Negative Sales Growth Projected For Smartphones In 2020

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There is no sector of the global economy that hasn’t been impacted by the COVID-19 pandemic. Before the world went into staggered lockdown, the smartphone segment was growing at a brisk pace. It will now experience negative growth in sales, according to a survey conducted by Counterpoint Research.

By Pavel Naiya

One in three respondents to the survey that we at Counterpoint Research conducted across seven countries (our Consumer Lens survey), intends to cut spending by 20 per cent when making the next smartphone purchase. The economic activities of all major countries have been severely impacted by the COVID-19 crisis. With coronavirus cases going over 8 million, globally, by June 2020 and the number of new cases continuing to rise, all major markets saw a significant reduction in consumer spending. Across the world, this will likely lead to negative smartphone sales growth in 2020.

To better understand consumer intentions in the smartphone market, we conducted a Global Consumer Lens study across seven major smartphone markets (the USA, the UK, India, France, Germany, Spain and Italy). According to the results, almost half the respondents are expecting to delay their next purchase. The number of respondents planning to wait before buying a new smartphone is the highest in India (61 per cent). We found similar consumer sentiments in Spain and Italy, where 58 per cent and 56 per cent of respondents, respectively, planned to wait longer before replacing their smartphones. In the USA, the number intending to delay buying was 41 per cent. Germany had the fewest respondents planning to delay purchasing (34 per cent).

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Looking at the consumer purchase intentions, the coronavirus outbreak (combined with uncertainty about future income) has affected consumer behaviour, with many strictly limiting purchases to only the essentials. Smartphone consumers from Spain and Italy are the most affected. Consumers intending to cut their future smartphone purchase budget by 20 per cent or more are highest in Spain (27 per cent) and Italy (25 per cent), followed by the USA (24 per cent). Looking at the current circumstances, this trend is expected to continue until mid-2021.

To maintain social distancing, two-thirds of the respondents in India, and more than half the respondents in Italy and the USA, are looking for ‘low touch’ sales channels. This will likely lead to more online ordering with home delivery, as well as online ordering but collecting in-store – also known as online-to-offline (O2O), or click-and-collect.

Commenting on the various approaches being taken by manufacturers, Arushi Chawla, research associate at Counterpoint, says, “We have seen many sales initiatives being taken in developing countries like India in the early phase of the lockdown. Xiaomi started the Mi Commerce Web app to connect consumers with the nearest retail store. Samsung has strategically partnered with Benow to help retailers register their inventory on its platform. Vivo’s Smart Retail enables customers to send their product related queries to retailers through SMS and reach out to the e-store (shop.vivo.com) or official Facebook page for order placing. Oppo customers can order phones or raise service requests on WhatsApp or via SMS.”

Chawla adds, “All O2O operations come with an overhead cost and additional expenses involved in the awareness-building campaign. It is hard on the bottomline, especially when most of these smartphone manufacturers are already operating on thin margins. Nonetheless, the coronavirus is here to stay, and top brands will look forward to creating long term strategic investments in making their distribution more agile.”

The way consumers intend to spend on smartphones in the near future (Source: Counterpoint
Consumer Lens May-June 2020)

As the Wuhan region of China was the starting point of the COVID-19 pandemic, we explored consumer sentiments about smartphones manufactured in China. The anti-China sentiment is highest among Indian consumers. More than half the respondents from India have a negative attitude towards Made in China products or Chinese smartphone brands. Around four in ten respondents said that they will not buy Made in China products or smartphones from Chinese brands. We believe the recent conflict on the India-China Line of Actual Control (LAC) is playing a profound role in shaping this behaviour. (Note: This survey was conducted before the India-China faceoff at LAC in Galwan Valley). However, to counter this sentiment, many brands have recently initiated ‘Made in India’ and nationalistic marketing campaigns.

Similarly, about one-fifth of respondents from the USA preferred not to buy Made in China products. In the era of globalisation, it is difficult to label a product as exclusively ‘Chinese’ as its components are sourced from across different regions.

Many tech giants including Apple are reportedly aiming to shift manufacturing to other countries — for example, Vietnam, Thailand, India, etc, though we believe that these manufacturing strategies are more about avoiding an over-dependence on the Chinese ecosystem than a sign of widespread anti-China sentiments. Nevertheless, it will be an uphill task to set up similar ecosystems in other countries quickly. It may be easy to distribute the assembling of parts to different countries immediately, but choosing the right supplier located in a geographical cluster with skilled labour requires long term strategic partnerships and investments.

Country-level consumer insights
The USA

  • The online channel is the fastest-growing in the USA. This channel is more popular among respondents who are not working and who are looking to buy an LG or Sony model, and is least popular among prospective Apple buyers.
  • As a mature market, most users are already divided between iOS and Android. Brand loyalty for Samsung and Apple users is similar. Apple users are most satisfied with the iPhone camera while Samsung users are most satisfied with the Galaxy display.
  • The importance of selfie cameras has increased in the last two years. This is most likely because of new social media AR (augmented reality) features that use the selfie camera to create interactive content. More recently, during the lockdown induced ‘work from home’ model, video calls have become a major part of our daily routines, further accentuating the importance of good front-facing cameras.

The UK

  • Two-thirds of UK consumers are considering buying a smartphone according to their original plans. Only 11 per cent are planning to cut their budgets by 20 per cent or more.
  • Of the survey respondents, 43 per cent are considering replacing their devices in the next year. Operator stores continue to be the preferred channel of purchase, followed by mass merchandise electronic stores.
  • Close to 90 per cent of respondents have no hesitation in buying Made in China products.

India

  • Half the respondents intend to spend between US$ 135 and US$ 250 (Rs 10,000 – Rs 20,000) on their next smartphone.
  • More than half of respondents intend to replace their devices in the next year.
  • As a big proportion of users plan to wait for a longer period to replace their smartphone, the average replacement cycle will get pushed from the current 22 months to around 26 months.
  • Online reviews are the top source of information about new models, followed by friends and family, and technology-related YouTubers.
  • About seven in ten respondents are interested in buying a separate smartphone for their kids to help with their learning.

The author is a senior analyst at Counterpoint Research.

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