With over 13,000 stores nation wide, the cellphone retail industry is a behemoth that has worked hard to put a mobile phone into the pockets of 91% of American men, women and children. But as the market reaches saturation, is it time to rethink the distribution strategy?

In the Wall Street Journal’s article “Cellphone Companies Should Hang Up on Their Stores” (sub. required) mobile operators have made their buck from retail but now with near-saturation, the growth is in the number of users going to prepaid phone service, leaving the expensive overheads of company-owned retail stores out in the cold.

Mobile retail is important as users can see, touch, and use the devices they are about to purchase rather then just pointing and clicking on a computer. The Google Nexis One is no longer availible online, because the only way to experience the phone is to pay the $800 to purchase it.

Consider the increasing number of prepaid phone service users and you have an expensive problem.  The retail environment created by the mobile operators was ideal for post paid plans, which require multi-year long contracts, exposure to a range of devices (creating upsell opportunities) and in-store credit checks.

In contrast, the prepaid is a system of paying in advance and managing your calls before the money runs out, and then replenish with a credit card or a store-bought premium-priced replenishment card. Physical stores become less and less important to the mobile industry as this number of prepaid users goes up, since the user activation and service features are easily updated remotely and the revenue on any transaction is so much less than postpaid customers.

Although it is not reasonable to expect operators to shift retail strategies quickly and shut hundreds of stores at a time, it is reasonable to expect the mobile retailers to reduce their number of company-owned mobile retail store channel in the coming years, as the prepaid market grows. They will be watching profitability and service mix closely, as will many industry analysts and investors.

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