Mark Mitchinson has returned to UK mobile in a trading role at Carphone. James Blackman and Michael Garwood gauge the industry’s puzzlement at his route back, and what precisely Carphone is plotting next
The industry raised its large and bushy mono-brow this month at news Mark Mitchinson, former Samsung UK vice president of mobile, had joined Carphone Warehouse.
It was not his move to Carphone that was considered curious, but his role within the retailer; bossing its wholesale and distribution businesses.
After all, Mitchinson was conspicuous as the UK head of Korea’s biggest company for more than a decade; the UK’s longest-serving manufacturer head.
His ties with Carphone as Samsung UK boss were plain, and its identity as vehicle for his return after an eight-month sabbatical (following pursuit of an MBA, we were informed, and some kicking back in the Canadian wilds) was hardly surprising.
But distribution and wholesale?
As the industry scratched its head, it pointed to higher-profile roles – the Nokia UK hotseat, for instance, which remains (officially, at least) vacant following Mark Loughran’s exit in September, and could do with a statement-like appointment.
Or, surely, Mitchinson’s reputation might have opened doors to lucrative and prestigious roles within UK operators, and even better paid positions in distributors.
A step down?
The Carphone role got the market wondering, and joking, because the perception is Mitchinson, with 10 years bossing distributors and retailers on the strength of the Samsung UK brand, has taken a step down, and into a sector (distribution and wholesale, defined against retail) he kept on a leash at Samsung.
The role at Carphone – managing director of business, wholesale and distribution – was created for him by Graham Stapleton, chief commercial officer of Carphone’s joint venture parent Best Buy Europe.
Stapleton’s own role has expanded considerably with Carphone’s new European adventures with Best Buy, as well as with its own ‘fit for the future’ streamlining project, which has seen a number of his staff go unreplaced, most notably UK trading director George Dymond. As such, the creation of the new role in wholesale and distribution makes sense.
But, still, the industry is confused by Mitchinson’s appointment.
For HSC, the south-coast airtime distributor Carphone bought in 2005 for £10 million that falls directly into Mitchinson’s new remit, has been something of a black sheep for the retailer, a parochial business unit in a declining channel. Carphone’s commitment to HSC has been questioned repeatedly, even if the pair have appeared in better harmony recently.
Mitchinson is HSC business manager Bob Sweetlove’s sixth ‘boss’ in six years – following John Durkan, Steve Fraser, Dymond, Stuart Henry and Stapleton himself. Essentially it has run for some time as an autonomous business, able to take advantage of Carphone’s secondary stock and double as a hardware supplier.
But if Mitchinson has been recruited for very specific strategic purposes, what are they? Given the might of the business and the personalities concerned, rumour has inevitably circulated of a Daisy-style rampage in the B2B channel and a new Brightstar-style attack in international box-shifting.
Carphone’s press corps pulled down the shutters last week, of course. Mitchinson and Stapleton were not taking calls on the matter. HSC’s top brass, Sweetlove and sales manager Carlos Pestana, said little more than to declare their delight that such a personality as Mitchinson was on their side.
There were some other leaks from Bournemouth, however. Mitchinson spent two days there following annoucement of his role. Staff were said to have been impressed.
Mitchinson, “charming”, introduced himself to each employee and took the management team to supper. He has already been dubbed ‘Mitchin-ator’ on the floor in his nominal role as executor-in-chief. The sense is Mitchinson might just bring HSC some of the key contracts it misses – and which Sweetlove, himself, identified as Vodafone and HTC last issue.
For HSC, core business has been good these last 12 months. It said in December it sold to more than 75 per cent of the UK dealer market during 2010, or around 750 parties.
But its consumer sales fell 63 per cent in the year, and Sweetlove admitted then a “flat-line” performance against 2010 would be good enough this year.
And this should be considered in the view of the broader market for airtime, turning now on longer upgrade cycles as smartphone contracts tend to 24 months, and which Carphone has itself pegged for marginal growth only in the year ahead.
Hardware is where it is at, and might be where Mitchinson’s focus is for Carphone. HSC’s hardware distribution business, feeding essentially off Carphone’s excess and end-of-line inventory, shifted 104,233 units last year, a handy number, up five per cent on 2009, but a drop in the ocean compared with 20:20 Mobile, Brightstar, Data Select and Brightpoint.
The view is Mitchinson is to help HSC secure key contracts, and to ramp up its hardware activity as a new area of growth.
At the same time, the market dismissed the chances of a broader wholesale project, even if Carphone looks at acquisitions overseas, as some suggested last week.
One leading distributor executive even suggested it would be “insulting” and “naive” for Carphone to re-enter the distribution market, having quit it with the closure of Mobile Phone Express (MPE) in 2007.
