Phones 4u collapse 'classic example' of supplier relationship breakdown

Will Green is news editor of Supply Management
16 September 2014

The collapse of Phones 4u (P4U) has been described as a “classic example of a relationship breakdown with a series of strategic suppliers”.

Roy Williams, managing director at Vendigital, speaking after the announcement that P4U was going into administration, said “something must have gone wrong when next generation contracts were being negotiated”.

The P4U website has gone offline but a message said: “Following the unexpected decision of EE and Vodafone to withdraw supply from Phones 4u, we regret that we are offline.”

David Kassler, chief executive of Phones 4u, said it was "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," he said. 

"The great service we have provided should have guaranteed a strong future, but unfortunately our network partners have decided otherwise. The ultimate result will be less competition, less choice and higher prices for mobile customers in UK.” 

Williams said: “This sounds like a classic example of a relationship breakdown with a series strategic suppliers. Suppliers’ decisions to pull the plug indicate that something must have gone wrong when next generation contracts were being negotiated – possibly because they were trying to drive a hard bargain. Phones 4u ended up as the unfavoured route to market as a result.

“It is likely that there has also been a domino-effect at play here – with one supplier after the other falling by the wayside – and this could just be bad luck. However, there is unlikely to be any way back from this for Phones 4u unless they immediately change the individuals involved and can communicate a convincing change of strategy that will turn them into the indirect operators of choice.”

P4U had annual turnover of £1 billion with more than 700 outlets and 5,596 employees, according to administrators PwC.

A Vodafone spokesman said: “We strongly reject any suggestion that we behaved inappropriately at any stage during our negotiations with Phones 4u. The outcome was the result of a transparent negotiation over many months. 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.”

An EE spokesman said: “In line with our strategy to focus on growth in our direct channels and to move to fewer, deeper relationships in the indirect channel, and driven by developments in the marketplace that have called into question the long term viability of the Phones 4u business, we can confirm that we have taken the decision not to extend our contract beyond September 2015. We will monitor developments and work to provide any necessary support for customers who joined EE through Phones 4u.”

Rob Hunt, joint administrator and PwC partner, said they would be attempting to sell the business. “The stores will remain closed while we have these conversations,” he said. “We will also be talking to network operators and suppliers and trying to access funds to pay for the costs of the business, including wages.

“These conversations will determine whether we an re-open stores and trade, and also if and when we can pay the arrears of wages to employees.”

 

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