Cutting Room: O2 knife edge between retail vision and staff disillusion

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O2 is showing real strategic leadership in the market to reinvigorate its retail business, but it risks alienating staff as redundancies loom unless it manages the situation delicately

“This is an exciting time for O2”. So says the O2 release that attended announcement this morning (January 14) of store closures and redundancies.

It was insensitive, in the circumstances, because there are many hundreds of loyal O2 retail staff now worried for their jobs.

There will, no doubt, be anger among shop staff too, as they question why the UK market leader – in brand terms, and in most other terms too – feels it necessary to scale back front-line operations.

But actually if we take O2’s word, that investment levels and staff numbers in retail will ultimately increase in 2011, then its restructure of retail should be considered, perhaps, a timely reinvigoration that reflects the changed market.

O2’s record for the past five years has been good, of course. It has consistently outrun the market in terms of customer additions, customer retention, revenue growth and profitability.

Its latest restructuring, at the start of its new financial year, must be viewed in the context of this kind of strategic momentum.

It would be perverse to regard it as a knee-jerk response. Its track record says otherwise.

So, why cut certain roles and stores? It has 270-odd fewer shops than Everything Everywhere, the merged Orange/T-Mobile business, as it is.

Forty fewer sites brings it much closer to Vodafone in terms of its retail footprint (450 by April, compared with 400 under red signage), and Vodafone is is a good distance behind these other two in third in terms of UK customer numbers.

Surely cutting front line resources when Vodafone has sudden momentum as an aggressive challenger for new business and Everything Everywhere has vast resources by comparison is wrong-headed?

Well, O2’s review of retail operations makes sense, and represents a kind of anti-Everything Everywhere strategy – which effectively questions that company’s stated expansionist policy.

Because contract terms for customers are longer now than they were a couple of years ago; two-year subscriptions are standard with smartphones, and 80 per cent of subscribers will take smartphones in 2011.

So unit sales must decline.

Mobile hardware and software has become quite complex suddenly, more closely integrated, affording greater cross-platform functionality.

So decision-making, advice and technical know-how in store is increasingly vital for retailers, and should offset a decline in footfall for straight box purchases.

Voice revenues have continued to slump all the while. Data revenues have crept upwards.

The promise of ‘4G’ LTE will see data rates spiral in the next few years, as network capacity and service improves.

But data revenues will hardly grow in line – £30-£40, or a 2013 equivalent, is at the top-end of what the mass market will spend. So there must be a drive for efficiency within network operators.

Regardless, skilled front-line staff to encourage punters to fill the airwaves will be essential.

Physical retail will continue to be where operators do battle in the consumer market. But the new balancing act to be profitable makes infinite high street retail obsolete.

What operator needs 750 shops (and counting), or even 490, in a saturated market place, when the task at hand is keeping existing punters happy and putting more services in their hands?

It will be interesting to see where O2 makes redundancies and cuts shops, precisely.

Logic suggests the smaller stores that have been so far identified as under threat will be in big urban centres, where parallel sites are in closer proximity.

Smaller shops in market towns might be protected on the grounds they are isolated.

As an aside, if they are considered for culling too, then it might just spark a revival in independent community retailing, and even roll out of a franchise programme by O2 of the nature of Orange’s stop-start programme with Go Mobile in the Midlands.

Whatever. O2’s move must be assessed in the context of its leadership in the market for four years, an achievement in part made possible by consistent management personnel and vision.

This new move looks deliberate, informed by market conditions – as opposed to reactionary, governed by operational difficulties.

The appointment of 250 new technical staff will offset some redundancies. O2 has said it will finish the year with broader staff resources in retail, even if there are fewer physical sites.

It has promised remuneration for staff will be better too.

Clearly, it wants expert individuals to have career prospects, and to take their work seriously, rather than school leavers and short-term holiday appointments of the kind that dominate retail in general.

But, back to the start, this “exciting-time” press release, essentially a grim statement about job cuts, must stick in the craw for many staff. It is a mixed message, which O2 must handle carefully.

The plan is to avoid compulsory redundancies, and seek volunteers.

But one must assume there will be little choice for managers, assistant managers and staff in 40 of O2’s shops. And disillusion will spread like plague unless it handles the situation well.

It is important O2 identifies stores to close early, makes clear to certain staff they face redeployment or redundancy early, and ‘gee-up’ and stay close to those it is sure to take forward with it.

It is fine to read the market early and act decisively, but there could be black dogs for it in the gap between if it does not handle the transition.

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