He said: “It would be an insult to other distributors if it thinks it can simply enter the distribution market and make an easy impact. It’s very different to retail. It is higher risk. Volumes are big and margins are slim, and one mistake can set you back six months in profitability. I can’t see Carphone jumping into it.
“Most big MVNO, retailer and dealer customers are tied into exclusive supply arrangements, normally 12 months or more. It is slim pickings. Carphone is not geared up for virtual warehousing, credit facilities and the flashing that established distributors offer. The only area it can attack really is the dealer channel.”
And others suggest Carphone would upset the status quo by using its price advantage to undercut established dealer supply channels.
“Carphone gets better pricing than distributors based on its volumes. If it goes after customers supplied by manufacturers’ established distribution partners, and undercuts them by securing stock for less than they can, then it will throw the whole supply chain out of whack. Nokia, RIM, Samsung; they won’t like it,” reckoned one source.
“Anyway, many of the guys out there have been close to single distributors for years, and many are in exclusive arrangements around more than just handsets.”
Another distributor source remarked: “I’m not really sure who Carphone would sell to in distribution. Dixons, Comet or Phones 4U wouldn’t buy from it. And much of the grocery sector and non-specialists are located on high streets next to Carphone, so there is a clash there too. I just don’t get the logic of it – for either the buyer or the seller in this hypothesis.”
A retail source observed: “The big contracts in distribution are with the likes of Tesco, and margins are wafer slim. Tesco has made clear, anyway, it wants to take share from Carphone. Why would Carphone sell to it? The conflict of interest is too great.
“When Carphone did it before, its plan was to compete with 20:20 and Data Select. But there was a definite push-back from retailers; the last place they wanted to buy handsets was Carphone. They are fighting for survival against it. The battle is fierce already.”
A source close to Carphone disagreed: “If you want to be number one, you buy from anyone and sell to anyone. It depends how you set the deal; clearly you don’t want to grow competitor businesses at your expense. But if you can earn money from their sales, then why not? If Carphone can work that, then it surely would.”
And another commentator remarked: “Distribution is about price, and nothing else. Whatever people say about adding value. If Carphone offers kit for less, it will find plenty of takers.”
Carphone’s might, Mitchinson’s remit and the unclear strategy where they crossover, should be considered here.
Wholesale of handsets, especially into overseas markets, is a thorny issue. Trading of this kind of ‘grey stock’ is frowned upon, but accepted as a necessary evil to rid the supply chain sometimes of excess inventory. The problem for manufacturers is imported/exported stock messes with market share and marketing funds.
Carphone’s grey trading has reduced drastically, according to sources, since Nokia slapped its wrists for shipping, indirectly, large volumes of marked Nokia 5530s into foreign channels in late 2009.
But for all the UK channel, grey trading remains an essential recourse to balance the books and empty warehouses of mis-forecast product lines. HSC’s burgeoning hardware unit is a route for such stock, and Carphone is active also in selling to other handset distributors.
Ironically, at Samsung, Mitchinson put laser focus on grey trade, and axed contracts with both Data Select (reinstated) and 20:20 Mobile in his time. The issue for Mitchinson was Samsung set pricing outside the UK much lower; the UK business required to an extent to keep pricing high to keep up with its powerful marketing and brand building.
One distributor said: “There is good money to be made from trading and exporting stock. It was a significant share of distributors’ businesses until around two years ago, when manufacturers started to pull their licences if they were active in it. But manufacturers cannot just cancel Carphone like that, if it was to trade some stock. It is too powerful. Manufacturers need its outlets.”
And so, whether or not it is Carphone’s intent, manufacturers might view any move by Carphone to be more aggressive in wholesale of handsets with concern.
“It’s very difficult to defeat Carphone in an argument. Just look what happened with Vodafone,” said one sage commentator, in reference to Vodafone’s decision to exit Carphone for new contract sales in 2007, its reversal in 2009 and its difficult period between times.
A retail source said: “Its influence is massive. Manufacturers don’t want it to get any stronger in those areas. They can turn off supply to 20:20 or Brightstar; they can’t to Carphone.”
Also, Mitchinson’s appointment could be a smokescreen, and a holding role until something more prestigious comes up. Certainly that view was posited by the channel last week, suggesting Sweetlove might be onto his seventh boss in quicktime and HSC might be left to prosper alone, as it has done recently.
But most rejected the idea Mitchinson’s appointment was an old-boys arrangement. Carphone’s management is too powerful and smart not to have a clear strategy, and Mitchinson is hardly the kind of personality to take personal short-term gains over ambitious career projects.
“He’s been successful wherever he’s gone, and Carphone is just about the biggest power in the market,” remarked one distributor. “Their strategy and ambition will become clear.”