Just before sales begin, the chains marketing models of Apple's iPhone X are engaged in a price war. In recent days, they have each cut the prices that they published during the past two weeks. I Store, a small chain, announced a NIS 300 cut in its price, Makhsanei Hashmal cut its prices by NIS 70, and iStore, the official importer, has announced a NIS 60 reduction in the prices of its models. Even iDigital was affected, and announced a NIS 100 downward revision of its prices.
"This price results from necessity, not choice," says iStore owner and CEO Haim Zaguri. "The competition and goal of having the lowest price have made both us and our competitors lower the price." In the same breath, like other parties in the sector, including Pelephone Communications Ltd. CMO Ilan Sigal, Zaguri says "The demand is historic and hysterical, and inventory is rapidly running out even before the launch."
It is believed that the inventory allocated to all marketers in Israel is in the tens of thousands. As in all its launches, Apple is taking care to generate demand in excess of the supply and a shortage at all of the sales points. The question is why prices are being lowered if the demand is so great and the inventory is limited, which means that there is apparently no reason to lower prices. "On the face of it, that's true," Zaguri admits, "but when a specific player offers a price lower than ours, we'll follow suit in order to preserve our place in the competition, even if it means making a smaller profit."
The 3-4% profit margin per device on iPhone models is dramatically lower than those on the other Apple products, and in comparison with competing smartphone models. The marketers confirm that the real profit on iPhones comes from peripheral equipment, not the phones themselves. Profit margins are 8-10% on iPads and 12% on Beats headphones, both made by Apple.
Apple itself sets minimum retail prices for its devices. Marketers with a distribution agreement (Electra Ltd. (TASE: ELTR), iDitigal, iStore, etc.) get the same minimum retail price, and making a profit does not leave them much maneuvering room with their retail prices. The marketers say that Apple monitors them, among other things through customers on the sales floor, while all advertisements must be approved, and Apple does not hesitate to cancel distribution agreements at a moment's notice.
Just how unprecedented is the demand? Pelephone says that 15,000 customers have registered in advance to buy the new phones. Makhsanei Hashmal online mobile manager Liron Katz says that less than 1,000 devices have been allocated to his chain - one fifth of the orders he sent to Apple. "After getting 500 advance orders through the website, I had to stop selling, so that I would still have inventory left to sell at our public events at night."
Makhsanei Hashmal conducts its public events at night in Eilat - a popular place to buy mobile phones because of the VAT exemption there. In Eilat, the 64-gigabyte iPhone X will sell for NIS 4,100 and the 256-gigabyte model will sell for NIS 4,500. Additional launching events will be held throughout Israel at night events, and official sales will begin tonight at midnight.
Katz believes that demand for the devices is strong for the very reason that they are the most expensive on the market, and therefore constitute a "significant status symbol, just like fashion brands and cars."
Another source in the sector says that even before the official prices were published, fanatics paid enormous prices in order to be the first to have an iPhone X. "Ecommerce websites sold phones in Eilat for NIS 6,600, and our traders even sold them for NIS 9,000. We sent 5-6 people abroad, and each one returned with 10-20 devices. If they managed to get them into Israel without paying tax, we made more money, and even if we had to pay tax, the profit margin was still enormous," the source explained. Apple's official price overseas was $1,000 for the 64-gigabyte model and $1,150 for the 256-gigabyte model (for a device used on overseas networks).
In addition to the authorized marketers for Apple's models, as well as for the models of other manufacturers, there is an extensive gray market. "There are stores marketing iPhones that were previously owned, what is called CPO, without the consumer knowing anything about it. The device, which is repackaged and looks new, is not necessarily sold at a dramatically lower price than those sold by the authorized marketers," Katz says. The state of the device can be checked on the imei website by typing in its serial number. "You can already find such iPhone 8 models, and there will soon be iPhone X models, too."
Of the tens of thousands of devices that will reach Israel, 40% are being sold by the mobile network operators (Partner Communications Ltd. (Nasdaq: PTNR; TASE: PTNR), Cellcom Israel Ltd. (NYSE:CEL; TASE:CEL), HOT Mobile Ltd., etc.). The other 60% are being sold on the open market, divided equally between the retail chains and private stores, Katz estimates. He says that the mobile communications market in Israel has a NIS 4 billion annual turnover, and numbers are growing, given the shorter lifespan of smartphones among consumers. "Heavy users replace their phones more frequently," he says.
"Globes": Do you think that this iPhone will change the balance with Samsung, which has a larger share of smartphone sales?
Katz: "In turnover, I think that the balance will change, but not in quantity, because the gap is still wide. I recently returned from China, and people there are running amok in anticipation of the iPhone X. There hasn't been such hysteria since the iPhone 5 was launched."
Published by Globes [online], Israel Business News - www.globes-online.com - on November 22, 2017
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