margin cut and yet, face the ire of customers if the iPhone X is not available,” said a leading retailer in the unorganised sector.
Another top handset retailer said that it had got only 400 units of the iPhone X in the first three weeks since launch, far less than what Apple had promised, underlining the supply issues.
Analysts said Apple should bring India, the world’s second largest handset market after China by volumes, further up on its priority list urgently and ensure adequate supplies, else it may be left with too wide a gap to bridge with its rival Android players like Samsung, Xiaomi, Oppo, Vivo and others already way ahead in terms of volumes.
“India should rank very high on Apple’s priority index… it is yet to have a single owned and operated retail store in India,” said Manjunath Bhat, research director at Gartner based out of Singapore.
Analysts at Counterpoint cautioned that the company may lose the plot in India if it waits too long for regulatory, policy or business certainty or the time when it can extract most value at minimum risk. They added that as the 350 million smartphone user base expands to 500 million over the next couple of years, many existing users would be looking to potentially upgrade to the best premium phone out there, iPhone.
“They (Apple) will have to start now because if they lose a window of opportunity in next two years to be on mind of the growing smartphone user base, it would be somewhat difficult to grow faster in the world’s second largest smartphone market,” said Neil Shah, research director at Hong Kong based Counterpoint Research.
People familiar with Apple executives’ thinking though countered, saying India was very high in priority for iPhone X stocks and supplies, and in fact, had got them quicker than markets like South Korea and Thailand, some of which are equally large revenue generating markets as India.
In the September-ended quarter’s earnings call, Apple CEO Tim Cook had said that growing the market would require building stores, channels, markets, developer ecosystem and the right kind of product lineup.