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Mobile retail in Russia: operators and independent sales channels

August 2016

Analytical Report (full version)

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Analytical Report (full version)

Mobile retail in Russia: operators and independent sales channels
Mobile retail in Russia: operators and independent sales channels
August 2016

Mobile retail in Russia: operators and independent sales channels

August 2016

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J'son & Partners Consulting presents basic results of the study "Mobile retail in Russia: operators and independent sales channels".

 

 

Summary of the study

 

According to the experience of development of the market of cellular communication and mobile devices in other countries, mobile operators are often the key players in the mobile market retail. In the face of slowing growth in income from core activities a new direction for them becomes an additional driver for increasing revenue and attracting new subscribers.

 

According to J'son & Partners Consulting, the total share of sales of MVNOs on the Russian market of mobile terminals in the end the 1st quarter of 2016 amounted to about 34% of the total sales in real terms — two times more than in 2011.

 

 

However, note that the range of goods and services in mobile operator retail is lower than in large independent retail chains, as operators focus mainly on selling mobile devices and contracts. Large independent networks offer significantly more extended range of goods and services — now they have large household appliances, goods for children, as well as a broad range of, in fact, e-services – air and railway tickets, insurance policies, theater tickets, etc. In the era of IoT and smart products and services managed from a mobile device, the ability to use a specialized network may be an additional opportunity for the consumer.

 

 

Another probable limitation for mobile retail is the fact that in monobrand networks mobile device are sold primarily in the budget price segment. So, according to J'son & Partners Consulting, the average retail price of a smartphone sold in the mobile retail outlets in the 1st quarter of 2016, was 42% lower than the same indicator in multi-brand networks. The difference in average cost once again reminds us about different strategies of retail chains. For mobile operator networks, it is important not just to sell a mobile device, but to additionally offer the customer a SIM card. The operators, thus, increase their subscriber base and attract their customers to the stores offering discounts.

 

 

According to J'son & Partners Consulting, now mobile operators have gained significant positions in the market of mobile retail and can influence on its further development. They are attractive partners for manufacturers, as they have substantial financial and marketing resources. Thus, we can expect further increasing competition in the mobile retail segment, in particular reducing the role of small regional networks, as well as companies involved in salling "gray" mobile devices.

 

 

Comments from the market participants

 

– What are the closest prospects of mobile retail chains? What, in your opinion, are the competitive advantages of mobile retail companies over multi-brand networks?

 

– The situation in the mobile market is (there appeared a new operator in Moscow, MNP, high level of SIM cards penetration, price competition) that the main objective for operators is not so much attracting new subscribers as maintaining the quantity and loyalty of the old ones. Loyalty is not only a high "lifetime" of a subscriber or a high average check, it also means more active SIM cards (for another device or/and potential new IoT devices). After all, a satisfied subscriber will most likely buy a new SIM card from his/her operator. On the threshold of millions of IoT devices emergence, customer loyalty becomes an important factor of successful development of mobile operators in future.

 

Under these conditions, the quality of customer service at mobile retail becomes more critical. It can be attributed not only to service, but also to assortment policy. Today we see various channels merging into a single sales channel (multichannel), where retail is not only the main point, but also "the test site" for new technologies.

 

Since own retail is part of the operator and it "was made" under the purposes of the operator, its task is not only to profit by selling devices, but also to serve the operator’s customers. Of course, stores are required to demonstrate efficacy, but their work is not only in getting profit. Mobile retail can make unique price offers, which is unavailable for independent retail. For example, mobile retail can sell mobile devices at a special price which includes Internet access for the next few months. Or they can return some part of the money spent by the customer to buy the gadget to his/her mobile account. As practice shows, such variants of promotion are very much in demand. They not only attract more visitors to the stores, and therefore increase their sales, but also, which is more important, increase the number of Internet users.

 

Don't forget that mobile retail, in contrast to independent retail networks, can always rely on the parent company (operator). It is expressed in their common procurement, which helps to economize, advertising, the brand power and credit opportunities. The operator is also interested in introduction of new information and analytical systems that improve the efficiency of its own retail.

 

Given all of this, we consider our own retail as an effective and promising sales channel.

 

 

 – Mobile operators focus on selling contracts. They primarily sell a lot of low-cost smartphones and often subsidize the purchase. They do it to increase the data traffic. Therefore, their market share grows primarily in natural terms due to inexpensive devices. And the positive trend can be largely attributed to small amounts of past years, and moreover it is necessary to consider the increasing number of stores.

 

For multibrand retail the main task is to sell devices, SIM cards are secondary, so they have another product range and the lion's share of sales is concentrated in medium and high price categories. By the way, in addition to these devices people buy more accessories and additional products and services.

