Sunday 25 February 2018

Forget boom-time economics, look at new ways to make money

Difficulties caused by over-extending and high rents have taught phone retailer to consolidate and grow

No iPhone 5C yet for Peter Scott, but he says the colourful handset 'will fly out the door'.
No iPhone 5C yet for Peter Scott, but he says the colourful handset 'will fly out the door'.
Adrian Weckler

Adrian Weckler

PETER Scott doesn't have an iPhone 5C yet. But despite criticism of the gadget's hefty price, the head of Ireland's largest mobile phone retailer is pretty sure it will sell.

"It's the colours," he said, sitting in the Santry headquarters of The Carphone Warehouse. "For some reason, people love colours on phones. They fly out the door."

Things are going well for Mr Scott. The Newcastle-born former Ann Summers salesman has seen a turnaround in the fortunes of The Carphone Warehouse, which employs 600 people in Ireland and has over 70 stores here.

"In 2009 to 2010, we made an €8m loss, rising to €10m in 2011/2012. But we're now back in profit, marginally. And by the end of this year we'll be on track to make a reasonable profit."

The symptoms of The Carphone Warehouse's former difficulties are familiar to any observers of recent Irish economic history. Over-extension. High rents.

"We've been through a difficult time," said Mr Scott. "During the boom, we grew quickly and took on quite a lot of onerous rents. Some of them were in bizarre locations. We wouldn't do that now."

On rents, the retailer is not yet fully out of the woods. Shopping centres, notorious for levying very high rents (called 'key' rents) in exchange for keeping out rival retailers, are still getting big money from firms such as The Carphone Warehouse.

"We're still saddled with legacy key rents," he said. "The average lease is something in the region of about 17 years. You find that some landlords will work with you but many are difficult when it comes to entering into conversations about it."

Mr Scott said that this has led to scenarios where the company has had to enter some tough negotiations on the future of its presence in some locations. Choosing which locations to keep, drop or expand is broadly in line with wider economic conditions across the country.

"Some shopping centres are still fantastic for us, whereas some aren't performing great," he said. "Dublin is mostly going well. Some other cities aren't."

Despite Ireland's two-tier recovery, Mr Scott said that the company is still in the market for new locations.

"We're still actively looking in some towns," he said. "We've recently opened a couple of new standalone stores, including one in Castlebar and one in Portlaoise."

This, he said, is a reflection of pent-up demand in non-urban locations for wider smartphone options and an improvement in network standards, generally.

"We're seeing quite a significant increase in footfall since December," he said. "It's double-digit growth. By contrast, in the last four years we had seen decline in footfall. We're also growing our market share here at the moment."

The Carphone Warehouse has just over 20pc of the retail phone market here, he said. Despite some trading decline, this has remained static in recent years.

Mr Scott, whose career history includes a spell as head of retail operations for the lingerie firm Ann Summers, originally came to Ireland as part of the boom-time economy. In 2006, he was recruited by Arnotts to help co-ordinate the retailer's massively ambitious plan for a new retail and residential development adjacent to Dublin's Henry Street. Then the economy went into a dive and there was no more development.

He has learned a lesson from it.

"The next five years should see us (The Carphone Warehouse) growing strongly on a much more stable business model than before, not based on boom-time economics. We have had to start thinking about how to move out of the normal way of making money."

One of those new ways is a new deal to set up mini-stores within 11 Harvey Norman outlets nationwide.

Another of the new initiatives is a standalone mobile operator called Lycamobile. Based on O2's network and targeted at people who are looking for cheap calls to friends abroad, the venture is having modest success so far.

"It's meeting expectations but we are talking hundreds, not thousands of connections per week," said Mr Scott. "In Ireland, it's not going to change our fortunes. But it's good for us. It allows us to be a one-stop shop for mobile. And there are a lot of Irish people with friends and family abroad. So it's a niche offering."

Ireland isn't the only country where the company runs Lycamobile. The operator has about 30 million registered users in different countries, making it the largest mobile virtual network operator (MVNO) in the world.

Lycamobile won't be one of the early networks to adopt 4G, as O2 is unlikely to switch its 4G network on until 2014. This stands in contrast to today's announcement from Eircom, which is launching 4G services on Meteor and eMobile in Dublin, Carlow and a handful of other locations (Vodafone will launch next, followed by 3 Ireland sometime before Christmas). This could affect sign-ups for the enterprise, as customers often respond to the best, clearest network speeds.

"There is definitely a connection between network quality and customers' purchasing habits," said Mr Scott. "We see that regularly. For example, Vodafone is probably the most active at the moment in setting up 3G aerials around the country. Whenever they switch one on, we see a sales blip in a local store. It's the same for other operators and other stores we have in areas they're upgrading."

Christmas in The Carphone Warehouse, he said, will be a combination of iPhones, Samsungs, Sonys and some new pre-paid devices. Tablet PCs under €200 will also continue to be popular, he said.

As for the future, Mr Scott is expecting to see the continued decline of low-end 'feature' phones and a sharp fall in mobile roaming fees.

"Feature phones are virtually non-existent now when it comes to sales," he said. "They would have been our heartland four years ago. We see sales blips for holidays and festivals with regard to feature phones, with some people treating them as being disposable.

"But the market here is veering much more toward post-pay plans and more expensive smartphones. I also suspect that we'll see things like data roaming disappear. We can already see a move away from it and the EU is starting to call time on roaming."

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