The demise of independent mobile phone retailers.
by Kate Stevens
2nd February 2009
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.
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
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,
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.
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.
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,"
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
Are you an independent dealer? Tell
us your story!
Kate Stevens is a Retail Analyst