The Implications of a Major Change Introduced by a Non-Grocery Retailer, Carphone Warehouse - Case Study Example

EVALUATIVE REPORT The Implications Of A Major Change Introduced By A Non-Grocery Retailer, Carphone Warehouse TABLE OF CONTENTS Page No. Executive Summary …………………………………………………… 1 Introduction …………………………………………………………….. 1 Findings ………………………………………………………………… 2 Change Implemented by Carphone Warehouse to Counter Global Recession …………. 2 Implications of Implemented Change on the Company’s Retail Operations …………………. 3 The Outcome of Implemented Change on the Company’s Market Performance ……………….. 4 Current Change: Demerger of Carphone Warehouse from TalkTalk ……………………… 6 Conclusions ……………………………………………………………. 6 Recommendations ……………………………………………………. 7 Works Cited ……………………………………………………………. 8 Contact Information …………………………………………………… 9 EVALUATIVE REPORT THE IMPLICATIONS OF A MAJOR CHANGE INTRODUCED BY A NON-GROCERY RETAILER, CARPHONE WAREHOUSE EXECUTIVE SUMMARY The evaluation report prepared on Carphone Warehouse, the non-grocery mobile phone retailer pertains to its recession-driven change in retail operations, and its implications on the company’s market performance. The findings include the company’s retail changes as a result of its merger with the United States’ electronic giant Best Buy. The joint venture led to Carphone Warehouse’s establishment of various Big Box electronic stores all over Europe, as well as dedicated Best Buy Mobile stores named the Carphone Warehouse, in the U.S. The joint venture was successful, and led to the company’s enhanced market performance both in Europe and in the United States. INTRODUCTION The mobile phone retailer Carphone Warehouse is Europe’s largest independent mobile phone retailer, as well as broadband, mobile and landline service provider. Carphone Warehouse has grown to over 2500 retail stores established in eleven countries as the Phone House. The company co-founded in 1989 marketed portable phones that were too bulky to carry, and were termed as car phones by the current CEO, Charles Dunstone (Ward-Dutton 2-3). The purpose of this evaluative report is to identify a major change implemented by the non-grocery retailer, and assess its implications on the company’s present market performance. FINDINGS In the highly competitive environment of a saturated mobile phone marketplace, Carphone Warehouse has developed its concept of a longer mobile life, targeting a long-term relationship of customers with the brand and the company (Butterfield 78). However it has realized that a truly market-driven enterprise takes into consideration its own employees first, to meet customer satisfaction objectives (Hines & Bruce 75). Change Implemented by Carphone Warehouse to Counter Global Recession The main reason for change in retail business operations was the poor economic climate of recession and inflation which created a market slowdown in mobile purchases. However, it is important to note that, in a buoyant market all the competitors in the industry can do well “and innovators are easily copied” (Annual Report, 2009 p.6). Hence, to be the industry leader and to counter its declining market performance, the company increasingly focused on its growth avenues by developing the existing retail proposition through its merger in June, 2008 with the U.S. electronic retailer Best Buy, leading to the launch of Big Box consumer electronics stores in Europe, and wider establishment of Carphone Warehouse’s United States franchise Best Buy Mobile stores. “In return Carphone Warehouse launched Best Buy’s Geek Squad technology support services in the U.K.” (Ward-Dutton 3). In the broadband business, TalkTalk, Carphone Warehouse’s fixed line telecoms division launched in 2003 “is the clear value proposition in the marketplace, focusing on simple, transparent tariffs, where customers only pay for what they want” (Annual Report, 2009 p.6). The outstanding value provided to customers, the improving service and innovation are helping to build the business dynamically. In order to protect the bottomline of the business, Carphone Warehouse has had to reduce operating costs to counter further decline in the gross margin. The company also initiated a significant change in the remuneration of the sales consultants, introducing higher based salaries and bonuses based on customer feedback, in place of lower salaries combined with sales based commissions. The implemented change was a success, resulting in the system being introduced across the U.K. business (Annual Report, 2009 p.18; Mobile Magazine, 31st March, 2010). Implications of Implemented Change on the Company’s Retail