Smartphones are often touted as the bread-and-butter of Indian e-commerce companies, contributing an estimated 47% of their total sales by value. But a bulk of these sales are from fraudulent resellers and not actual smartphone users, according to market research firm techARC.

In an April 09 report, the Gurugram-based firm said that “around 40-45% of online smartphone sales are fraudulent transactions initiated by resellers.” The research is based on interviewing retailers, distributors, logistics companies and others in the value chain.

Resellers often manipulate loopholes in e-commerce websites to order popular smartphones in bulk. These devices are then sold in brick-and-mortar stores, where the resellers “(take) advantage of the brand pull as well as unavailability of specific models online after the flash sales are over,” techARC noted.

techARC Real versus artificial demand.

In reality, the research firm said, only 21-24% of the total smartphones sold in India are bought online by end-users.

The main draw among consumers for this online shopping segment—which has grown on the back of discounts, buyback offers, and easy financing options—is affordability. India’s largest online retailers Flipkart and Amazon are always chasing exclusive tie-ups with phone-makers to bring people better deals.

However, resellers making bulk purchases are absorbing the perks of lower prices by eventually selling the phones in the stores at the market retail prices. Sometimes, limited or out-of-stock models may even be sold at a premium.

Besides customers, smartphone brands and retailers also get duped by the rosy industry statistics. Some brands may overestimate the increase in their online smartphone sales and wrongfully shift focus away from offline retail, thereby hurting sales.

Offline channel partners may also enter into alliances with predominantly online smartphone brands, buying stories of their success, which may or may not turn out to be entirely true.