OnePlus, known for its strong online presence, aims to expand its offline retail footprint in India. However, this transition has been full of challenges. Retailers have expressed concerns, feeling they have been taken for a ride due to delayed payments, low-profit margins, and the company’s cash-and-carry distribution model. OnePlus has acknowledged the issue and apologized to the retailers in an email sent to The Mobile Indian.
Why the Offline Push?
OnePlus initially operated as an online-exclusive brand, relying on e-commerce to connect with its customers. As the brand expanded its product range to cover different price segments, the importance of establishing a physical presence became evident. Offline retail enables customers to personally experience the devices, addressing any concerns they may have.
Apologies Amidst Growing Tensions
Recently, OnePlus found itself embroiled in a dispute with the South India Organised Retailers Association (ORA), threatening to cease OnePlus product sales across multiple states from May 01, 2024. The issue stemmed from delayed payments and unresolved grievances concerning warranty claims and profit margins, prompting ORA’s drastic action. In fact, retailers under ORA have not billed any device from OnePlus since April 18.
Issues Faced by Retailers
Delayed Settlements: While ORA has highlighted the grievance of southern retailers, many other retailers across India have raised issues regarding prolonged delays in payment settlements from OnePlus in their interaction with us. These delays disrupt cash flow and create financial strains for retailers, who depend on timely payments to manage their operations.
Responding to The Mobile Indian’s query about the issues, a OnePlus spokesperson assured, “We are in close discussions with our ORA partners to ensure business continuity.”
“We acknowledge the issue with payment and sincerely apologize for the inconvenience caused due to the delays. At present, we have closed the majority of overall pending payments of mainline partners, and we continue to close all the payments in an efficient and fast-tracked manner,” said Oneplus.
“We acknowledge the issue with payment and sincerely apologize for the inconvenience caused due to the delays.
OnePlus said in an email to The Mobile Indian
The spokesperson added that OnePlus has also introduced more retailer-friendly payment settlement mechanisms for major affordability levers, which are being implemented since May 01 2024 – to provide quick payment of bank cashbacks.
Warranty and Service Claim Delays: Another significant concern highlighted by the retailers was the delay in processing warranty and service claims. Retailers report that these delays lead to customer dissatisfaction, as they have to deal with frustrated customers without timely support from OnePlus. This additional burden strains the relationship between OnePlus and its retail partners.
Low-Profit Margins: Retailers have also stressed the issue of low-profit margins on OnePlus products. OnePlus’s competitive pricing strategies leave little room for retailers to make a reasonable profit, which is necessary to cover rising operational costs. OnePlus has stated that its margin strategy is an internal business decision and is working on finding solutions that benefit all stakeholders, especially consumers.
The Cash and Carry Conundrum
Well, according to most of the retailers we contacted, the distribution model is the primary cause of conflict between retailers and OnePlus. Unlike other brands that usually offer credit lines based on retailers’ track records, OnePlus operates on a cash-and-carry model, which requires retailers to pay upfront before receiving stock.
Furthermore, retailers are frustrated by the requirement to bundle OnePlus products with other items, limiting their flexibility and resulting in stagnant inventory and missed sales opportunities. In simple terms, if a retailer orders 10 Nord 4 smartphones, they might receive 6 Nord 4s and four phones of a different model, which OnePlus wants the retailer to sell.
Retailers feel that the cash-and-carry model treats them like customers with no choice despite paying upfront. Furthermore, they claim that even after making timely payments, they do not receive devices as quickly as OnePlus’s official stores, creating an uneven playing field. Some retailers also face pricing issues, where OnePlus products are sold at lower prices in official stores and online compared to retail prices, affecting business.
Distributor is the King
Compounding retailer frustrations is the lack of transparency in order fulfilment, where distributors wield disproportionate influence.
Retailers have raised concerns about favouritism among distributors. One retailer said, “All major brands except OnePlus have apps to track real-time stock movement and know which retailer received what stock and when.” This opacity fosters favouritism and impedes market expansion, as OnePlus accepts whatever the distributor says as gospel truth said a Jaipur based retailer. He added, “If proper checks are not in place, distributor bias will play a spoilsport, and Oneplus will not get the true picture from ground zero, which will impact its expansion plans.”
