Analyst Q&A: Verdict Retail & the Smartphone Sector

Analyst Q&A: Verdict Retail & the Smartphone Sector

Verdict Retail is the leading authority on UK retail, with an ever-expanding international focus. Their research proposition builds on a 30-year body of knowledge and they’re uniquely placed to answer fundamental business questions.

Verdict Retail provides retailers, manufacturers, suppliers, property companies, city analysts and professional services companies with the business intelligence and insights needed to operate at maximum efficiency right now, and to prepare brilliantly for the challenges that lie just around the corner.

This week’s analyst Q&A features Heena Sharma who talks to us about the global retail market sectors experiencing the biggest growth in 2016, and the various factors driving this. Remember to check back tomorrow for part 2.

 

Q1. What sectors of the global retail market will witness the biggest growth in 2016? What is driving this growth and for how long do you expect it to continue?

Overall, the global retail market will grow at 4.8% in 2016, recovering from 3.6% decline in 2015. At a category level, communication equipment is expected to record the highest growth at 9.5%, mainly driven by an increase in smartphone penetration in emerging markets. Similarly, growth in developed markets will be attributed to smartphone upgrades and luxury smartphone purchases.

During 2015–2020, communication equipment will record a CAGR (compounded annual growth rate) of 9.9%, slightly lower than the growth rate recorded in the historic period. To save time and for convenient access to the internet, consumers will continue to favor smartphones that offer multiple solutions and can be used on-the-go. They now prefer smartphones over single function devices, such as digital cameras, camcorders, gaming devices, and media players, for their multi-functional features and quality. Mobile phone manufacturers are also producing smartphones that have high-end cameras or are specially designed for media play.

Rising affordability is also a key factor that has contributed in increasing smartphone penetration. In addition, the introduction of high-speed networks in developed and developing markets together with demand from tech-savvy shoppers have fueled growth in smartphone upgrade market. Of these, price is increasingly becoming the deciding factor as consumers seek value-for-money options.

Affordable smartphones, such as the Motorola G series, Xiaomi Redmi, and Oneplus, have created a revolution with their higher specifications at a significantly lower price. These mid-market or ultra mid-market phones are contributing to a major share of sales in developing markets. For example, China will generate the largest value growth of just over US$100 billion during 2015–2020; Chinese telecommunication company Huawei will become the leading player in the market. India will also increase its importance in the global communications market as it is set to witness the highest CAGR of 24.6% during 2015–2020 on the back of the rising purchasing power of the middle-income group, a tech-savvy working population, and the increasing influence of the younger population in making purchase decisions. In India, smartphone penetration is very low and huge demand exists for the mid-priced segment, which is aptly being targeted by online retailers through exclusive partnerships with affordable smartphone manufacturers.

However, affordable smartphone brands are more popular in their domestic market and region, which are predominantly in Asia–Pacific, and the western world is yet to embrace them as a quality product. Over the next five years, driven by high growth in China and India, Asia–Pacific is expected to register the fastest growth of 12.4% in communication equipment sales, closely followed by the Middle East and Africa and Europe with CAGRs of 7.6% and 7.4% respectively. Economic adversities in Latin American markets will affect consumer spending on discretionary items. This will affect the overall growth of the Americas region, which will record a CAGR of 6.4%.

Other sectors expected to witness fast growth are unpackaged food and jewelry, watches and accessories, at 8.4% and 7.7% respectively. The expansion of modern retail, and demand for value and fresh products will support the growth of unpackaged food, whilst increasing brand consciousness among the emerging market population and the rise of fast fashion will be major factors driving sales of jewelry, watches and accessories.

 

Conclusion

As we can see from the above, the communication equipment market is the retail sector experiencing the strongest growth in 2016. Spurred on by smartphone penetration in emerging markets and sales of multi-function devices, the communication equipment market is expected to grow at a CAGR of 9.9% by 2020. The Asia-Pacific region will register the fastest growth in this market, with a CAGR of 12.4%.

Remember to check back tomorrow for part 2 of this Q&A, which focuses on the global food and grocery retail market and the biggest challenges it faces today.

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