The business climate for wireless retailers has hit a crossroad. What were once invaluable outlets for wireless carriers looking to get their products in front of as many potential customers as possible for the lowest possible cost, has turned into a battle ground between mom-and-pop operations, larger, multi-store operations, big-box retailers, company-owned stores and the untold number of online retailers all looking for distinction in a market filled with cookie-cutter offerings.
The segments that appear to be taking the most hits are the mom-and-pop outfits, which are finding it difficult to compete with the scale of larger rivals, and the multi-store outlets, which have the scale to compete but have been increasingly shut out of offering highly desired devices or unique phones. This was most prominently played out recently when AT&T Mobility third-party retailers were denied access to Apple Inc.’s 3G iPhone, which retailers said resulted in lost business and angry customers.
Brad Akyuz, senior mobile analyst at Current Analysis, said these conditions have made it difficult for independent dealers to operate.
“It gets tougher and tougher to be a third-party dealer in the U.S.,” Akyuz said. “When you look at them, high subsidies have always been the primary ammunition, but if you can get the same price from a carrier store where you would have a much better selection or from Best Buy or RadioShack at the same price, or even better, why would you go to these local mom-and-pop stores?”
Further, Akyuz said now that the carriers have opened up even more devices to more big-box retailers, third-party dealers have taken another hit. These retail giants achieve significant economies of scale, Akyuz said, and they turn over inventory much quicker, allowing them to upgrade their selections at a much more rapid pace.
“When you go to a third-party dealer, you see they’re still displaying this 18-month old phone, which has long been discontinued in the carrier channel,” he said. “They (third-party dealers) have to sell out that inventory before they get new devices. They’re certainly adversely impacted by these big dealers.”
Large retailers can offer many different phone choices from many different carriers, and because of their large order sizes, a company like Best Buy can also get wholesale pricing, Akyuz said, another dagger into the small guys’ hearts.
Gerry Purdy, of research firm Frost & Sullivan, believes that these big retailers have vast opportunity, possibly even to surpass offerings from the carriers themselves.
“Retailers like Best Buy are set to grow their share of the wireless market because they will have the ability to offer the customer all wireless networks, not just one,” Purdy said. “They will eventually be able to offer services that the wireless operator will not, such as an auto switch out to another carrier or device upgrades and better lost/stolen replacement unit programs.”
Akyuz compared the situation to when Wal-Mart initially surfaced and quickly overpopulated, putting many independent, smaller shops out of business.
“I think it applies the same here in the wireless arena,” he said. “Small dealers which can not differentiate themselves are unfortunately going to have to close their doors. This is a very controlled environment so these dealers cannot differentiate themselves because they simply don’t have the means to do so. Their outlook is pretty gloomy.”
Each carrier is different, but why don’t some carriers allow authorized dealers to sell high-end phones? It’s a matter of control, Akyuz said. New and cool phones drive customer demand and revenue, but only if customers are educated how to use the device and how to add the extra services. “With devices like the iPhone, they simply do not want to give away the control,” he noted. “They want to make sure they have the control over the consumer and carriers do not have the same amount of control over the sales in those small channels. By limiting the availability of the device, they increase the hype.”
Initially, inventory levels may impact where a device is sold.
T-Mobile USA Inc. is bucking the trend, however. Because of its smaller nationwide presence, the carrier relies heavily on its authorized dealers and third-party retailers. Recently, T-Mobile USA began advertising that it was looking for more authorized dealers. The only requirements: retail experience, interest in opening multiple locations, net worth of $1 million and $300,000 in available cash. What’s important for T-Mobile USA though, is to make sure its dealers have the same high-end devices and offerings, almost to the point where you can’t tell the difference between an authorized store and a real T-Mobile USA store.
“Its reach is not as widespread at AT&T,” Akyuz said. “Basically T-Mobile needs that authorized dealer channel more than AT&T does. From their perspective, the more retail exposure the better it is for them.”