New FDI Norms to Make Short Term Negative Impact on Smartphone Sales Through Flipkart & Amazon

Online share of smartphone shipments in India reached a record 36 per cent in 2018 driven by a strong performance by Flipkart and Amazon. These numbers are set to change drastically with the new FDI rules in e-commerce in place.

More than half of total online smartphone sales in India happen on Flipkart and with new rules settling in, the e-tailer is in for short-term losses in the days to come.

According to experts, there will be a short-term impact on this new ruling. On an average, the online contribution to the total smartphone sales remain around 32-33 per cent during this time which can go down by 2-3 per cent points due to new rules.

As a consequence of the new e-commerce regulations, there will also be a market correction.

"While we would see online sales of smartphones and electronics dip on e-tailers like Flipkart and Amazon, we will have to wait until the beginning of Q2 to clearly evaluate and map the impact," added Prabhu Ram, Head-Industry Intelligence Group (IIG) at market research firm CMR.

A report by US investment banker Morgan Stanley said that the new FDI rules may require Flipkart to remove as much as 25 per cent products from its platform and most of those will be smartphones and electronics that constitute a bulk of sales.

An email sent to Flipkart went unanswered.

The new FDI rules come at a time when India's overall mobile phone shipments grew 11 per cent and smartphone shipments grew 10 per cent with feature phones growing faster than smartphones.

India was also the fastest-growing smartphone market in 2018 with an annual growth rate of 10 per cent and online sales contributed heavily, forcing traditional manufacturers to launch their products online.

Chinese brands, which are mostly online, registered their strongest ever annual performance in India capturing a record 60 per cent smartphone market share up from 54 per cent during 2017.

According to Morgan Stanley, retail giant Walmart may exit Flipkart over new FDI norms.

"An exit is likely, not completely out of the question, with the Indian e-commerce market becoming more complicated," the report said.

Pathak, however, said he does not see any major long-term implication as e-commerce market is still under-penetrated in India.

Another implication will be around delayed in new launches and new seller agreements for online companies which can push some of the product launches.

The market can also see some other e-commerce companies getting new portfolio of smartphone brands which were earlier not available to them.

"Vendors would need to plan, and redraw their India strategies," added Ram.