What went wrong for Carphone Warehouse?

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Carphone Warehouse is the latest high-street retailer to find itself closing stores and axing jobs. The move comes as a surprise to some, and was inevitable to others, thanks to a hostile trading environment and a change in consumer buying habits.  But what brought all this on? Rick Smith, managing director of Forbes Burton, a company rescue and recovery consultant, explains what went wrong for Carphone Warehouse

We’ve already seen a mounting pile of Britain’s high street brands succumb to a miserable year of trading in 2019. 2020 hasn’t appeared much brighter so far, and with the current Coronavirus outbreak, it doesn’t look positive for those hoping for a better trading year. 

Carphone Warehouse is the most recent high-street retail behemoth to be forced into drastic measures to protect its future as a business. In 2018, the company announced it was restructuring its business operations in an attempt to return to profitability. Unfortunately, this step is necessary to save money. Because of the nature of mobile phones, a small item which is easily delivered in the post, and the way it is distributed by bricks and mortar stores is being used less and less, but still have a high cost to run and maintain.

Businesses failing on the high street in the past few years have all had similar problems, notably a lost battle against rising business rates and rents. It is getting more difficult for businesses to be able to afford to trade in their physical store’s thanks to rising rents, often forcing store closures or staff layoffs in an attempt to maintain profitability. Carphone Warehouse had 531 standalone stores in the UK – a massive burden on its infrastructure that was costing the company millions. 

Some have suggested that Carphone Warehouse could have avoided such substantial cuts to its staffing and store numbers by implementing new in-store experiences, reimagining the spaces to be more attractive to customers. This sounds good in principle, but in reality, the cost to run these stores would still be the same and reimaging or trying out any new experiences would probably not bring in any extra revenue in a time when it is needed. 

If Carphone Warehouse were to be saved it would need an immediate cash injection or, like it has done, a rapid reduction in its overhead costs, such as by closing stores. 

Consumer buying habits have changed dramatically over recent years in many sectors, however, it’s arguable that none have seen such rapid change in consumer behaviour than in the mobile phone industry. As mobile phones have become more expensive over recent years, consumers have held onto their handsets for longer before upgrading. 

This means that Carphone Warehouse stores have become less busy as a consequence. There is an argument to suggest that Carphone Warehouse is in this position because smartphone manufacturers have hiked up their prices, meaning that it’s the companies very products that have resulted in these measures being brought in. 

If there were one silver lining in this case, Carphone Warehouse expect that 40% of its staff who have lost their jobs in stores will be able to find new roles within the company. It is likely that some of these staff members will be moved into Carphone Warehouse’s stores that are contained within Currys PC World.

The stores inside Currys PC World outlets are much cheaper to keep open and have several advantages over the standalone stores. These shop-in-shops don’t cost any extra as they are utilising existing space but do still provide a place for people to go if they need to check out the phone before purchase. They also provide opportunities for people to make impulse purchases, or staff to upsell, when customers are already browsing. Many TVs and Computer equipment are now complementing each other, and Carphone Warehouse can cash in on part of Currys PC World’s business. 

The measures that Carphone Warehouse have implemented will hopefully lead to the company stemming the huge £90million loss they have made over the last year and actually return to profitability, saving, and possibly securing more jobs in the future.