A Quick Take: Sprint's Retail Expansion w/Euro Company - Dixons Carphone

Sprint announced a joint venture with UK company Dixons Carphone Connected World Services (CWS) division to expand its retail footprint up to 500 stores.  

This follows the initial foray announced July 2015 where 20 test stores were to be opened. 
Particularly notable in the distribution of 'skin in the game" was the following:

Sprint stores will operate similarly to the third-party retailers who operate Sprint-branded wireless stores across the U.S. Sprint will own and staff the stores while CWS will manage them. CWS will also apply its expertise and best practices across all of Sprint’s sales channels.

Fast forward almost eight months and ostensibly the partnership was successful enough that warranted further stores - up to 500 nationally. However, no time table to meet the number was communicated. 

Quick Take:

Pros

• This is about increasing the gross additions to offset subscriber defections that happen to all carriers. The more gross adds to offset defections yields a better churn metric. Simplistically , this will help the net addition and corporate turnaround story that Softbank and Sprint has been promising. 
• Sprint further expands on its retail footprint following a deal with General Wireless in which Sprint was the lead brand and operating 1,435 to 1,700 stores. As Sprint of the RadioShack announcement in Feb 2015, the company had about 1,100 company owned retail stores. At the high range, Sprint will have about 3.300 stores. 
• Sprint limits its risk and the cost of expansion as it is spread to Dixons which supposedly may have a hand it implementation on top of whatever monetary agreement there may be.
• Presumably, this may help prepaid distribution since each retail store can also push prepaid brands Boost Mobile and Virgin Mobile (if they ever delineate each's niche and value).
• Not that we're tracking Dixons from the US, it gives that company another U.S. foothold after a joint venture with Best Buy for Best Buy Mobile and Geeksquad.  As in this iteration, the partner operates the stores and provides the personnel.

Cons

• For such a decent and impactful announcement, there was no mirror release on Dixons Carphone Media Centre/News Release site.  Doesn't the US expansion of a line of business warrant notice, particularly to he UK financial and mainstream press?

• There is the 'out' language in the press release of 'up to 500' stores - no promises. There could be less, not realizing the full purported distribution impact. 
• Sprint cost cutting may not be over. Any insider knows (regardless of carrier) that cost cutting/containment is constant. If things get bad, the 500 expansion number could be a pipe dream. A indicator could be the RadioShack partnership store traffic and sales metrics. 
• T-Mobile has more Un-carrier announcements planned for '16. At this point, Sprint is competing with T-Mobile for the attacking large Verizon postpaid base.  A strong T-Mobile offering could impinge on Sprint's recovery momentum (albeit very small for now).
• Honestly, this is an upside story. The heavy lifting of what to sell and get customers into the store has partially been answered with the successor of the long running 'Cut Your Bill in Half' promotion. 

Can't Knock Sprint for Trying Hard, Now Direct 2 You

WHAT IS IT?

Direct 2 You is the company's latest action at building differentiation to stand apart against competitors.

 In a In a nutshell, it's concierge and personalized direct to the customer fulfillment of a previously placed order for customers who are upgrading.  Though it's positioned as a national program, only Kansas City, Chicago and Miami were announced.  As part of the announcement, Sprint notes a fleet of 5,000 branded cars and job creation numbers of 5,000.ANALYSISThere is no doubt that Sprint is trying out a lot of ideas to get itself out of the hole. CEO Claure deserves much of the credit in lighting a fire and compounding a sense of employee urgency in the company's restoration journey. Direct 2 You comes at the heels of the free unlimited international data (albeit 2G & only 15 countries)/text roaming announcement and RadioShack distribution deal in which immediately after the bankruptcy decision,  Sprint soon opened some sales doors.  Intertwined was a very 'political' announcement in a important spotlight market, Chicago where infrastructure investment and job creation (300) led the headlines. Here are some Direct 2 You pros:

• The effort is for only upgrades, which means that this is a customer retention effort. There is no minimum bill spend on attaining this concierge service.  Rewarding and cementing loyalty directly impacts churn. While 'Cut Your Bill in Half' and RadioShack store distribution expansion is about acquiring gross adds, Sprint needs better ways to fight against T-Mobile's switching momentum.
• The markets are important and 'friendly.' Starting off in the home HQ market, it gives Sprint some political capital for local job creation, rather than the very visible downsizing in recent past. Chicago as a market has been long discussed as a revitalization of the company story even in the Hesse era. Continuing that on top of meeting public commitments to re-elected Mayor Emanuel only makes sense. Finally, Miami is Claure's old home and obviously heavily Hispanic (a segment Sprint is heavily courting).  
• The effort is through an outsourced partnership, one that has a long history of residential/office fulfillment. There are no Sprint employees in the mix but ostensibly, the job creation is non-direct and there should not be any Sprint CapEx spend.
• Direct 2 You fulfillment is on the customer's schedule, seven days a week during business hours, and subject to where the customer decides to meet.  If customers cannot work around doing fulfillment around this flexibility, there's something wrong.  
• Sprint is working with a delivery zone structure where the representative can be dispatched productively according to meeting customers' time requirements. Further, there's linkage to Sprint systems and additional devices in case there is a customer's change of heart in a device.
• Finally, the fleet of 5,000 Sprint branded vehicles serve to further the company's brand awareness, much like everyone knows a Best Buy Geek Squad car or telephone or cable company truck.

