Phones 4U was the UK leading retailer engaging young audiences with funky advertising campaigns. Its brand ID slipped significantly in recent year according to YouGov Brand Index. So what went wrong?
- A business which relied on 4 main suppliers.
- 30% of profit special dividend paid to private equity firm BC Partners funded through raising debt against Phones 4U balance sheet.
- January 2014 O2 stopped supply to Phones 4U.
- Dixon and Carphone Warehouse merged; Dixon withdrew business to Phones 4U.
- Vodafone suppliers of 25% of Phones 4U long term contracts did not renew their contract on 1st September.
- EE announced on 14th September that they would not be renewing their contract.
- 15th September Phones 4U went into Administration putting at risk 5,590 jobs and closing 550 stores.
David Kassler Phones 4U boss is quoted as saying “If mobile network operators decline to supply us, we do not have a business.” I think this statement is quite telling of the attitude of the leadership. Defeated.
John Caudwell who founded the business in the mid 1980’s predicted that the “ruthlessness” of mobile phone operators would not bode well for Phones 4U.
What worked in the mid-1980s before the impact of the internet, would not work now. There is a predictable shift in cutting out the middle man in most markets why should mobile phone operators be any different? The market has changed you just need to look at the global consolidation of mobile phone operators and the mergers of T-Mobile and Orange in 2009 and T-Mobile and Sprint Zeroing USA June 2014.
The Problem was Phone 4U did not react to the trends.
Like many shoppers I get independent comparisons online to make my selection, so why would I need to a middleman? I ordered my last mobile phone online, although they cocked it up and I had to revert to queuing in an EE phone shop, my last resort would be a third party supplier.
The problem Phones 4U had was not the servicing of debt but the narrow supplier base which limited their offering and that they did not have a unique offering on price, no product or no location. The big bad wolf was not Vodafone or EE, the wolf was the lack of foresight and strategic leadership to see the trend and take strategic corrective action early enough.
The lesson here is: is your business vulnerable due to a limited spread of supplier or customers and if so, do you have a contingency if one of your major suppliers or customer went bust or did not renew? What are you doing to change your business model and reduce this risk?
The lesson here is: is your business future fit, if this has not been considered what do you need to do to keep abreast of trends and what strategies do you have I place to adapt to change? Who is responsible for this?
Do not be a Phone 4U, surprised be the invertible.
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