As growth in the wireless phone business slows, AT&T (T) is rebooting its vast chain of retail stores to put more emphasis on other offerings, from wearables and tablets to video, connected car and home security services.
The second-largest U.S. wireless company plans to open a series of larger flagship stores with dedicated areas for each segment along with a modernizing revamp of many of its current 2,000 outlets, Yahoo Finance has learned.
“When you've got 120 million wireless customers, and they do like coming to see us, we want to show them all the things they can do to enhance their lives and enhance their service with us,” Glenn Lurie, AT&T’s chief executive of its mobility business, said in an interview at one of the first new flagships, which opened in Boston this month.
“We want to be one of the best retailers in the world, period, not one of the best retailers in the wireless space,” Lurie says. “We want to be one of the best retailers anywhere.”
In some ways, it’s an odd moment for AT&T to be doubling down on bricks-and-mortar retailing. After all, the changes to shopping behavior brought on by the smartphones AT&T sells have buried tech-oriented retail chains from Circuit City to RadioShack. Nationwide, retailers announced almost 5,500 store closures last year, up from fewer than 2,600 in 2013, according to a report last month from the Fung Business Intelligence Center.
But AT&T and its wireless peers aren’t just selling low-margin tech gadgets. They’re also selling the much more profitable services needed to make those gadgets indispensible to consumers.
“AT&T is very different than RadioShack,” says long-time retailing consultant Howard Davidowitz. “They’re selling you a contract, they’re selling you services. The store is the only chance they have to get the customer alone.”
A new model store
The new 9,000-square-foot, two-level store in Boston’s Back Bay neighborhood, only the second AT&T flagship opened so far, is a model for where the company plans to go.
Sunlight streams in through two-story windows over large wooden display tables. Some are laden with the latest smartphones from Apple (AAPL) and Samsung, while others showcase smartwatches, fitness bands, tablets and music accessories. At a table topped by a red, white and gold electric guitar are a dozen different wireless speakers, ranging from a $49 Ion Party model to a $500 Harmon Kardon Onyx.
Most of the gadgets are live and working, so customers can play with a device and get a feel for it before buying.
Toward the back, amid comfy black and orange couches, is an area dedicated to showcasing AT&T’s "Digital Life" service, a home security and automation program. Customers can experience how they could unlock a front door or control lighting from an AT&T smartphone app. On the second floor, up a wooden staircase, are more private seating areas for wooing business customers.
“Many will get this ‘store of the future’ treatment over the next few years,” Lurie says. “You will see similarities, whether the store is a small store or a large store. This store is our brand and our brand is incredibly important to us.”
A video and TV section will become much more important after AT&T completes its almost $50 billion acquisition of satellite television provider DirecTV (DTV). Regulators are still reviewing the deal, announced last May. In an April 6 report, Morgan Stanley analyst Simon Flannery said the deal faces “fairly limited” opposition and should close within a few weeks.
The Boston store has no cash registers and employees roam the floor armed with tablets, ready to offer advice or ring up a sale. Wireless forms of payment, including Apple Pay, are welcome. The back wall also features a mural depicting the Boston Marathon, a fitting decorative touch for a location overlooking the finish line of the famed race course.
Though the design aesthetic is busier and more colorful than Apple’s iconic all-white store layouts, the AT&T “store of the future” owes much to the retail home of the iPhone, from the community tables to the working devices and lack of cash registers. But AT&T executives insist much of the design owes to customer feedback and concepts developed in the company’s own retail research labs.
“Customers have also told us they prefer these personal interactions,” says Brian Shay, AT&T’s president of retail sales and service. The Boston store represents the latest and greatest incarnation of AT&T's retail goals. “We now have 70 stores that look like this as we continue to evolve our retail experience,” Shay says. So far there's one other U.S. flagship store, in Chicago.
Losing phone customers
AT&T’s retail revamp comes as growth in the traditional wireless business is slowing dramatically. In the fourth quarter, for example, AT&T added only 148,000 regular monthly wireless phone customers along with almost 1 million tablet customers. Verizon (VZ), the U.S. wireless leader, has suffered a net loss of phone customers in the first quarters of this year and last year, according to analysts.
“The reality is that the phone base in the U.S. isn't really growing much, so pretty much all the growth these companies are going to get will come from things other than phones,” says Jan Dawson, chief analyst at Jackdaw Research.
Analysts expect AT&T added 400,000 new monthly wireless customers, including phones and tablets, in the first quarter, according to a Bloomberg survey. Overall, analysts expect AT&T will report earnings per share of 62 cents and total revenue of $32.8 billion when the company announces first-quarter results on Wednesday. That would represent a decline from 70 cents per share of earnings in the first quarter of 2014, but a 1% increase in revenue.
More cross-selling could help boost AT&T's bottom line and get its stock back on track. Shares of AT&T, one of the most widely-owned companies in the market, have lost 9% over the past year. Verizon has gained 3% while the S&P 500 Index is up 12% over the same period.
Others analysts praise the new store concept for finally unifying the disparate businesses AT&T has cobbled together through various acquisitions and initiatives over the years. “As an analyst, I can say that’s exactly what they should be doing,” says Brian Kilcourse at Retail Systems Research. “And as a customer, I say thank god they’re finally doing it.”