Yet some cons and questions bug me:

• How much does this cost and how will this effort hit the bottom line? Clearly, it's a retention effort that hits the marketing and cost of goods sold line. This may be a wildcard from the financial standpoint but will market goodwill (e.g., Sprint for Chicago) pay off in terms of business and government accounts?
• Sprint says that in the delivery zone concept, it may not be economically feasible to meet a customer who may be outside a delivery zone. Financially, it makes sense but there may be the odd ball cases of high-value customers outside of those zones. Of course, marketing and public perception will be tested once those cases have media focus.
• Is this a beta effort? How long will the commitment be there? Yes, it's national but unlike T-Mobile that can paint itself in a corner with an Un-Carrier X.0 moniker, Sprint can get out if it gets too expensive and suffer ridicule. I supposed this could be a double-edge sword.

Competitive response may not be forthcoming as the big two of AT&T and Verizon Wireless does not have to do anything as they're still in the driver's seat.  T-Mobile has always prided itself as a leader of innovative things (i.e. Un-Carrier) and they have market momentum.  It's likely that competitors will paint this effort as a desperation gambit.  For Sprint, to its credit, they're trying things and cannot be faulted for that. But what's the cost and anticipated churn impact? We'll have to wait to see in calendar year 3Q and 4Q15 to see, won't we?

Bullet Point Analysis: Sprint's RadioShack Store Deal - A Lot of Positives

What is it?

RadioShack's bankruptcy allowed Sprint to partner with General Wireless Inc., a subsidiary of Standard General LP, RadioShack’s largest shareholder (a hedge fund), to increase Sprint branded retail distribution by approximately 1,750 stores, more than doubling Sprint's current 1,100 company store count. The transaction is subject to approval by the bankruptcy court.

The plan at that point will be to establish co-branded (Sprint and RadioShack) stores where Sprint and RadioShack would sell their separate services. 

Analysis

Although it didn't make company's FY3Q14 earnings call deck, it's better late than never.  

The deal has many wins for Sprint since:

• Above all, the company expands their distribution base to help with gross additions (postpaid and prepaid brands) and get potential subscribers in the door interested in the much campaigned "Cut Your Bill in Half Event" that will continue into 2015.

• Distribution count will exceed surging rival T-Mobile. In the FY3Q14 earnings call, CEO Claure stated that Sprint was 500-600 less than T-Mobile. With the new stores, gets T-Mobile's count in one swoop, bringing the total Sprint count to over 2,800 retail points of distribution.  

• Those 1,750 stores have been cherry picked.  Logically, these new stores would not cannibalize existing Sprint retail traffic, and serve the right Sprint target demographic - Verizon and AT&T prime customers.

• The stores will be co-branded but Sprint is the primary brand. Sprint and RadioShack says that each brand's customers may be cross-marketed to but the ability to share lease space costs should not be overlooked. Sprint will only occupy a third of the store space so relative to operating a full store, Sprint in theory has lower costs.

• With all the negativity of a declining brand and controlling costs, headcount cuts have been an unfortunate tool. However, Sprint will need employees to operate these stores. RadioShack employees who are already trained at selling mobile devices and plans are logical candidates. In theory, it's an easy transition as reps will only need to focus on Sprint plans versus the many prepaid MVNO options and those of Verizon and AT&T. In fact, because of the breadth of knowledge, these reps will know what competitors' plan weak points may be. 

Yet there are questions. 

• Like many deals, the financial and commitment terms were not divulged so it's undetermined how good of a long term financial deal this is.  

• The deal needs the blessing of the bankruptcy court and if that is given in short order, this doesn't mean that Sprint can move in immediately.  The store rep human resources process will need to be address, planning the look and buildout of a third of every store will need to be done.  Given this, the impact of the 2015 gross additions look to be in the back half of the year.

• This last point can be both a positive and negative.   By taking over these 1,750 stores, Sprint takes out the same number of distribution points for postpaid rivals AT&T and Verizon (no T-Mobile) and Tracfone prepaid brands (US Cellular in some markets).  The big "BUT" is the amount of wireless business a declining RadioShack generated for competitors. If it's immaterial, then it's not that great of a loss for those competitors.

Overall, this deal is one of the best moves Sprint has jumped on since the beginning of CEO  Claure's tenure.