FOCUS: Russian smartphone sales rise despite falling incomes as choice expands

By Yekaterina Yezhova

MOSCOW, Jun 27 (PRIME) -- In the face of the ongoing economic crisis, the Russian market of smartphones prospers with a 40% growth in money and a 10% increase in natural terms in January–May. Retailers explained the demand for new handsets by promotions and discounts, as well as by a wide range of affordable devices from B brands with an LTE-support option in focus.

Two of the country’s leading mobile electronics retailers – Euroset and Svyaznoy – have similar figures. Revenue of domestic retailers from sales of smartphones soared 35% on the year to 112 billion rubles in January–May. In natural terms, sales rose 6% to 9.1 million devices. An average price rose 27% to 12,300 rubles, Euroset said in a report.

Svyaznoy’s communications manager Sergei Tikhonov said sales jumped 38% to 110 billion rubles in the same period and 9% to 9 million devices.

“Promotional offers and availability of credit programs have become important factors of market growth. Svyaznoy, for example, cut prices by 6–50% for 1,300 items in its assortment with most of offers presented by smartphones. It all resulted in faster sales dynamics,” Tikhonov told Russian Connection.

An average price of a smartphone swelled by 25% due to a general increase in prices of gadgets, he added.

Smartphone sales are a bright spot in the otherwise gloomy picture of Russian retail, where sales contracted 5.7% on the year in comparable prices to 10.9 trillion rubles in January–May and slumped 6.1% in May alone, according to the Federal State Statistics Service.

Brands’ performance

“In monetary terms, Apple and Samsung sit on the top unattainable for others. In natural terms, they are closely followed by Sony, Lenovo and Huawei,” Vasily Mamonov, a leading analyst at retailer Know-How, said.

Tikhonov at Svyaznoy said the year of 2016 is dominated by the same trends as a year earlier. “Consumers are guided by the price/options ratio, rather than by a brand. It results in high sales of smartphones from producers offering clients a wide range of high-quality, functional and affordable devices, like ASUS, ZTE and Lenovo. The iPhone remains the only exception,” Tikhonov said.

Below are the top five brands by revenue in January–May, as seen by Euroset:

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Brand	Revenue, bln rbl	Change year-to-year, %	Market share, %
Apple	37	+85	33
Samsung	28	+27	25
Lenovo	8	+60	7
LG	5	+150	4
Sony	5	-29	4

The highest growth in sales revenue was shown by ZTE (+200%), LG (+150%) and Apple (+85%). The deepest decline was seen at Nokia/Microsoft (-67%), Sony (-29%) and Fly (-13%), according to Euroset.

Below are the top five brands by natural terms, as seen by Euroset:

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Brand	Sales, units	Change year-to-year, %	Market share, %
Samsung	1,909,000	+6	21
Apple	986,000	+74	11
Lenovo	843,000	+19	9
Alcatel	749,000	+13	8
Fly	663,000	-9	7

Soaring growth in sales was shown by LG (+103%), Apple (+74%) and ZTE (+76%), while decline was shown by Nokia/Microsoft (-77%), Sony (-44%) and Fly (-9%).

LG’s success roots in the appearance of interesting smartphones Leon, Magna, Spirit costing 5,000–10,000 rubles with a wide range of features, Euroset said.

“ZTE’s positive dynamics were supported by the vendor’s assortment policy: it offered consumers a variety of advanced smartphones in the low-price segment, as well as several top models at a lower-than-average price as compared to models with similar options,” the retailer said.

The fall of Nokia/Microsoft both in natural and monetary terms resulted from few interesting models and a “dying” operating system Windows Phone, because a lack of games, applications and advanced software options suppresses demand, Euroset said.

Sony’s failure comes from a high price for middle-ranged features. The market has plenty of vendors offering customers more advantageous price/quality ratio, the retailer said.

LTE

The sellers point to a growing demand for LTE-supporting devices. “The LTE technology is interesting to the consumer and will continue to expand. It is still fully used by a small group of people, and the acronym does not mean a lot for a mass consumer, but the technology is chosen unconsciously, often inspired by advertisements,” Alexei Shirokov, head of the purchases department at Euroset, said.

“Operators explain to mass-market consumers advantages of this data transfer standard within their policy of attracting new users to LTE networks. Besides, when offering a new model starting from the middle-level price, brands embed LTE support.”

Mamonov at Know-How said the share of LTE smartphones accounts for 70–80% of all sales.

Short-term prospects

“It’s still difficult to say whether the market is satiated or not. Growth in natural terms has almost died, though there is still a reason for it as consumers are now thriftier with their resources and are less active in upgrading gadgets. The 2011–2014 period is said to be time when people were relatively well off, when consumers accumulated some reserves of devices and exploited them, which now results in a delayed demand,” Mamonov told Russian Connection.

Tikhonov from Svyaznoy is more optimistic claiming that every fourth handset sold in 2016 is a feature phone, whose replacement with smartphones is one of the market’s growth drivers.

“The smartphone market will show a double-digit increase in money as of the end of 2016 and will advance 10% in units. We could witness unexpected jumps in sales of smartphones and electronics if foreign exchange rates spike. Among expected movements we’ll see a traditional rise of sales ahead of the New Year as compared to other quarters of 2016,” Tikhonov said.

(65.5287 rubles – U.S. $1)

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