 

The efficiency of sales per 1 square meter at multi-brand networks are higher also due to the wide range of goods and services, and through a combination of online and offline sales. The share of omnichannel sales at multi-brand retailers is much higher than at monobrands and again, that is because of the nature of their business models. "Svyaznoy", for example, has nearly 25% of its turnover from the online channel. At the same time "Svyaznoy” can significantly reduce the costs of its retail network because the company develops as a cross-channel retailer. A high proportion of online sales has allowed "Svyaznoy" to reformat the network, reducing the number of offline stores by 9% in 2015, with no loss in sales.

 

 

– Retail sales at MTS in 2016 grow faster than the market: it is logical that in new economic conditions customers are more willing to go to their operator, because here they can get LTE smartphones at a bargain price, they can learn how to save money on communication services. We see that the demand for expensive gadgets in MTS mobile retail has grown by the 2nd half of 2016, it is advantageous to buy premium smartphones from your operator because of the low prices and the ability to return up to 15 thousand rubles to your mobile account. Attracting customers with the best prices on smartphones helped MTS increase its revenue from additional retail projects, such as selling insurance certificates, tickets, and most of all (1.4 times) increased the revenue from financial services. It is important that at the end of the first half of 2016 the number of subscribers of other operators who came to us after the purchase of a smartphone has exceeded the number of MTS subscribers, which confirms people’s interest in mono-brand phone stores.

 

 

– The operators sold 31% of all our devices in the first quarter, but received 20% of revenue. Thus, they took the segment of cheap low-margin sales, which is not very interesting to other players. In the second quarter, the proportion of operators had dropped to 27%, so we can say that the market has found equilibrium, and the operators ran into a glass ceiling that was predictable. The normal proportion of the operator's sales should be slightly more than 25% of the market.

 

 

 

– Currently, we can already see changes in the market of mobile retail and we are heading this process. People often visit our monobrand retail chain not so much for information about cellular communication, which can be obtained on our website as they just want to get acquainted with samples of modern equipment and get advice from our staff. In the current economic situation, we pay special attention to promotions with vendors, so that customers can purchase the equipment at the most comfortable conditions. In the first quarter we observed a positive trend of sales of mobile devices compared to the same period last year.

 

 

 

 

 Detailed results of the study presented in the full report:

«Mobile retail in Russia: operators and independent sales channels»

Contents

1. Summary 

2. Features of assortment policy of Russian operators and independent mobile retail networks

2.1. The product grid overview 

2.1.1. Smartphones

2.1.2. Mobile phones

2.1.3. Tablets

2.1.4. Modems and routers

2.1.5. Wearable gadgets

2.1.6. Computer equipment

2.1.7. Photo and video equipment

2.1.8. Accessories

2.1.9. Other

2.2. The service grid overview 

2.2.1. Sale/conclusion of operator contracts

2.2.2. Bank transfer

2.2.3. Payment reception

2.2.4. Air and train ticket sale

2.2.5. Loans

2.2.6. Sale of tickets for entertainment events

2.2.7. Setup of equipment

2.2.8. Insurance services

2.2.9. Formation of extended warranty

2.2.10. Другое

3. The Russian market of mobile devices, key efficiency indicators

3.1. The Russian market of mobile phones and smartphones

3.1.1. The mobile phone and smartphone market volume in real and monetary terms, 2013 – Q1 2016 (by quarters)

3.1.2. The smartphone market structure by operating systems, 2013 – Q1 2016 (by quarters)

3.1.3.  The smartphone market structure by manufacturers, 2013 – Q1 2016 (by quarters)

3.2. The Russian market of tablet PCs

3.2.1. The tablet market volume in real and monetary terms, 2013 – Q1 2016 (by quarters)

3.2.2.  The tablet market structure by operating systems, 2013 – Q1 2016 (by quarters)

3.2.3.  The tablet market structure by manufacturers, 2013 – Q1 2016 (by quarters)

4. The Russian market of mobile terminals by operator and independent sales channels

5. Farther development of the market of mobile retail in Russia

5.1. Monobrand networks

5.2. Multibrand networks

6. Forecasts and trends, 2016-2020

6.1. Forcast for the market of mobile terminals in real terms, 2016–2020

6.2. Forcast for the market of mobile terminals in monetary terms, 2016–2020

6.3. Forcast for the market of smartphones in real terms, 2016–2020

6.4. Forcast for the market of smartphones in monetary terms, 2016–2020

6.5. Forcast for the market of tablet PCs in real terms, 2016–2020

6.6. Forcast for the market of tablet PCs in monetary terms, 2016–2020

 

The newsletter prepared by the J'son & Partners Consulting. We work hard to provide factual and prognostic data that fully reflect the situation and which are available at the time of the release. J'son & Partners Consulting reserves the right to revise the data after publication of new official information from particular players.

 

J'son & Partners Consulting presents basic results of the study "Mobile retail in Russia: operators and independent sales channels".