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Fraudsters pose challenge to UAE's refurbished phones market.

Dubai-based Linker General Trading has just offloaded a new shipment of over 4,000 smartphones. The store is teeming with customers anxiously sifting through heaps of second-hand iPhones and Samsung Galaxy S4 smartphones that are part of the latest stock, as more and more customers stream in by the hour.

It is a scene replicated across dozens of stores that dot

the narrow arterial lanes of the Deira Central Business district, a reflection

of the booming business in refurbished smartphones amid growing demand from

price-conscious shoppers.

While several retailers in Dubai have traditionally offered

trade-in services to customers upgrading to higher-end phones, sales for

pre-owned smartphones are witnessing unprecedented levels, as traders outdo one

another to appeal to evolving customer tastes. Hundreds of thousands of pre-owned

smartphones, in various models, are being imported from the US and Europe.

The worldwide market for refurbished smartphones is set to

grow to 120m units by 2017, with an equivalent wholesale revenue of around

$14bn, according to research firm, Gartner. This is up from 56m units in 2014,

with an equivalent wholesale revenue of $7bn.

Linker General Trading imports between 4,000 and 5,000

refurbished smartphones weekly, and most of this stock often runs out in the

first two days of delivery, owing to high demand.

"Nearly every month a new smartphone hits the market,

prompting customers to trade in their older devices, often still in pristine

condition," says Issa Asghar, managing director at Linker General Trading. "The

used devices have a high demand among price-conscious consumers who would want

to pay less for a premium brand such as iPhone, Samsung, LG or HTC."

His company imports refurbished versions of recent phone

models manufactured by Samsung, LG, iPhone, Motorola, Blackberry and HTC. Some

of these devices are sold at less than 50% of their original prices.

For example, a refurbished Samsung Galaxy S4 goes for AED430

compared to its launch price of AED2,599 two years ago. An LG G3 goes for

AED800 compared to its last year's inaugural price tag of AED2,499, while a

Samsung Galaxy Note 4 can go as low as AED1,100, down from its original price

of AED2,799 last year.

"We work with various suppliers in USA and Europe who

collect phones that suit the tastes of our growing number of customers. Some of

them do not come in their original packaging, but they are all tested for

defects and most of them are scratch and dent free," says Asghar, whose

customers include resellers from other Gulf Countries and Africa.

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Gamez General Trading, another Dubai-based dealer of

refurbished phones from USA and Hong Kong, imports over 2,000 units weekly. The

company sells to local retailers and individuals, who often have to pre-book

orders based on the models and quantities required.

"We are well positioned to supply any quantity within the

line of brands that we deal in," says Hassan Ayoub, sales manager at Gamez.

"All our imported smartphones are fully unlocked and ready to work on any

mobile network around the world."

A recent survey of US and German consumers by Gartner found

that 60% of respondents replace their smartphones because they want the latest

features or simply because they "just want" a new phone.

US companies such as ERecyclingCorps and Brightstar buy used

phones and spend around $50 to polish up scratches and wipe all data, and then

resell them at a profit to distributors around the world, but mostly in Asia,

Middle East and Africa.

US carriers such as Verizon and AT&T both have refurb

programmes, and so do online retailers such as Amazon, eBay, and Overstock.

Some pre-owned smartphones do not need to be refurbished if found to be in

perfect condition.

UAE retailers such as Axiom and Sharaf DG have, over the

years, offered smartphone trade-in services, while online shopping sites such

as Souq.com and Dubizzle.com are famous for their second-hand smartphone

bargains. But despite the availability of these services, they often fall short

of providing potential buyers with a wider selection from a single source and

in desired quantities.

Analysts believe however, that the new-found love for

refurbished phones may halt global sales of smartphones that have grown to

337.2m units in the second quarter of 2015 from 302.1m units in the same period

last year, representing an 11.6% increase, according to a Gartner report

released earlier this year.

"Stakeholders that are already participating in

take-back or trade-in programmes need to have a strategy for turning used

devices into a positive asset," said Meike Escherich, principal research

analyst at Gartner EMEA. "Others - particularly high-end phone original

equipment manufacturers [OEMs] - need to take a closer look at this market in order

to evaluate the impact these second-hand devices will have on their market

positions and revenue streams."

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This trend is also likely to negatively impact companies

that focus on mid-range devices, such as InnJoo and Xiaomi. Instead of

purchasing a phone that offers a good value, an older premium device for the

same price may seem more attractive.

Unscrupulous vendors

Probably the biggest threat facing the smartphone

refurbishing business is dishonest retailers selling refurbished phones by

passing them off as brand new. Because of the deception, growing numbers of

consumers are opting for these "new" phones, which have an additional AED40 to

AED50 overhead associated with packaging. However, while carrying a higher cost

to the consumer, the devices are still considerably cheaper than mainstream

retail prices and yield higher margins for the seller.

The industry is further threatened by cheap "knock-offs"

from China that are sold as refurbished phones or packaged to appear genuine to

unsuspecting customers due to their near similarity. These are sold in the UAE

and also exported to neighbouring countries.

Dubai Police alone has, since last year, seized fake mobile

phones worth over AED100m in a bid to protect vulnerable customers. But many

more still find their way into the country, smuggled in the form of bulk

components that get assembled at various home-based assembly lines in Deira and

Bur Dubai.

Premium feature-packed refurbished smartphones continue to

hit the shelves at considerably lower prices, as newer models hit the market.

And as the industry takes shape, candid sellers will hope consumers become more

adept at discerning them from those passing off second-hand merchandise as new.

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Date:Sep 17, 2015
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