Wednesday, September 19, 2012

Mobile Dials It Up

That the mobile industry is exploding may be an understatement. The phenomenal recent growth in this category comes predominantly from the proliferation of smartphones and tablets. With the development of 4G LTE, which is capable of download speeds as fast as a home-based broadband connection, many see these devices as viable alternatives to traditional laptops.

Business Insider indicates that last year more smartphones were sold than laptops, and in two to three years, tablets are expected to outsell PCs. Smartphone users now represent 42% of all mobile subscribers in the US, according to a recent report from comScore. Will the smart phone craze be leveling off any time soon? Not likely - today there are 835 million smartphone users, compared to 5.6 million non-smart phone users. That’s a whole lot of potential converts, I’d say.

These surprising numbers created some curiosity around here. While we were aware of the apparent increase in the number of cellular phone stores, we decided to take a look at the historical growth of these units in the New England regions we cover in our proprietary GRIIDTM retail database: Eastern Massachusetts, Southern New Hampshire and Greater Hartford. The findings were somewhat surprising.

Between 2006 and 2008, the number of cellular phone stores showed a modest declining trend, with consecutive counts of 471, 468, and 462 units (see graph below). Contributing factors were the consolidations of AT&T and Cingular, as well as the merger between Sprint and Nextel. But also, during that time, the smartphone was a luxury and the tablet was a dream. The American consumer was generally content with a basic phone while the business community lived on the Blackberry. There was market stability in the industry with no compelling “toy” to spur huge growth numbers - until June 29, 2007, the introduction of - guess what – the iPhone.

Consumers were slow to react at first, with only 1.4 million in worldwide sales in that first year, when AT&T had exclusive selling rights. With the release of the iPhone 3G in 2008, sales volume jumped to 11.6 million units. And today, through Apple’s Q3 ending on June 30, partial year sales reached 98 million units. When the iPhone 5 was released this month, pre-orders reached 2 million units the first day. Now include all the other smartphones from numerous other manufacturers, and the numbers grow exponentially. In 2012, just in the US, the number of mobile phone subscriptions is higher than the number of people.

In April 2010, we got to see it all over again with the release of the iPad. So you might conclude that there has been explosive growth in the number of mobile stores that parallels industry growth. But you’d be wrong. While there’s been growth, it’s far from explosive.

As shown in the graph below, during the period from 2008 through 2011, the GRIIDTM regions experienced moderate growth from 462 stores to 516 stores, an increase of 11.7% (as shown in the graphs below). But much of the incremental gain can be attributed to the entry of Metro PCS to these regions. In 2008, this low cost retailer operated only 5 stores and by 2011 the number had grown to 78 units. And although the overall gain is significant the figure actually dropped by 5 stores in 2011, peaking at 521 units the prior year. Fallout during this time frame from third-party brick-and-mortar retailers has also contributed to these results.

The gain was more robust, however, when referring to square footage in this category, which increased 21% between 2008 and 2011. This was the result of larger store footprints. It should be evident where the inconsistency between mobile service subscription growth and mobile phone store growth lies: it lies in Best Buy and Costco and Staples and Wal-Mart and Radio Shack and Amazon - the list goes on and on.

Everyone wants a smartphone and/or a tablet, sometimes several within the same family, and as noted above, there are substantially more mobile service subscriptions than there are people. Even during the Great Recession, consumers have to run out and buy the latest mobile devices. From juveniles to seniors, mobile phones and tablets have become a basic necessity. That’s a big piece of business, and it makes sense that everyone from discounters to wholesale clubs to office supply stores to online sellers want a share of the sales dollars. The category still has room for growth, just not the same kind of growth.

What’s the outlook for the future? I’ll leave you with one final statistic: by 2016 there will be 1.4 mobile gadgets for every person on earth.

Bob Sheehan, Vice President of Research

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