Big-box retail: an evolving distribution channel : Focus is narrowing, alliances are critical element

Big-box retail is second only to the network operators’ own branded retail stores as the channel of choice among American consumers. Big-box retailers as a distribution channel are rapidly rising in importance among carriers as well. This evolution reflects the growing sophistication of the wireless industry.
Fully 65 percent of service plans and mobile devices are sold through carriers’ brick-and-mortar locations or their online presence, the latter accounting for a single-digit percentage of sales. Third-party resellers probably account for about 10 percent.
Depending on a carrier’s retail strategy, however, retail distribution through big-box outlets can account for 20 to 30 percent of sales, according to Alex Paskoff, senior vice president of marketing and business development at Brightpoint North America-the seemingly ubiquitous distribution player with a birds-eye view of the market. Where AT&T Inc.’s Cingular brand is well-connected with RadioShack Corp. and present at Wal-Mart Stores Inc. and Best Buy Co. Inc., T-Mobile USA Inc. places more emphasis on its own retail stores and third-party resellers, according to the Brightpoint executive.
“Any mobile operator would be interested in quality retail distribution-finding the sweet spot between their own retail stores and third-party resellers,” Paskoff said.
In their own retail stores, carriers can control the quality of the consumer experience by presenting a brand-based experience, grabbing the opportunity to educate consumers and positioning trained staff to address complexities.
“It’s a far more focused environment,” Paskoff said. “Carriers are looking for the right blend of channel strategies. They have different philosophies on what’s best for them.”
The big-box channel has evolved, in general, from selling all carriers’ predominantly prepaid offerings to a world in which partnerships with specific carrier partners, even exclusive ones, offer postpaid plans. The prepaid market has gained legitimacy as it has evolved from an option for the credit-challenged consumer to a means for parents to control their childrens’ talk time. Prepaid also turned out to be an attractive option for the “un-celled” portion of the market that simply doesn’t wish to ink a two-year contract.
Selling prepaid plans across all carriers turned out to be a difficult exercise in comparing and contrasting offers. Today, a closer alignment between big-box retailers and their carrier partners provides a more effective means to focus.
Virgin Mobile USA L.L.C., Tracfone Wireless Inc. and Boost Mobile L.L.C. “quantified and legitimized” the big-box channel, Paskoff said, setting up the opportunity for growth in the postpaid sector.
Alliances in style
Among the big-box retailers, RadioShack once had the wireless field largely to itself, perhaps for obvious reasons. Over the years it has been joined by Wal-Mart, Circuit City Stores Inc. and Best Buy. Where big-box retailers once struggled with the complexities of wireless plans and devices and the difficulties of presenting a balanced picture to consumers, alliances now are in vogue.
RadioShack , for instance, sells Cingular and Sprint Nextel Corp. Wal-Mart sells Cingular, Verizon Wireless and T-Mobile USA. Circuit City has partnered exclusively with Verizon Wireless. And Best Buy has partnered with Euro-dominant retailer Carphone Warehouse, which remains committed to a multi-carrier approach. The latter’s Best Buy Mobile sells for the top three U.S. carriers, plus the prepaid specialists mentioned above and a number of mobile virtual network operators.
Carphone Warehouse-the biggest wireless retailer in Europe-believes it has “cracked the code” on selling multi-carrier offerings in a big-box retail environment, Paskoff said. One basic innovation at Best Buy Mobile, heralded by analysts, but disparaged by carriers, is the comparison tool that seeks to make simple, apples-to-apples comparisons among rate plans and devices.
“There’s a lot of collaborative marketing between carriers and big-box retailers to drive store traffic and activations,” Paskoff said. “So the marriage of the two has become critically important. The wireless retailer brings to the table a quality, national retail footprint and delivers high-average revenue per user, low-churn customers to the carrier. The wireless category of consumer electronics is as hot as any out there.”
Upcoming channel twists
And what does Paskoff have his eye on, in terms of future-oriented developments in the channel space?
“What’s happening with Best Buy Mobile is interesting,” the Brightpoint executive said. “It’s evolving to almost a store-within-a-store concept. It’ll be interesting to see if it can scale in the U.S. Just because it works in Europe doesn’t always mean it’ll translate well here. And just because it works in a half-dozen locations in the U.S. doesn’t mean it’ll translate to hundreds of locations across the country.”
Another interesting angle is to watch what Cingular and Apple Inc. are doing with the iPhone in limiting retail distribution. The two partners are not allowing the device, now due in late June, to be sold by AT&T/Cingular’s big box partner, RadioShack. Apple, presumably, is seeking to control the consumer experience and preserve brand image.
“All companies have some sensitivity to that, some more than others, Paskoff said. “I’d definitely put Apple on the ‘high-sensitivity’ list. Traditionally, the device vendor hasn’t dictated how or where a device is sold. This is really the first time someone has drawn a line in the sand.”