Update: Note pinned on door from “heartbroken team” spells out story of Phones 4u shop closures
PUBLISHED: 15:05 15 September 2014 | UPDATED: 14:39 19 September 2014
Phones 4u is to go into administration - placing more than 5,500 jobs at risk - after network operator EE joined Vodafone in cutting ties with the retailer.
Dozens of jobs across our region were put in jeopardy today with the announcement that the Phones 4u retail chain had gone into administration.
Customers this morning found the firm’s 500 nationwide stores, including eight in Norfolk and one in Lowestoft, all closed.
People trying to visit the three outlets in Norwich - in intu Chapelfield, Castle Mall and Gentleman’s Walk - found no sign of staff but a message on the door from the “heartbroken Phones 4U team”.
It read: “Dear Customer, following the unexpected decision of EE and Vodafone to withdraw supply from Phones 4U, we regret that this store is currently closed. Please accept our apologies and we will update you as soon as possible. Thank you for your custom.”
The other Norfolk outlets include ones in King’s Lynn, Dereham and Great Yarmouth.
The collapse follows the shock decision by EE to join Vodafone in cutting ties with the retailer, which sells contracts on behalf of the network operators.
Staff were yesterday told to turn up for work but their future looks bleak pending a decision by administrators from PwC on whether the private equity-owned business can be reopened for trading.
Entrepreneur John Caudwell, who set up the operation in the 1980s before selling it for £1.5 billion in 2006, said he was “sickened and saddened” for staff who work at the Staffordshire-based firm.
In an interview at the weekend, he blamed the “ruthless behaviour” of the network operators for the demise of the business.
Phones 4u, which is owned by private equity firm BC Partners, said the decision by EE not to renew its current contract, which is due to end in September next year, came as a “complete shock”.
Phone operators are increasingly targeting sales through their own stores while Phones 4u’s rival Dixons Carphone - created from Carphone Warehouse and the company behind PC World and Currys - has been successful in building relationships with the phone operators.
Phones 4u said that both EE and Vodafone had, until very recently, indicated that they saw Phones 4u as a long-term strategic partner.
EE said its decision not to renew its contract in September 2015 was in part driven by uncertainty over the long-term viability of Phones 4u.
All mobile contracts bought through Phones 4u will remain unaffected and the networks will continue to provide mobile services to customers.
Phones 4u chief executive David Kassler said last night: “If the mobile network operators decline to supply us, we do not have a business. A good company making profits of over £100m, employing thousands of decent people has been forced into administration. The ultimate result will be less competition, less choice and higher prices for mobile customers in the UK.”
Phones 4u traces its origins from a small dealership called Midlands Mobile Phones, which was set up in 1987 by entrepreneur John Caudwell and his brother Brian to sell a small batch of Motorola handsets.
The venture quickly transformed into a wholesale distributor under an aggressive retail expansion drive that, by 2003, saw it sell 26 phones every minute. The business employed 10,000 people at its peak and generated sales of more than £2.25 billion.
Mr Caudwell later sold the Phones 4u business for £1.5 billion in 2006 to private equity firms Providence Equity Partners and Doughty Hanson. They then sold it to BC Partners in 2011.
However, the group’s many years of private equity control have seen it rack up sizeable debts, and its fate took a turn for the worse recently as mobile operators stepped up their own sales and marketing efforts to get customers to come to them directly.
The merger of Phones 4u’s largest rival Carphone Warehouse with Dixons has also helped pile on the pressure.
An existing agreement between Dixons and Phones 4u to run mobile concessions in 160 Currys/PC World megastores lasts until May but in the meantime Dixons has wasted no time in equipping a number of its other stores with Carphone Warehouse concessions.
Three, the UK’s smallest operator, was the first to pull the plug on its partnership with Phones 4u, followed by O2 and then Vodafone earlier this month.
A spokesman for Vodafone said its decision to walk away from the group came after months of negotiations.
“Phones 4u was offered repeated opportunities to propose competitive distribution terms to enable us to conclude a new agreement, but was unable to do so on terms which were commercially viable for Vodafone in the current UK market conditions,” he said.
EE meanwhile said its decision was in line with a strategy to move to “fewer, deeper relationships” with its retail partners. As well as Carphone Warehouse, EE has reseller deals with around 30 smaller partners, including Tesco and Argos, which are also under review. The mobile giant is also behind Phones 4u’s mobile network service LIFE Mobile.
There were rumours recently that EE could look to buy Phones 4u, and analysts have said that the opportunity now for mobile operators to buy its stores should not be overlooked, as it would fit a strategy to increase their retail presence.
But even if the group is not sold it is unlikely to result in a loss for BC Partners, because the group paid itself a dividend last year that reportedly helped it recoup around 1.3 times its initial investment.