Next few months crucial for Phones 4u

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Padraig McGarrigle assesses the impact of Vodafone withdrawing sales from Phones 4u, with the results of EE’s indirecrt partner review proving crucial for the retailer’s future

The timing of Vodafone’s decision to withdraw sales from Phones 4u surprised us all. Everyone had been waiting on the results of EE’s review of its indirect partner network, but Vodafone beat them to the punch.

To compound matters, it also announced an extended relationship with the newly-formed Dixons Carphone.

We’ve all heard the speculation that the operators are now in a phase where they favour a more direct-to-consumer model. The murmurings are that they think that the money they are spending on subsidising handsets and promotion with independents would be best spent elsewhere.

Vodafone had already announced plans to open a further 150 stores, bringing its total amount of UK stores to 504. This compares with EE (570), O2 (450) and Three (350).

It’s all a far cry from 2006, when Vodafone withdrew from Carphone Warehouse and signed a three-year deal with Phones 4u. The difference then was that Carphone could still offer customers the choice of Orange, T-Mobile, Three and O2.

Phones 4u doesn’t have that luxury, having shed Three in 2012 and O2 earlier this year. It’s an altogether more bleak outlet and as things stand, as of March 2015 it will effectively be an EE independent distribution partner.

Sure, it has been making noise about its own brand EE MVNO Life Mobile, but competition is fierce in this segment. As such, margins are also painfully thin and, surely, nowhere near enough to sustain a retail network that numbers in excess of 700 stores. It also connects Virgin Mobile, which again has direct-to-consumer outlets.

What all this means is that the most important decision in Phones 4u’s 18-year history rests on EE’s shoulders. Will it see an opportunity in effectively doubling its retail footprint by having prime placement in all of Phones 4u’s stores – or does it decide the cash and subsidies it would spend on the partnership are best served in its own retail network? We will know the answer in the coming days and weeks.

If EE does stay, where does that leave the independence of Phones 4u? The whole reason for an independent retailer’s existence is to give impartial advice on the benefits of each network. A limited choice of networks means that a big reason that customers use Phones 4u is being eroded.

Analysts suggested a few other options which Phones 4u could pursue, including closer ties with Far East manufacturers which are desperate for space on the high street, but find it difficult to compete with established players for operator partnerships. The firm is also beta-testing smart technology sections in a number of its stores, ahead of a possible rollout later this year.

It makes you wonder how it all came to this for the retailer. The Dixons Carphone merger certainly put it on the back foot earlier this year and it is possible that the latter, emboldened by the deal, pushed hard for an exclusive partnership with Vodafone.

Dixons Carphone is now in an incredibly strong position. When the news broke, its shares went up by 6.9 per cent, boosting the company’s value to £4.2 billion and catapulting them into the FTSE-100 share index of the UK’s most valuable companies.

When I asked Dixons Carphone chief executive Seb James about the strength of the relationship with the networks last month, he raised a wry smile and explained that the company had done its diligence ahead of the merger.

The next few months are crucial to the future of Phones 4u and we await the results of EE’s indirect partner review with great interest.

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