What happened
The All India Mobile Retailers Association (AIMRA), which says it represents 250,000 phone shops, has published its Diwali report. Shops sold 18-20% fewer phones than last Diwali. Sales value stayed flat, because the average phone cost more. Business Standard links the price rise to higher memory chip costs.
- Footfall was strong from Dhanteras to the day after Diwali. In the seven days before that, volumes fell nearly 40%, as buyers waited for festive offers.
- Most sales were in the ₹30,000-60,000 band, after discounts. Apple and Motorola did well. Realme's volumes fell more than 50%.
- About 60% of purchases used consumer finance. Inc42 reports that only 60-70% of loan applications were approved.
- AIMRA says Samsung struggled to hit its festive targets in shops, because some models were much cheaper online.
- For the first time, store owners openly said they bought discounted phones meant for e-commerce from aggregators, with GST invoices, and resold them in their shops.
- Nearly 95% of the online-only Galaxy M07 stock, priced around ₹11,500, reportedly ended up on shop counters.
AIMRA wants brands to stop online-exclusive deals, keep prices the same online and offline, and offer longer finance schemes in shops. Remember that this is the retailers' side of the story. Still, the problem it describes is a classic sales question: what do you do when two of your channels start competing with each other?
The case
You head offline sales in India for a smartphone brand. One budget 5G model is sold only online, at a lower price than your similar model in shops. After Diwali, your retail partners say most of that online stock is reaching shop counters through aggregators, undercutting the shops that sell only your official stock. Some are threatening to push other brands instead. What do you do?
1Clarify
- How many online-only units do we ship, and how many reach shops? The 95% figure is the retailers' estimate for one model. We need our own number before we act on it.
- How big is the price gap between the online-only model and its shop equivalent? The gap is the incentive. A ₹200 gap won't create a grey market. A ₹1,500 gap might.
- What does our online contract allow? Can we cap how many units one buyer orders, or change the price mid-season?
- Are retailers already moving shelf space to rivals? If our share in those shops is falling, this is urgent. If not, we have time to fix it properly.
2Structure
- Size the leak: units, regions and which aggregators are involved.
- Economics for each player: what the brand, the retailer and the online partner each earn per phone.
- Options to stop it: supply controls, pricing, or a different product for each channel.
- Partner trust: what we tell retailers and the online platform, and when.
3Analyse
Why a retailer sells the grey phone
These numbers are assumptions for the case, apart from the ₹11,500 online price in the report. Say the similar shop model sells for ₹13,000 and the retailer keeps a 7% margin. A retailer who buys the online-only phone from an aggregator for ₹10,900 can sell it for ₹11,900:
| Phone on the counter | Customer pays | Retailer earns |
|---|---|---|
| Our shop model | ₹13,000 | ₹910 (7% of 13,000) |
| Online-only unit via aggregator | ₹11,900 | ₹1,000 (11,900 − 10,900) |
The retailer earns ₹90 more and the customer saves ₹1,100. Both sides win, so telling retailers to stop won't work on its own. The incentive itself has to change.
What the leak costs the brand
Assume the brand nets ₹11,700 on a shop phone after trade margins, and ₹10,300 on an online-only phone after platform fees. Each grey phone that replaces a shop sale costs ₹1,400. If we ship 50,000 online-only units a month and 95% leak, that's 47,500 phones. In the worst case, where every one replaces a shop sale, the brand loses 47,500 × ₹1,400 = ₹6.65 crore a month. If only half would have bought in a shop anyway, it's about ₹3.3 crore.
Compare three responses
- A. Do nothing. Up to ₹6.65 crore a month, plus angry partners.
- B. Track and cap. Track each phone by its IMEI number, limit bulk orders on the online deal, and stop supplying aggregators caught reselling. Assume the leak falls to 30% (15,000 phones) and tracking costs ₹50 lakh a month: 15,000 × ₹1,400 + ₹0.50 crore = ₹2.60 crore.
- C. Match the online price in shops. Cut the shop model by ₹1,500. Assume we sell 2 lakh of them a month: 2,00,000 × ₹1,500 = ₹30 crore.
All inputs are assumptions for the case, apart from the ₹11,500 online price and the ~95% leak reported by AIMRA.
Option B treats the symptom. The cause is the ₹1,500 gap. Brands are already signalling price rises of up to 15%. That gives us a natural moment to raise the online-only price by more than the shop price, so the gap shrinks without a visible price cut anywhere.
4Recommend
I recommend we track and cap now, and close the price gap at the next price revision. I wouldn't cut shop prices.
First, tracking by IMEI and capping bulk orders cuts the monthly cost from up to ₹6.65 crore to about ₹2.6 crore on our assumptions. Second, it shows retailers we're acting on their complaint, which protects our shelf space when volumes are already down 18-20%. Third, narrowing the gap during the coming price rise removes the reason to leak, instead of policing it forever.
The risk is that the online partner resists caps during sale events, and aggregators find new routes. I'd review the IMEI data every month. If more than 30% of online-only stock still reaches shops after two months, I'd stop making that model online-only.