Why Carphone is in a strong position

Why Carphone is in a strong position

1. No debt
Clearing the massive debt that recently loomed on Carphone’s balance sheet through the Best Buy deal enables Carphone to effectively trade day-to-day. It is also in a good position to make smart acquisitions if businesses become available at a knocked-down price. This is likely to happen as more companies become vulnerable.

2. Laptops
Carphone was the fastest retailer to apply the familiar subsidised model to laptops, with fixed and mobile broadband subscriptions. It already has 10% of the laptop market and aims to build a market share for laptops akin to the share it enjoys on mobile phones. The retailer is looking to build purchasing power with laptop manufacturers and increase its range.

3. Big Box stores
These stores form the foundation of Carphone’s deal with Best Buy and will start appearing in summer 2009. Ten times larger than Wireless World stores and located in out-of-town retail parks, Big Box stores will focus on selling larger electrical products. Between four and five Big Box stores are set to open next summer, with a well-placed source adamant that Milton Keynes has been identified as one of the first locations, despite official denials. £20m has been put aside to set up the first batch next year, with a total investment of £92m planned for the first 100 stores over the next five years.

Despite the downbeat outlook that surrounds consumer spending in the immediate future, Carphone’s attitude is that this will ultimately end at some point. The company is exploiting current market conditions to snap up cheap leases on prime locations and the best staff. Carphone is also going against incumbent retailers in the form of DSG (Curry’s and PC World) and Kesa (Comet in the UK and Darty on the Continent), which appear to be struggling with sales and new ideas.

4. Wireless World
Carphone’s 3,000 sq ft concept store in the new Westfield shopping centre (a few miles from its Acton headquarters) has been the big talking point for everyone at Carphone over the last few months. The format provides a more ‘interactive’ store experience, with a broader range of products that extend to gaming, TV-over-internet ‘Slingbox’ devices and iPods.

New business and multi-channel director Andrew Brem is spearheading the Wireless World stores, with Westfield, Romford, Bristol and Portsmouth forming the first wave, and between 30 and 50 understood to be in the pipeline for next year. Early signs are that, although the new format is more expensive to staff, stock and fit with plasma TVs and display units, they are much more profitable than the conventional stores.

5. Best Buy buying power
Combining Carphone and Best Buy’s buying power is already causing jitters for DSG and Kesa, not to mention some regional suppliers who fear the power of the new group’s collective muscle at the negotiating table.

One source close to Carphone says: ‘There is already some leveraging going on. To be able to start with matching or beating terms that they [DSG and Kesa] have, puts Carphone in a ridiculously good position as a challenger brand.’

Apparently, estimates of savings from group buying have already been made, even on small categories, such as memory cards, and the estimates have set pulses racing. Single global accounts are currently being pursued, with between one year to 18 months estimated as the length of time it will take to secure them.

Another supplier says: ‘We are not interested in them just pooling [Best Buy USA and Carphone]. The idea of them bringing incremental business will naturally appeal. We will want to hear a compelling pitch and everyone will be wary that they will ratchet it up and then just push for discounts.’

6. Recurring revenue
Carphone has a revenue share arrangement with O2, with money continually paid to Carphone over the course of a customer’s contract. It has a much more diluted arrangement in place with Orange and there were hints from Dunstone that deeper revenue share deals would be agreed with two other networks (believed to be Orange and 3). Carphone already has recurring revenue from its considerable insurance business, easing the pressure on new subscriptions to feed the coffers.

7. Carphone: better than most on the high street
With the future of Woolworths and DSG in doubt and clothes retailers, such as M&S, having to rush into offering early discounts, the prospects for Carphone look rosier. Since phones are free on contract deals and are considered, arguably, less of a luxury than a new coat or television, Carphone is likely to be far from the first retailer to hit the rocks.

8. Operator exclusives
On the surface of it, the trend for operators to work harder at getting one or two exclusives does not appear to work in Carphone’s favour. One senior operator source says: ‘Undoubtedly, it is close to impossible to get the perfect experience on all of the handsets we range. But it is very easy to get it spot-on with one fantastic device. And we have the benefit of having that device exclusively. You will definitely see more of that next year.’

Referring to the exclusives of the iPhone with O2, the BlackBerry Storm with Vodafone and the Google phone with T-Mobile, Dunstone says: ‘It’s changing the dynamic and moving the world in our direction. We’re the only place where you can come to see all of these things under one roof.’ Aside from the Storm, of course.

Even operators’ attempts to keep exclusive stock within their own direct channels is difficult because they have to agree to huge volumes with manufacturers to secure exclusivity, and it would be near impossible to shift large volumes from only their stores and websites.

9. Staff morale and no sales commissions
After a flirtation with a harder sales focus, Carphone has returned to its service roots, but with a few bumps along the way.

Back in 2005, Carphone identified that its footfall-to-sales conversion was well below Phones 4u. Staff had been used to waiting for customers behind a counter and simply executing transactions.
The retailer drafted in the services of former Phones 4u director Anthony Catterson in April 2006 to instill a new sharper sales edge. Staff were told to come out from behind the safety of the counter and start selling.

The response was terrible. For veterans, this was antithetical to the belief that Carphone was different to arch rival Phones 4u, where customers could browse without being jumped on. Catterson never really won over the rank and file at Carphone, who regarded him as ‘Mr Phones 4u’.

Catterson left in April this year and a radical new commission scheme was unveiled in October by new retail director Steve Blan (formerly of DSG). It is being trialled in Carphone’s London stores, and will be extended to the whole company from January. It marks the end of personal commissions, and moves to a team profit share, shifting the emphasis from sales to service.

Dunstone says: ‘The whole business needs to be about advice and service. We’ve already seen a big improvement on quality of sales. We’ve measured it on a net promoter score – how likely is someone to recommend you to one of their friends.'

Written by Mobile Today
Mobile Today


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