Smartphones Add To Cash-Flow Challenge

By Joseph Palenchar On May 2 2011 - 4:01am

NEW YORK — For retailers who manage their own cellular departments, the cash-flow challenge has grown more challenging with the popularity of smartphones, whose wholesale prices are significantly higher than feature-phone and basic-phone wholesale prices, said Sally Lange, Brightstar’s president of global retail services.

Many retailers who buy phones sell them at or below cost and wait for an activation commission to make a margin.

“Two years ago, the average cost of a product was $220,” added Kevin Sinclair, president/CEO of the 440-store Wireless Zone franchise chain. “With commission, even if you sold it for $49 or free, you made a good gross margin percentage.” The average dealer cost of a smartphone, however, is $400 to $500. “The profit dollars are the same in general, but the profit percentage is lower, tying up your credit lines more.”

Smartphones accounted for 50 percent of handset unit volume to consumers, excluding sales to enterprises, in the fourth quarter of 2010, up from a year-ago 31 percent, NPD found. “You can’t be in the business if you’re not financially savvy,” Sinclair concluded. “Before, anyone could be in this business, but now you have to be a sophisticated business person.”

For that reason, Sinclair forecasts “a big consolidation in the number of agents about a year from now. Large national and regional wireless-specialty agents “will gobble up” smaller independent agents, especially those in B- and C-level retail locations that lack the traffic of big box retailers and A-location specialists.

For dealers who want to keep cellular in-house, being a sophisticated businessperson means attaching accessories beyond cigarette-lighter adapters to a phone sale, Sinclair adds. “Before, if you activated a phone, you made your money, but there’s no longer money to be made if you just sell a phone and a plan,” he said. “The only retailers making money have mastered a lot of add-on selling.”

Cellular accessories sold to consumers in 2010 rose 18 percent to $1.2 billion, up from $1 billion in 2009 and $0.9 billion in 2008, NPD found.