Will centralised smartphone procurement see retailers bypass distribution?

Innovations prompted by COVID-19 are pushing smartphone resellers towards a more consolidated, omnichannel way of doing business, a trend that could see the retail channel attempt to bypass distributors in the supply chain.  

This is according to Ben Stanton, research manager at analyst firm Canalys, who claims that retailers may move to a more centralised procurement process for smartphones due to business changes forced by the pandemic, an approach that could see them try to buy direct from manufacturers.  

"Channels had to transform or die during the pandemic, and this forced innovation," Stanton said. "Developed countries have seen an online surge, which has forced retailers to reassess their offline footprints.  

"As a result, many stores will close this year, and for those that stay open, their purpose will be reimagined for customer support and order fulfilment, as customers increasingly use multiple channels during the purchase process. Innovations driven by COVID-19, such as unified stock and delivery to car, are helping shift retailers toward their consolidated, omnichannel vision.  

"And centralised procurement will also give the channel more negotiating power with smartphone brands and may cause some retailers to attempt to bypass distribution to build new direct relationships. The new normal for the smartphone industry is as ruthless and competitive as the old one," he added. 

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Stanton's comments come as the global smartphone market begins to heat up following a somewhat sombre year in 2020, with analysis by Canalys suggesting shipments will grow by 12 per cent this year, compared to 2020, to reach a nudge over 1.4 billion units. 

In 2020, smartphone shipments fell by 7 per cent due to major market constraints caused by the COVID-19 pandemic. Despite the fall in shipments last year, however, Stanton marks the smartphone market as one of 'incredible' resilience.  

"The smartphone industry's resilience is quite incredible," Stanton said. "Smartphones are vital for keeping people connected and entertained, and they're just as important inside the home as outside.  

"In some parts of the world, people have been unable to spend money on holidays and days out in recent months, and many have spent their disposable income on a new smartphone instead," he said. 

According to Stanton, there is strong momentum behind 5G handsets, which accounted for 37 per cent of global shipments in the first quarter of 2021, and are expected to account for 43 per cent for the full year, equating to about 610 million units. 

"This will be driven by intense price competition between vendors, with many sacrificing other features, such as display or power, to accommodate 5G in the cheapest device possible," Stanton said. "By the end of the year, 32 per cent of all 5G devices shipped will have cost less than US$300. It is time for mass adoption." 

Looking ahead, the Asia Pacific region is expected to see greater growth in smartphone shipments next year than any other major region, according to Canalys. 

Although global growth in the smartphone market is expected to drop back from this year's 12 per cent rally to a more steady growth rate of 5 per cent, year-on-year, the Asia Pacific region is forecast to maintain 12 per cent growth, markedly higher than the other regions covered by Canalys in its analysis, to reach 426 million units.

For comparison, North America is anticipated to see a 2 per cent fall in shipment growth, while greater China is expected to experience just 1 per cent growth, year-on-year. The Europe, Middle East and Africa (EMEA) market is forecast to see 4 per cent growth, and Latin America, 5 per cent, year-on-year.

While global growth in the smartphone market is expected to continue for the remainder of this year and into next, potential barriers to growth remain. Canalys expects component supply to emerge as a new bottleneck for the smartphone industry as vaccine rollouts continue around the world. 

A short supply of semiconductors over the past year has impacted other areas of the IT device industry, with the PC market one of the segments affected, even if the supply issues have been slated to clear up by the middle of this year.   

To date, the smartphone market has remained somewhat unaffected by the semiconductor shortage, but that doesn't mean it will escape the fallout of component supply bottlenecks and the throttling effect on growth such bottlenecks can cause, according to Stanton. 

"Back orders are building," Stanton said. "The industry is fighting for semiconductors, and every brand will feel the pinch."  

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Canalys expects vendors to first turn to regional prioritisation as a way to manage potential supply shortfalls, focusing the flow of units into lucrative developed markets such as China, the United States and Western Europe at the expense of Latin America and Africa.  

Even in these better-served regions, however, supplies are expected to still be constrained, with vendors anticipated to turn to channel prioritisation, pushing a greater allocation of units into fast-activation channels, such as telco carriers, and fewer into distribution and the open market.  

Although this may hit distribution channels, one positive side-effect is for challenger smartphone brands. In such a climate, doors may open for challengers to gain share in key open market channels if the incumbents are unable to fulfil the sub-segments they are usually able to permeate without any trouble.  

"The other angle to this is pricing," said Nicole Peng, vice president of mobility at Canalys. "As key components, such as chipsets and memory, increase in price, smartphone vendors must decide whether to absorb that cost or pass it on to consumers."  

In April, fellow industry analyst firm IDC noted that global smartphones were on a steep upward curve again as consumer appetites returned to "healthy" levels amid the coronavirus vaccine rollout.  

According to IDC's data, smartphone vendors shipped nearly 346 million devices during the first quarter of 2021, a rise of 25.5 per cent year-on-year. Asia Pacific - excluding China and Japan - saw some of the strongest global growth, experiencing 28 per cent year-over-year growth, respectively.  

IDC's figures roughly matched up with those from Canalys, which calculated 347 million units, up 27 per cent, year-on-year, shipped in the first quarter.