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Retailers
July 3, 2019
Following AO World’s takeover of Mobile Phones Direct, both brands will play a key part in its future
When Karl Borges set up his independent dealership in 1992, little did he know that it would result in a £32.5 million windfall 26 years later, when the company was acquired by online electronics and appliances retailer AO World in 2018.
Borges set up Mobile Phones Direct (MPD) as a bricks-and-mortar retailer back in 1992 after gaining experience in the telecoms industry at Nokia and then Vodafone, setting up his first store in Newbury around the corner from Vodafone’s head office.
His first break came when Nokia, market leader at the time, partnered with Borges to run its Nokia retail stores. At one point in the early 2000s, there were as many as 12 MPD-branded stores, plus some Nokia- branded ones.
The end of the transition to pure online retail came in 2011, after the Finnish giant struggled in the wake of the iPhone taking hold in a market it had previously dominated. This influenced Borges to change the dynamic of MPD, rather than continue to do battle in a competitive high street with the four main operators plus Carphone Warehouse and, at the time, Phones4U.
The Berkshire- based online retailer generated £122 million in turnover in the 12 months ending in March 2018, up from £79 million three years ago.
The takeover deal came at a time when both companies were seeking a partner – MPD to help drive the company forward and AO to move into mobile with the deal sealed on December 17.
The acquisition is a “strategically good fit”, says AO World MD Richard Baxendale, a high-flier with Brightstar and Tech Data before joining MPD two years ago as CEO.
Of Borges, he says: “Karl had been in the industry for 30 years. He realised that for the business to continue its growth, it need some external funding. More importantly, it had to be the right shareholder or partner to move the business forward.”
Baxendale says AO fulfils this need, providing MPD with the tools to power on and at the same time filling a gap in AO’s already extensive portfolio.
Strategy
“Mobile was an obvious gap in AO’s strategy and MPD has the ability to provide a comprehensive offering of mobile brands across a number of networks,” says Baxendale. “This acquisition has also given
MPD a real platform to drive its business, with AO bringing it more financial power for growth.”
Baxendale adds that the convenience of online shopping helps retailers such as MPD appeal to customers.
“Online customers have a broader choice of products, while also having the convenience of browsing whenever they choose to. Across MPD’s website, there is a combination of seven million propositions across all four networks, which is significantly more than what retail stores and the high street can offer.”
The company ranges a huge variety of devices, including models from Apple, Samsung, Huawei, Nokia, Sony, Google, OnePlus, Honor, Xiaomi, BlackBerry and Motorola across a number of pay-monthly contracts from Vodafone, EE, Three and O2.
“Operators are a key part of our business and will continue to be,” says Baxendale. “We’ll add more manufacturers who understand our business and can help drive growth, while also giving value to the operator.”
Continuity
Usually an acquisition means a change of brand and identity, but in this case the MPD brand will continue.
“Mobile Phones Direct has been built up over eight years. We’ve been able to build up a sizeable customer base that has seen us become an established online presence,” says Baxendale.
He emphasises the continuing value of the brand, which has won a number of awards – including Best Online Retailer at this year’s Mobile News Awards.
AO.com chief operating officer Danny Emmett agrees that MPD is a strong brand that is well worth keeping.
“We intend to keep that going and also , over time, establish an AO Mobile proposition that will then be available through AO.com,” he says. In line with this, a separate AO Mobile website is set to be launched later in the year.
Meanwhile, at the time of the takeover deal, AO World chief executive Steve Caunce also emphasised the strength of the MPD brand: “Mobile Phones Direct already has a leading position within the UK online mobile market and is a business which is highly complementary to AO. In coming together, AO will achieve instant scale and be well-placed for future opportunities within a highly attractive and growing UK mobile phone market.”
The good news for the 100 or so MPD employees is that the acquisition will not reduce headcount. On the contrary, the company is, in fact, looking to fill 30 extra positions.
“As our focus is to scale the business, recruiting more people seems the logical way of driving this,” says Baxendale.
As part of the takeover, AO also bought MPD sub-brand Smart Phone Company. The MPD and SPC websites together attracted 13.6 million visitors last year, two million more than in 2016. Given that sort of traffic, Baxendale is confident MPD can reach many more people online, especially with AO’s assistance.
“The strong AO brand will help customers to resonate with us more, and the wealth of experience and knowledge of AO is something that MPD can tap into.”
Customer service
He stresses the importance of customer service in the equation. While Baxendale acknowledges that the mobile industry has not always lit up the world in this area, he wants MPD to be different and offer a customer experience that sets it apart from its competitors.
And he says that the company already takes this seriously, regularly carrying out customer satisfaction surveys to see how users find the experience, whether they would use MPD again and how likely they are to recommend it. In addition, MPD monitors the success rate of its deliveries and percentage of on-time arrivals, plus how long customer issues take to resolve.
“It’s about trying to create an effortless experience that puts the customer at the heart of what we do and making their experience as simple as it needs to be.”
This is perhaps reflected in the 36,000- plus user reviews of MPD on the Trustpilot website, in which the company has received an average mark of 8.7 out of ten – with 81 per cent rating it “excellent”.
“These scores are encouraging, but I don’t want to compare MPD to other online mobile retailers,” says Baxendale. “We are not measuring ourselves against other companies in our industry. Mobile phone retail has not been synonymous with great customer experience, but we want to change that.”
Like all retailers, MPD faces challenges, says Baxendale. However, the company’s warehouse and customer-facing department use strategies such as recycling to deal with issues such as returned devices.
“Faulty returns go back to the manufacturer, while we also encounter customers that change their mind. We put the returned phone through a process that then sees it sold as a refurbished handset, so it means we’re minimising our losses.”
Naturally, all eyes at MPD are on the rollout of 5G and introduction of devices using the technology. Indeed, the revolution promised by 5G was a factor that spurred AO to break into the mobile sector – with MPD seeking to capitalise on the £1.7 billion boost to the global economy that the technology is predicted to bring.
“We know that a lot of 5G connections are predicted,” says Baxendale. “So it is about getting into a position to make sure we can deliver value for this. 5G might even help the slowing smartphone market that has become stagnant in the past few years.
“The market may not be growing as it has been previously, but we still see a huge opportunity. Currently, we still have only around five per cent of the mobile phone contract market, and that doesn’t take into account opportunities in the SIM-free and accessories areas. With AO, we see a real opportunity to drive market share.”
For now, Borges is “enjoying life”, laughs Baxendale, who says he had heard Borges was running as an MP for the Green Party in local elections in Alresford and Itchen Valley. A quick Google search confirmed this.
As for Baxendale, he is optimistic about the future for the business. “We’re at the beginning of a journey,” he says. “There’s a real momentum behind the business for MPD as it enters a new chapter, and we want to continue this success.”
Outcome of a £1 bet: the rise of AO.com from a small pub wager in 2000
AO is a Bolton-based online electronics store founded by John Roberts in 2000 initially as Appliances Online.
This came off the back of a £1 wager in the pub, when Roberts was encouraged to set up his own business by a friend who bet that he wouldn’t. Prior to this, Bolton-born Roberts was a salesman at the now defunct Moben Kitchens.
AO, which is entirely focused on online retail, sells everything from TVs and laptops to washing machines and fridges.
In its last financial results, AO announced group revenues of around £900 million in the year to the end of March, an increase of 13 per cent year-on-year (nine per cent excluding MPD). This was achieved against a backdrop of ongoing weak consumer confidence in a competitive market.
The online-only retailer currently employs more than 2,500 people across the UK and Europe, and completes millions of deliveries a year, although an exact number was not confirmed.