Phones 4u is set to plunge into administration after EE ended its contract with the retailer. Retail Week takes a closer look at the situation.

Why did EE and Vodafone terminate their contracts with Phones 4u?

Mobile suppliers have made a concentrated move to cut out the middle man to protect their margins.

Julie Palmer, partner at restructuring firm Begbies Traynor, says it is no coincidence that margins are being squeezed as regulators have cracked down on areas such as roaming charges, which she points out were “money spinners” for them.

Suppliers have been expanding their own store estates to make a greater portion of direct sales. Vodafone has invested £100m in opening 150 stores over the next year while EE is opening 50 ‘statement’ stores as it vies to improve its own shopping experience.

That follows the lead of fellow supplier Three, which does not use third-party sellers and makes 96% of its sales directly.

Why pull out of Phones 4u rather than Carphone Warehouse?

The recent merger of Carphone Warehouse and Dixons has made the retailer a much more powerful channel for mobile suppliers, according to Palmer.

“It’s made the decision to tie-in with Dixons a much wiser one,” she says. “They are more immune now as they have a much wider base.”

In fact, Vodafone signed an “enhanced distribution partnership” with the newly merged group at the beginning of September.

Palmer says Dixon Carphone’s greater focus on service is also more appealing to mobile phone suppliers. “Their large store format means that lots of staff are on hand to deal with queries,” says Palmer.

Is there any future for Phones 4u?

With no product to sell, the future looks bleak for Phones 4u. Palmer says: “I can’t see the business existing in its former form.”

Palmer thinks breaking the company up is the most likely course of action, with other mobile phone retailers likely to be interested in taking stores.

Conlumino managing director Neil Saunders says: “There are some future options open to Phones 4U. It could, for example, beef up agreements with some of the smaller operators.

“Equally, it could drive sales of its own Life Mobile service which has generally been well received. However, these are all ‘lest best’ options and not ones that will save Phones 4U in its current shape. They would also require a rethink of how the business works with, for example, much higher levels of marketing being required to achieve reasonable penetration of its own brand. The number of stores would also need to be reduced.”

Phones 4u stores were closed this morning as the firm awaited PwC’s appointment as administrator and for guidance on whether it can continue trading. Some 5,596 jobs hang in the balance although Dixons Carphone said it will try to give jobs to employees at its Phones 4u shop-in-shops.

It said: “With regards to our Phones 4U shop-in-shop colleagues we hope to help them secure new jobs with us and will be opening up discussions with the administrators to agree what we can do.”

UPDATED: Phones 4u collapses into administration after EE ends contract