Influx of cheap gadgets hits retailers' sales

CEBU, Philippines – The influx of cheap gadgets in the market has taken its toll on the profitability performance of technology product retailers in 2015.

Ng Khai Development Corporation, who owns and operates technology retail chain NGenius, and Junrex Cellphones and Accessories Inc., affirmed the impact of the cheaper technology products flooding the market to their sales performance.

"A lot of models, cheaper with competitive quality were introduced starting this year," said Ng Khai Development Corporation chief financial officer (CFO) Melanie Ng.

Ng said this development affected the business profitability of the players, including the corporate market's IT hardware and software requirements.

The decline however, does not mean that consumers have stopped buying gadgets, but rather the propensity to upgrade is no longer as high as the previous years – when people were making gadgets as one of their top priorities.

The inflow of affordable smartphones, tablets, and wide choices in corporate IT tools,  resulted to leaner profitability this year prompting vendors to adjust their business models.

Jun Yap, chief executive officer of Junrex Cellphones and Accessories said, due to the changing momentum of gadget and technology retail sales, the company had to implement a "rightsizing" program within the company, cutting off unnecessary expenses, including people and slow performing out-of-Cebu stores.

Junrex has been in the business for 20 years. It used to have 30 outlets including its out-of-town stores. Because of market softening, Yap said the company had to close its out-of-Cebu shops and direct its focus on the Cebu territory. Now it maintains 18 stores within the Cebu province area.

In the first seven months of this year, Yap reported that the sales drop was already apparent, with sales revenue dropping by eight percent. This is expected to deepen further and the sector ended 2015 with a bit depressing figure.

Like Ng, Yap, blames the improving sophistication of customers in buying gadgets, which are mainly glued on (technology) capabilities, unique features, and meticulousness on specifications.

Unlike in the past, Yap said the market was too active in changing their mobile phones and tablets whenever newer models and improved capabilities are introduced.

This time, users are no longer easily convinced with sleeker and attractive aesthetics of gadgets, but they are becoming more "techie" in deciding to buy newer ones.

Junrex's largest business contributor is Samsung. It also carries other nine brands, these are; LG, Huawei, Star Mobile, Happy Mobile, Oppo, MyPhone, Acer, Cherry Mobile and Lenovo.

"Consumers are smarter now. Most are already using smartphones. What the market is looking is newer capabilities, otherwise if there's none, they'd rather not change their phones or gadgets," Yap said.

Bigger memory capacity driven by the active introduction of more apps, also help the sales sustaining movement. However, he said telecom networks' inability to catch up with users' higher requirements for connectivity also pushed the slowdown of gadget and technology sales.

At present, based on IDC figure, smartphone penetration in the Philippines stood at 40 percent, this is seen to grow 10 percent higher by the end of this year, as more smartphone brands are coming to the market.

As of 2014, IDC placed the Philippines as the third largest smartphone market in Southeast Asia.

Despite this outlook, vendors are bracing themselves and preparing for thinner margins, due to diving prices of these gadgets.

Meanwhile, although there is a little hump in the IT expenditure in the corporate side, Ng said Cebu's strong clout to draw in more investors kept the corporate IT vendors busy and able to cope with the softening of retail side.

This means that, although revenues were not as invigorating as before, quantity is still on the higher side.

Widening options and suffocating competition, which resulted to cheaper alternatives, prompted vendors to fine-tune their business profitability, Ng said. (FREEMAN)