IDC on the retail route: Should carriers close their brick-and-mortar stores?

Ramon Llamas IDCOn May 14, 2010, Google announced plans to overhaul its strategy to sell its Nexus One smartphone. After realizing disappointing sales through its online store and the decision of Sprint Nextel and Verizon Wireless to not sell the device as previously expected, Google decided to sell the Nexus One through retail channels yet to be announced. While the loss of Sprint and Verizon Wireless as distribution partners will impact the Nexus One sales in the near term, Google may be on to something here by going the retail route.

Purchasing a handset from a retailer (BestBuy, Target, Wal-Mart, among others) instead of directly from a carrier has been catching on in recent years among consumers. Consider the following statistics:

  • According to a survey taken in 2008 by IDC's Mobile Devices Technology and Trends program, 18 percent of our respondents indicated that they would go to a retailer, not a carrier, to get their next mobile phone.
  • According to a survey taken in 2009 from IDC's special study on Mobile Internet Devices, 27 percent of our respondents who owned a smartphone indicated that they bought it through a retailer, not a carrier.
  • In that same survey, 32 percent of our respondents who owned a mobile phone (not a smartphone) indicated that they bought it through a retailer and not a carrier.

Carriers still win out as the most popular choice to purchase a handset with roughly 53 percent response rate. But compared to the response rate of 65 percent in our 2008 survey, carriers' tight grip on consumers may be loosening. Seismic shift? Perhaps, perhaps not. But it should give consumers a second thought about where to purchase their next handset.

Is there a difference?

Looking at the handsets available at the major retailers and carriers, potential customers can see a clear overlap of handset selection. It's not just the popular handsets that are being sold (and those can be found in plentiful supply), nor is it just the simple entry-level devices. At most retailers, the selection is just about the same, as are the prices. But depending on the retailer, some gems can be found. Have you ever wanted to get your hands on a Nokia Nseries device? These devices have proved elusive at U.S. carriers, but a recent trip to the local Best Buy Mobile showed several models available.  

At that same Best Buy Mobile, I hung around and watched several customers purchase their handsets, which for some involved signing up for a new service. Most were surprised and relieved that they could skip the process of mailing in a rebate, and realize the savings instantly. On average, most customers walked out the door in less than twenty minutes, which seemed faster than what I saw at some of the other carrier stores.

What it boils down to is the experience. After all, a handset is still a handset, whether purchased from a carrier or a retailer, and at the end--even start of the day--a handset needs a carrier's network in order to function. But having a one-stop location to compare handsets and services from multiple carriers, find a few hidden gems, and get through the process quickly would be reason enough to return again and tell others. Of course, the experience easily varies from one retailer to the next, just as it does from one carrier to the next. Still, this underscores the importance of consumer behavior and purchase experience within the context of purchasing a mobile phone.

Is this the end of the brick-and-mortar store for carriers?

Given the decrease in the response rate favoring carrier stores in just one year, it would be tempting to predict the demise of carrier stores in the United States. Why not? Carriers can focus on the value of their networks, and leave the retailers to sell the devices. That is highly doubtful, considering the number of respondents who said that they'd still go to a carrier to get their next phone. One of the tricky things about consumer behavior is that a consumer maintains those behaviors unless something disrupts that pattern of behavior. Disrupting that pattern is easy when a consumer regularly repeats that behavior, but in the case of mobile phones which get replaced every two years or more, loyalty to the carrier store is likely to remain high.        Finally, that the retailer is gaining in popularity should not be construed as competition against the carrier store. If anything, the retailer is an extension of the carrier's reach, selling more devices while keeping or gaining customers for the carrier.

Will the retail route bolster sales of the Google Nexus One?

By bringing the Nexus One to retail stores, Google will allow consumers to try the device for themselves instead of having to rely on pictures and video found on the Internet. However, actual handling of the device solves only one piece of the overall puzzle. What remains to be seen is how Google will train retailers on how to sell the Nexus One, how Google will promote it in-store, and of course, the price. Still, going the retail route will extend Google's reach beyond its online portal, and put the Nexus One in a place where more consumers are heading to purchase a new handset, particularly for smartphones.

Ramon Llamas is a senior research analyst with IDC's Mobile Devices Technology and Trends team. In his role, Llamas tracks the quarterly results of the leading and emerging mobile device vendors, and uses the data to forecast the short-term and long-term direction of the mobile device market, and how it affects handset vendors, carriers and customers. He recently released his worldwide mobile phone and smartphone 2010 - 2014 forecasts, as well as a worldwide forecast of the mobile phone touchscreen market. In addition to being featured in FierceWireless, Llamas has been featured on Bloomberg Radio, National Public Radio, and quoted in Investors Business Daily, the New York Times, and the Wall Street Journal. Llamas can be reached at [email protected].