New Phones are Out, Refurbished Phones are In

Just two years ago, a Business Insider article ran an opinion piece that read “never buy a refurbished smartphone from a carrier.” It went on to say that it was in a refurbished phone vendor’s best interest “to find any reason it can not to honor the warranty,” telling readers to stick with new phones fresh from the manufacturer instead.

But a radical paradigm shift, it seems, has occurred in the span of time since that op-ed. An article released by the same magazine just a few months ago titled “Demand for older-generation phones spiking” now reads “Refurbished phones now account for nearly one out of every 10 devices sold,” and described it as “the fastest-growing segment of the global smartphone market.”

The two BI articles above represent more than just a shift in the magazine’s vantage point regarding refurbished phones — from denigrating them to marveling at their growing impact on global smartphone sales. Rather, the articles mirror the growing mainstream acceptance of refurbished phones as a mainstay segment in global smartphone sales.

The numbers don’t lie: the refurbished phone market has consistently grown by 13% year-on-year for the past few years, according to Counterpoint Research. This is more than impressive, especially when one considers that the new smartphone market only grew by 3% last year — a huge downturn from its previous annual growth figures. On the other hand, consumer confidence on refurbished smartphones has only improved with time, and with it the outlook for the entire market.

As for the reasons why this is the case, a lot of things could be cited, but none are as weighty as the following changes in market and consumer trends:

· People actually want to keep their phones around longer. It seems smartphone manufacturers have literally outdone themselves by doing too good of a job in their previous flagships. A recent WSJ article points out that one of the major hindrances to new phone adoption recently is that previous entries are yet to run their course in terms of popularity. It seems that even after some years of use, old smartphones still serve their users well, which makes annual upgrades seem unnecessary, if not a hassle to deal with.

· People have better access to repair options. Some have dubbed 2018 the year of right-to-repair movements, because they have been cropping up everywhere, it seems. In America alone, at least 18 states have a version of right-to-repair bills awaiting congressional review, and it is expected that the number would grow as we continue into the year.

· Price has become the primary consideration for phone purchases. This is not news to anyone paying attention to smartphone trends these past couple of years, but it continues to play a significant role in global smartphone sales. It’s economics 101, really: as the supply of smartphones outgrow demand, the average selling price (ASP) drops. As such, people have a growing expectation for phones — new ones included — to be as affordable as they have always been, if not cheaper. This much is reflected in recent surveys that focused on user priorities when purchasing phones.

· Upgrades have become impossible to keep up with. Meanwhile, the ASPs of brand new phones have risen significantly in the past few years due to OEMs in general trying to outperform each other’s flagships. Globally, brand new smartphone ASPs have risen 6% year-on-year, whereas the ASPs of second-life phones in general continue to fall at unprecedented rates. The most recent report puts the average ASP of refurbished handsets at $180. Contrast this to the $1,000 price tag on an iPhone X, and you can quickly see why people are turning to the refurbished phone market for potential upgrades.

Lack of new and gen-specific features on new flagships. This is another major setback for the new phone market. In the past, the release of each new flagship meant the introduction of generation-defining features (e.g. water-proofing or Siri). Now, minor upgrades to current-gen capabilities like higher mAhs or better cameras — which barely add anything to the typical smartphone experience — are now enough to warrant a rebrand as a flagship. This has repercussions: as BI notes, “older models are often very capable of handling the majority of the primary utilities smartphones afford (meaning) consumers are less inclined to purchase a new phone if a refurbished phone satisfies their needs.

If current trends tell us anything, it’s that the sun may soon be setting on the new phones market as we know it. Meanwhile, refurbished phones are poised to take over as the primary market segment in its wake.