Phones 4U goes into administration, could new consumer trends have saved it?

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Many people, but not everyone, were shocked to hear that Phones 4U, a company that John Caudwell it’s original founder sold back in 2006 for a sum of £1.5 Billion, yes that’s with a ‘B’ has gone into administration when Vodafone and EE decided not to renew their contracts in a move that some people are suggesting, against a backdrop of declining telco margins, gets rid of the middle men. While Phones 4U had a debt pile of £635 Million, and despite some interesting financial engineering by BC Capital, their principal equity partner in 2013 group turnover exceeded £1.14 Billion and they made a healthy profit of £105 Million.

A well known presence on the UK high street with over 700 stores and over 5,600 staff the empty shops that it leaves behind as the stores close will be a stark reminder of the global recession in 2008 and will act as a warning for any other business that rely on one or two large contracts to remain in business.

On Monday David Kassler, their CEO said “Today is a very sad day for our customers and our staff. If the mobile network operators decline to supply us, we do not have a business. A good company making profits of over £100 million, employing thousands of decent people has been forced into administration” but is this the whole story and could there have been a different outcome?

Today many businesses will find themselves in a similar situation – heavily reliant on a specific sector, or specific group of customers for their daily bread and butter but as we saw in 2008 with organisations such as Capita and Serco who were heavily reliant on Government contracts that dependency or some will say specialism, brings risks because your fortunes are inherently tied with the fortunes of your customers and the decisions they make. In today’s changing world no single organisation operating at scale can be beholden to a narrow subset of customers, with innovation and disruption happening at ever faster rates it is inevitable that at some point your business will come under pressure. Conglomorates, like GE for example survive because if one industry slows down then they have other lines of business that can pick up the slack – in other words they use their multi sector portfolios to mitigate risk.

As a Phones 4U customer yes they had their difficulties, which I won’t go into but we are now on the cusp of a new Epoch, with over 240 new Emerging Technologies coming down the line and eight emerging Mega Trends, shown below and worth an estimated $33 Trillion, yes that’s with a ‘T’ they, like other companies should have had plenty of room to maneuver and grow.

Every business owes it to their staff to look beyond the horizon for the next trend but knowledge is nothing without vision and execution so perhaps this sad tale will act as a warning to others in a similar position and nudge them into action. In the meantime my heart goes out to everyone who lost their jobs and if any of you are reading this then please feel free to contact me.

Disclosure: Matthew Griffin is not a shareholder of any of the companies listed in this article and opinions are his own.

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