Whether a tariff, a health epidemic, or a new device launch—when a large or outside event occurs—there is often an impact on the mobile supply chain and a trickle-down effect for smaller wireless and prepaid retailers. In this edition of Thought Leadership Thursday, we sit down with Sean Cleland, B-Stock’s Vice President of Mobile, to have a data-backed discussion on how recent macro events—including the Chinese tariffs, COVID-19, and the iPhone 11 launch—impacted the mobile supply chain, particularly the secondary mobile market.
Q: How has COVID-19 created a shift in geographic demand for used cell phone models?
It’s actually created several changes already. Because the situation is so fluid now, we’ve seen multiple market adjustments as the geography of the virus moves. The initial impact was in Hong Kong, where there’s a strong buyer base of secondhand cell phones. Geographically, Hong Kong is a free trade zone and inventory from there goes out to the world. The coronavirus affected products crossing the border there, as well as the population. As a result, an entire buyer base ceased purchasing because there was so much uncertainty about whether or not their downstream would come back. That has since self-corrected—they’re back and purchasing quite strongly—but during that time period in which Hong Kong ceased purchasing, other domestic markets stepped in, specifically North America. Buyers in these regions saw an opportunity to get inventory foreseeing a device shortage in the near future, so they bid aggressively.
Q: How did Apple’s recent supply chain disruption impact the secondary market?
The biggest impact was in parts, so it wasn’t necessarily Apple specific, but all of the upstream companies that supply Apple were affected as well. It’s important to remember all of the mainland manufacturing in China that was affected by both Chinese New Year and the COVID-19 outbreak. Combined, these two events affected even parts such as magnets and raw materials; there is a lot of production involved in creating a phone, so all of these changes impacted the forward end of Apple production. In the secondary market, the immediate effect was on parts supply companies. These companies build parts not just for Apple—but for the broader market as well, so refurbishers felt the impact pretty quickly. The long-term effects of this will likely be a decrease in inventory and supply of new mobile phones—which simultaneously has a positive effect on the secondary market: the shortage of supply on the front end will create a higher demand for pre-owned and secondary market devices.
Q: What impact did the iPhone 11 have on B2B pricing and demand for older devices?
The iPhone 11 was unique because it challenged the trend that Apple was only producing $1,000+ phones. So, when a new phone was introduced into the market at $699—that is better than an iPhone XR or X—the secondary market had to compress under that new retail price point. That $699 price point announcement sent the secondary market on a course correction to get product pricing under the 11. In addition, it was so well received globally that it solidified the fact that every model—that’s considered to be not as good as an iPhone 11—had to come under that price point. Think about it: if a consumer can purchase an iPhone 11 for $699, legacy products won’t sell for more than that—so there was immediate compression in the secondary market.
Q: What are some notable case studies for how wireless retailers have successfully adapted following a shift in the market?
Market wide, we can look at the macro trends that lead to change. In the ever-changing landscape of mobile devices, there was a time in which a Motorola flip phone or a Nokia phone were the most popular. But as consumers shifted what they wanted, the market adjusted based on demand. These same macroeconomics that take place on the forward logistics and retail also take place in the secondary market—if there’s a shift in devices that are liked by a consumer, this will start reflecting itself in the secondary market as well, regardless of channel.
Mobile carriers are another example of adaptation to changing trends. There was a time in which getting a new phone came at a discount for for entering a two or three-year contract, but that’s no longer the case. As consumers swayed away from contracts, carriers made their own macro decision and did away with long-term agreements and offered those same phones at a discount in exchange for a trade-in device, so they’ve found a creative way to subsidize those phones.
Q: What are some best practices when it comes to mitigating the effects of external events?
In our point of view, having the most diversity within the buyer base provides a tremendous advantage. Making product available to multiple geographies and different sophistication levels is really the first moat around your business.
We saw over the last several weeks that when a large group of buyers needs to stop purchasing, new buyers pick up the slack. So, there are always more opportunities for purchase when you diversify your buyer base.
Secondly, it’s important to not only look backward at data, but forward as well. In cases like this, we tend to forget that there have been macro challenges throughout the wireless industry. It’s pivotal to keep track of that data and ensure that we’re not only looking at comps every day but that we’re also really looking at industry trends and staying attuned to that.
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