Operations The year 2008-2009 was a significant period for Carphone Warehouse Group, similar to several enterprises worldwide, caused by the global economic crisis. Despite the impacts of recession on the customers, suppliers, and the volatility of currencies denominating the company’s assets and liabilities, Carphone Warehouse has continued to focus on long-term goals, to develop market share, to fulfill customer’s requirements, and “to offer excellent value in everything” (Annual Report, 2009 p.3). Though profitability was adversely impacted in the harsh economic environment, the Group showed evidence of significant progress in some areas. To counter market competition, Carphone Warehouse developed the existing company proposition into a wider range of connected products and services, and provided them across multiple format stores. This was undertaken through a deal with America’s Best Buy, global leader in consumer electronics retailing, which led to enhancing the existing retail area through the Big Box consumer electronics retail business spread over Europe. This helped to deliver the “Connected World” to customers, beyond mobile phones to include mobile broadband, laptops, and music services. The larger format “Wireless World” was introduced which encompassed gaming, extended laptop offer, “as well as a Geek squad technology support presence” (Annual Report, 2009 p.15). Establishment of the wide-ranging Big Box retail outlets additionally facilitated the company’s loan repayments to banks, resulting in a financially secure position. The company has used this financial strength to trade aggressively in its stocks and shares, “accepting lower margins in return for sustained top line growth and burgeoning market share in a more depressed mobile phone market” (Annual Report, 2009 p.3). Increasing market presence helped it to rebuild margins as volumes recovered. The service problems that had affected the TalkTalk group in the last two years were almost completely eliminated, and the Group started getting recognition for good service besides outstanding value. Because of the company’s year long focus on increasing the network’s robustness and adding required capacity, it was possible to exceed the customers’ growing usage needs and increasing its customer base by 27% or 339,000 customers. The company’s simple value proposition continued to be used, and there was a marked increase in profitability near the end of the financial year. This also emphasized the company’s focus on customer care values related to financial saving by customers in the current economic environment. The Outcome of Implemented Change on the Company’s Market Performance “Best Buy Europe’s revenues grew 15% to 3,563 million pounds, with 9% growth coming from the strength of the Euro” (Annual Report, 2009 p.17) every year. Profitability fell every successive year, however Carphone Warehouse made substantial progress in establishing the business, gaining a high position in relation to market share, product diversification, an efficient cost base, and stronger links with both vendors and mobile network partners. During the year ending 2009, total of 12.5 million connections registered an increase of 8% as compared to the previous year, although a decline in the European handset market is estimated to occur every succeeding year. This means that the company’s market share has grown substantially. Subscription connections were also higher by 8% to 4.8 million. This growth was driven by internet enabled handsets and mobile broadband connections. On the other hand there was a decline in the market for mid-tier handsets the entire year. However, the features available in the high-end devices are filtering down to the mass market products in the mid-tier range, leading to this segment of the handset market showing improved growth. Pre-pay connections increased by 9% to 7 million, with a significant market share taken from general retailers. Due to a more aggressive trading action to increase market share, divisional gross margin declined 140 basis points year-on-year, from 30.4% to 29.0%. There was an increase in the number of stores opened, and in the total average selling space both including and excluding franchisees (Annual Report, 2009 p.17). In the U.S., Best Buy Mobile had an extraordinarily profitable year, and its in-store presence has been introduced in all of Best Buy’s Big Box stores in the U.S., registering significant market share gains. Best Buy’s Europe insurance business contributes greatly to the company’s profitability, since customers value the protection it gives “when they commit to a high