Why Carphone could face difficulties

Why Carphone could face difficulties
1. The operators
Operators appear to have mixed feelings regarding their relationship with Carphone and, although they give statements saying that Carphone is an important sales channel, they all privately say their own channels have lower acquisition costs and are better quality than all third-party channels.

Dunstone says: ‘There is still an ambition from all of the operators to increase their market share. Every month people are asking us to do more business than we can do.’

Operators say they are still looking for new connections, but the big focus is retention, and operators have become shrewder and faster when it comes to keeping their customers. As an example, O2 has moved its group incentive to new connections towards retention. Similarly, Orange has brought sales and retention under one umbrella. All of them are also opening even more of their own stores.

2. Sim-only
Sim-only sales represented 20% of all of O2’s new contracts in the last quarter. Other operators are looking at those numbers and are also pushing Sim deals lured by little to no costs in acquiring belt-tightening customers. For independent retailers and manufacturers, it represents a frightening trend.

Dunstone says: ‘Sim-only has been around for a while. Our experience is the thing that really drives the market is handsets.’ He also says: ‘It’s a relatively limited marketplace; we’re not seeing an impact at present.’

3. Vodafone
Not having the BlackBerry Storm will have irritated Carphone, and will return the conversation to the absence of Vodafone in its range. It is just over two years since Vodafone pulled out of Carphone, and now it has one of the most exciting handsets on the market, not to mention a heavily marketed mobile broadband service.

The main individuals in the fall-out are now gone from both businesses (Carphone’s trading director, and latterly COO, John Durkan has joined an Australian supermarket venture with a string of UK retail directors, while outgoing Vodafone CEO Nick Read has moved to an Asia-Pacific role).

It is believed that some discussions took place, with sources claiming certain Vodafone postpay products were even tested by Carphone earlier this autumn.

Vodafone’s objective from the Carphone withdrawal was to stop the retailer’s increasing power in the market. It still has a prepay relationship with Carphone, but there is a completely different dynamic in the market from two years ago. The arrangement appears to bear few advantages for either company now.

Vodafone’s former leadership of the market has diminished (more because of O2’s growth than because Vodafone pulled out of Carphone), and it would clearly see a spike in sales from, say, having Carphone pushing its mobile broadband deals and BlackBerry Storm.

The first steps by new Vodafone UK CEO Guy Laurence as he starts his role in January will be eagerly watched.

Conversely, if Laurence revives Vodafone without Carphone (taking a bigger share of the market) and snaps more exclusive products and services, it will clearly be to Carphone’s detriment.

4. Store closures
Carphone has attributed the £19m charge of store closures in the financial results to ‘relocations and refits’ of 100 older stores. Some analysts are convinced that the current 800-store estate is simply not viable in the current market.

CFO Roger Taylor says: ‘We’re reviewing those [100] stores at the moment to see which ones are closing. Some of them have pretty negligible contribution – £2m to £3m collectively or £20,000 to £30,000 per store.’

For the last year, it has been glaringly apparent that the smaller stores will not accommodate laptops for display and do not fit easily with Carphone’s multi-product strategy. The other option is that they could be used as collection points for customers buying products online or over the phone.

Taylor expands on this point: ‘The alternative is to reinvest to reinvigorate them and, if you look at the way we’d like to allocate the cash, we’d rather invest in our new store format, which offers a better rate of return, so a lot of staff would relocate to the newer stores.’

5. Stock
Carphone’s group warehouse near Wolverhampton is understood to have been full to the rafters with stock in recent months. This might be nothing but a momentary blip, and Carphone’s trading team are past masters in shifting stock.

However, with the market in such sharp decline it will become increasingly harder to move stock on if it over-orders or buys the wrong products. The same goes for everyone in Carphone’s supply chain. Manufacturers are also running tighter and will have less room to take back unwanted stock.

6. Consumer downturn
There is no escaping the pressure on Carphone and its huge costs with the downturn in consumer spending. Dunstone maintains that there will not be job cuts at store level. No-one knows how long the recession will last and how deep it will be. It may be something that everyone faces in the current climate, but the unknown is, arguably, Carphone’s biggest looming threat.

Written by Mobile Today
Mobile Today


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