The Rise of the Grey Market
The limited availability of products through official channels has also LED to the growth of the grey market. To avoid disappointing their regular customers, retailers often source products, such as OnePlus phones, from unofficial channels. The grey market operates through two primary mechanisms, each affecting the economy and consumer behaviour differently.
International Procurement and Unofficial Channels: Grey market operators procure products from international markets through unofficial channels by importing from lower-cost regions. These products are then sold in the target market at prices lower than the official market prices but still higher than their purchase prices, allowing grey market operators to make a profit. This impacts governments’ revenue, consumer warranties, and product authenticity and creates economic distortions.
Alternative Channels: Products from alternative channels, such as online retailers, are part of the grey market when they are sourced from legitimate channels but resold through unauthorized means. Grey market resellers buy products in bulk from online platforms, often taking advantage of discounts and sales. These products are then sold to brick-and-mortar stores or smaller retailers that may not be authorized dealers of the brand.
This can create artificial shortages, market distortion, and consumer confusion, as consumers may find it difficult to distinguish between authorized and unauthorized retailers. This could potentially lead to issues with product warranties and customer support. Similar to the first type of grey market activity, governments may lose out on taxes and other revenues if products are not reported properly or if sales circumvent standard tax collection mechanisms.
Case scenario: In the first type of grey market, smartphones are purchased from countries with lower prices, such as Hong Kong or the UAE, and then imported into countries like the United States or India, bypassing official import channels and avoiding taxes. Consumers might buy these phones at a discount, but they often miss out on manufacturer warranties and support.
In the second type, a grey market operator might buy smartphones in bulk during a sale on an online retailer like Amazon. These phones are then sold to small electronics shops that do not have authorization to sell that brand. The shops sell these phones to end consumers at a slight markup. While the phones might be genuine, the consumers face issues with warranty claims and support as the purchases are not through authorized channels.
OnePlus Smartphones and Grey Market
In the case of OnePlus, grey market operators procure Oneplus phones from alternative channels and sell them to retailers who are not authorized to sell Oneplus phones.
OnePlus did understand the gravity of the situation and said, “As a brand, we do not support, engage, or associate with any illicit or illegal practices such as grey market. The specific grey market instances will need to be reported to appropriate authorities.However, we’re actively supporting our mainline partners on this matter through our distributors.”
“We’re keen on expanding our distributor support in the coming months. We also require our mainline partners’ support to ensure businesses are conducted through official route,” said Oneplus Spokesperson.
Pre Activated Phones
Beyond financial disputes, retailers and consumers alike face security risks from pre-activated phones sourced outside official channels. This particular menace is creating headaches for other brands as well, not only OnePlus. These devices, susceptible to malware and lacking manufacturer warranties, underscore the perils of unregulated sales practices. Most importantly, they can threaten national security and create a cyber security challenge.
One of the retailers told us about a situation where a regular customer asked for a Oneplus phone. The retailer obtained the phone from an unofficial channel to ensure the customer didn’t leave empty-handed. After a few months, the customer encountered a software issue and took the phone to the authorized service centre. To their surprise, the Oneplus centre found that the device had been rooted when they tried to fix the software problem. Additionally, it was discovered that the person who sold the phone to the retailer had purchased it through an EMI (Equated Monthly Installment) plan and had paid only the first instalment before rooting the device to hide this fact. When the phone got the original software, the EMI App also got activated, and it blocked the phone remotely, rendering it unusable due to non-payment, as only the 1st EMI had been paid.
Interestingly, many users have even talked about receiving pre-activated phones on different forums.
Way forward
OnePlus navigates a pivotal juncture in its Indian expansion strategy, balancing aspirations of offline growth with the realities of retail dynamics. The journey forward demands not only the Resolution of current disputes but also a commitment to collaborative innovation and transparency, ensuring sustained partnerships and customer satisfaction. Hopefully, OnePlus will not Settle until it finds a permanent solution that will be a win-win for all stakeholders.