value contract and receive a heavily subsidised, valuable mobile phone” (Annual Report, 2009 p.18). However, Best Buy Europe showed decreased free cash in-flow, and the adverse movement was attributed to working capital which was negatively affected by commission being deferred over the contract life rather than being paid up front. Current Change: Demerger of Carphone Warehouse from TalkTalk Carphone found that revenues declined by 2.7% in its TalkTalk business in the year ending March 31st, 2009, although “underlying earnings rose 56% to 181 million pounds” (MailOnline, 5th June, 2009). TotalTelecom (25th March, 2010) announced the Carphone Warehouse demerger, separating away from internet service provider (ISP) TalkTalk effectively from 26th March, 2010. The split was considered necessary for improving both companies’ competitive and independent market operations. CONCLUSIONS Change in business operations in the non-grocery retailer Carphone Warehouse is found to be signicantly dynamic in nature, meeting new challenges, growing in scale and extending its presence internationally, with advances in information technology. This evaluation report has highlighted the need for change experienced by Carphone Warehouse because of the low economic environment, examined the changes incorporated by the non-grocery retailer, and discussed their implications on the company’s market performance. To counter market competition, Carphone Warehouse developed the existing company proposition into a wider range of connected products and services, and provided them across multiple format stores. This was done through its merger with the U.S. electronic retailer Best Buy resulting in improved market outcomes for both companies: the Big Box electronic retail shops of Carphone Warehouse in Europe and Carphone Warehouse’s American franchisee Best Buy Mobiles in the U.S. Through the Big Box retail outlets, the focus went beyond mobiles, delivering customers the “Connected World” of mobile broadband, laptops and other services. Subsequently, the greater format of the “Wireless World” included gaming and and other amenities, with American Geek squad technology support. Currently, for improving operations in a competitive business environment, Carphone Warehouse has demerged from TalkTalk, its landline telecommunications division. RECOMMENDATIONS The dynamics between information technology and Carphone Warehouse Group’s business drives the company’s key processes in the contemporary business environment. To undertake change more effectively, the company’s management should optimize its knowledge and skills on implementing business process management (BPM) technology for business activities (Ward-Dutton 8). ----------------------------- WORKS CITED Annual Report, 2009. Responsive to the short-term challenges: Committed to the long- term opportunities. The Carphone Warehouse Group PLC. (2009). Retrieved on 31st March, 2010 from: http://media.corporate-ir.net/media_files/irol/12/123964/AR09/CPW_AR09.pdf Butterfield, Leslie. AdValue: Twenty ways advertising works for business. The United Kingdom: Butterworth-Heinemann. (2003). Hines, Tony & Bruce, Margaret. Fashion marketing: Contemporary issues. The United Kingdom: Butterworth-Heinemann. (2001). MailOnline. Carphone Warehouse to separate TalkTalk broadband by July 2010. The Daily Mail, Associated Newspapers Ltd. Retrieved on 1st April, 2010 from: http://www.dailymail.co.uk/money/article-1190988/Carphone-Warehouse-demerge-TalkTalk-broadband-July-2010.html# Mobile Magazine. Carphone ringing in the retail changes. News. Retrieved on 31st March, 2010 from: http://www.mobiletoday.co.uk/Mobile_Exec/Carphone_ringing_in_the_retail_changes.aspx Thomson Reuter. The Carphone Warehouse: Strategy. Carphone Warehouse Group PLC. (2010). Retrieved on 1st April, 2010 from: http://www.cpwplc.com/phoenix.zhtml?c=123964&p=irol-strategy TotalTelecom. Carphone Warehouse demerger effective. World Telecoms Council. (25th March, 2010). Retrieved on 1st April, 2010 from: http://www.totaltele.com/view.aspx?C=0&ID=454266 Ward-Dutton, Neil. Business Process Management case study: The Carphone Warehouse. Continuous Advisory Service Report. (April 2008). Retrieved on 31st March, 2010 from: http://www.tibco.com/multimedia/ss-carphone_tcm8-790.pdf CONTACT INFORMATION The Carphone Warehouse Group PLC 1, Portal Way London W3 6RS TEL +44 (0)20 8896 5000 FAX +44 (0)20 8753 8009 E-mail investorrelations@cpw.co.uk Registered no. 3253714 www.cpwplc.com London W3 6RS Tel +44 (0)20 8896 5000 Fax +44 (0)20 8753 8009 Email investorrelations@cpw.co.uk Registered no. 3253714 www.cpwplc.com Read More