Posted by: Olga Kharif on January 18, 2008
On Jan. 18, Sprint Nextel announced it lost a total of 109,000 subscribers in the fourth quarter. While Sprint has been shedding customers for months, no one expected fourth-quarter losses to be that deep, and the stock plummeted 24.81%, to $8.70. But what I think investors should worry even more about is Sprint’s decision to close 125 stores, or 8% of all of its outlets, and to axe some 4,000 third-party distribution points.
Store closures — at least, those not related to mergers — are unheard of in the wireless industry, which heavily relies on store sales to recruit subscribers. Once the stores are closed, Sprint will have roughly as many stores as T-Mobile — and at least 30% fewer stores than AT&T or Verizon Wireless. And that may make it even harder for Sprint to retain and gain users.
People still overwhelmingly buy wireless service at carriers' own stores. Two years ago, 57.6% of service providers' customers signed up at the carriers' stores, according to consultancy Gartner. A year ago, that percentage crept up to nearly 60%."People want to see what the handsets look like, and to try them first," says Charlie Golvin, an analyst with consultancy Forrester Research.
AT&T is actually growing its network of stores, which already exceeds 2,000. "We added a significant number in Q4 alone and have already added a few additional ones in the first couple weeks of January," says Michael Coe, a company spokesperson. T-Mobile USA added 259 stores last year. Up-and-coming wireless service providers like Leap are growing their networks of stores as well: While, a year ago, most of Leap's sales came from retailers that sold all sorts of wireless services including Leap's, today, 70% of new customers come from Leap-branded stores, says spokesperson Greg Lund, and only 30% -- from dealers. The company plans to launch more stores this year as well.
Sprint still has some 20,000 distribution points, such as electronics and specialty retailers. And it's only getting rid of 8% of its locations. Sprint is still in the process of deciding which particular stores to close, and will likely target underperformers, according to the company.
Yet, even that small move could result in further market share losses for the company, says Michael Mahoney, managing director at Falcon Point Capital. After all, Sprint will reduce the number of locations where existing users can receive customer service. It will also have to remove its signs from neighborhoods where the stores used to be -- and, thus, may be doing less marketing. And insufficient, ineffective marketing and poor customer service are the main reason why subscribers are leaving Sprint already.