The demise of independent mobile phone retailers.

by Kate Stevens
2nd February 2009

In the 1990s, independent mobile phone dealers were a mainstay of the industry, with thousands of specialist outlets springing up across the country. However, their numbers have since dwindled in the face of intense pressure from both market-led and external forces and today you are more likely to see a Carphone Warehouse or Phones 4u in their place. In 2006, the All-Party Parliamentary Small Shops Group held an Inquiry entitled High Street Britain: 2015 concerning the long term prospects of the UK’s small retail sector. It found that, while the small retail sector is an essential feature of life in Britain, many such small shops across the UK will have ceased trading by 2015. Looking at the problem in terms of independent mobile phone retailers, what is causing this mass exodus from the high street? And can the remaining outlets continue to trade in such an apparently hostile environment?

A few big players rule the roost

The wave of mobile phone retailers onto the high street began in the early 90s, although at this embryonic stage of development it was largely considered a niche market. As mobile phones increasingly became a mainstream product, so the growth of retailers proliferated. As is the case with many retail sectors, there was an inevitable consolidation of both individual outlets and smaller chains as investors saw the financial potential of this market, leading to a loss of independent dealers.

Today, the industry is dominated by a handful of large multiples, answerable primarily to their shareholders. With their size comes obvious benefits, including increased buying power, economies of scale, large scale marketing campaigns, and support from e-commerce functionality. In such a trading environment, it is to be expected that the relatively few remaining independents are struggling. Too often undercapitalised, understaffed and without the benefit of the technology and resources that big retailers have, the independents are becoming fewer and fewer in number.

Network operators maintain the pressure.

Mobile phone retailers make a significant proportion of their revenues through acting on behalf of network providers, with a commission of around £350 and £500 to sell a contract on their behalf. However, the five mobile network operators in the UK have taken to handling sales directly to save costs, rapidly expanding direct sales channels over the past couple of years by increasing the number of own-branded stores and investing in internet and telesales functions. As such, the independents are coming under significant pressure to lower commissions in order to compete, despite operating on already tight profit margins. The balance of power is certainly shifting towards the network operators and away from the independent retailers.

Vodafone looked to enforce further commission rate cuts in 2008, however this was met with hostility from independent stores. Some 10,000 stores boycotted Vodafone products over a weekend in what was the second protest of its kind against the company’s unpopular actions. Vodafone said in its response that it would not process another rate cut for two years. But Trading Director of SPAR UK, Chris Lewis claimed that this indicated that Vodafone's long-term strategy will probably be to continue reducing rates. "History shows that when one network reduces, the rest will follow, so the long-term picture is bleak," he said. "This undermines the business model for the category, and potentially threatens the long-term future of service providers, as what little profit retailers make mainly comes from the top-up area, not utilities."

Credit crunch adds to woes.

The mobile phone industry in general is struggling. The market has largely reached saturation, with the vast majority of consumers already owning mobile phones and the pressure is on dealers to continually push consumers to upgrade and renew. This is coupled with a downturn in the economy which has affected retailers across the board. The mobile phone industry is predicted to report a bleak Christmas trading period, with equipment sales likely to be down by as much as 15% on last year. In addition, total sales in the last three months of the year are thought to be just above three million units, down from about 3.6 million for the same period in 2007.

Survival of the fittest.

The mobile phone industry is becoming an increasingly difficult arena for independents, with the large corporations, operators and worsening economy all seemingly conspiring against them. As a result, some independents have gone out of business altogether, however there are others which are fighting back. The website indie-guides.co.uk was set up for exactly this reason - to promote independents over the larger multiples. Indie-guides Managing Director, Steve Wickens explains: "It is a simple concept designed to be an inexpensive yet effective way of helping independent businesses prosper against the tide of corporate competition." It allows the independents to flaunt their independent status, with many emphasising their "specialist friendly advice". Indeed, independent retailers offer - in contrast to large multiples - depth of experience, local knowledge, objectivity, specialist service and personal attention, in fact, customers often deal with the owner or manager. Furthermore, many independents have diversified their product offerings to include new products and services, for example mobile data products, repairs, unlocking services, car installations, Nokia Care service centres and B2B sales.

Mobile phone retailer Get Connected is one independent which has been able to buck the trends seen elsewhere in the industry. Already with a network of 45 stores in Wales and the Midlands, it has pledged to open 30 more outlets by the end of 2009 which would make it the largest independent mobile phone retailer in the UK. Managing Director Damian Cole attributes the company’s success to strong customer service in both the retail and corporate sector, and expansion without borrowings. "To some people our business model may be considered too conservative, with so few borrowings. I was brought up to live within my means and that is the way I run the business. Some businesses in our industry have relied heavily on the banks and supplier credit and are now paying the price," Cole explains.

What for the future?

The report High Street Britain: 2015 considers that the prospects for independent retailers are fairly bleak. With larger retailers, such as Carphone Warehouse and the expanding network providers, along with the economic recession, all threatening the plight of independent mobile phone retailers, the conclusion surely should be that, indeed, there is little hope for survival. However, there is sufficient evidence to suggest that the small, local traders are willing to put up a fight against these big players. Independents have much to offer, a fact which is increasingly being recognised by the general public. It certainly represents a David and Goliath battle, but many of the independent mobile phone retailers are prepared to give as good as they get.

Are you an independent dealer? Tell us your story!

Kate Stevens is a Retail Analyst for Planet Retail
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