The future of physical retail

Evolving retail store footprint

This report looks at how MNO retail stores and the store footprint has evolved over the last three to four years as operators have progressed with developing a digital first and omni-channel approach that has moved customer service and sales online. It looks at the importance of delivery fulfilment and how operators are utilising physical retail stores to complement the online channel with fulfilment that gives customers near instant gratification on device purchases. While some believe physical stores might eventually be swallowed by the metaverse, telecoms operators for the moment are maintaining a store footprint, which despite reduced in size and in some markets shifted to franchise status, is being used to introduce new product and service lines.

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Impact of online on the high street

Consumer shift towards online shopping was evident for some time prior to COVID-19. However, 2020 and 2021 saw accelerated consumer adoption of e-commerce across the world.
In the EU, for example, Eurostat shows online shopping increased by 4%compared to 2019, and as economies began to re-open in 2021 online shopping increased by a further 1% from 2020. Adoption of e-commerce across European markets varies. In the Netherlands, Denmark, Germany, Sweden, Ireland and the UK over 80%of the internet users buy goods and services online. Whereas in Italy for example, adoption is lower where 61% of internet users bought online in 2021, although adoption is significantly up from 49% in 2019.


E-commerce uptake is strong but still varies by market


Source: Eurostat, STL Partners

The most common categories purchased online tend to be:

  • Clothing (including sports clothes) shoes and accessories (ordered by 68% of online shoppers);
  • Followed by deliveries from restaurants and fast-food chains (31% of online shoppers);
  • Electronics such as computers, tablets, mobile phones or their accessories were purchased by 23% of online shoppers.

The categories represent a blended EU figure and likely to be higher (or lower) across individual markets.

These online trends have taken their toll on the high street and this is most evident in clothing and fashion sector. Tracking the closures of some of the UK’s largest department stores and retail chains such as British Home Stores (BHS), Beales, Debenhams and House of Fraser, commercial property insight firm CoStar Group estimates 388 department stores closed in the UK between 2016 and 2021. However, there are signs (at least in the US) of a slowing in announced store closures according to CoStar, as the economy opens up and consumers adjust to a normality which is transitory in itself.

UK department stores



Telco retail transition was already underway

Over the last five years at least, telecoms operators in the midst of transitioning to an omni-channel and digital-first consumer footing have been thinking about what to do with their retail commercial real estate, particularly given the trend of consumers towards online and SIM-only / digital only service propositions. Many Apple iPhone customers today purchase direct from Apple online, while marketplaces such as Amazon are popular destinations to purchase SIM-free devices.

The young consumer segment can be a difficult group to entice into stores. In recent years operators have found common ground with this segment through digital only brands which don’t require a store visit in order to purchase a SIM connection or verify identity, as these activities which can all be handled remotely over a video call and in-App.

  • Verizon’s Visible brand claims it has “cut out stores (and the salespeople that come with them)” to create its digital only low-cost customer value proposition with a 24/7 customer care team”.

However, some operators opt to promote their low-cost brand in-store alongside their main premium brand. Vodafone has demonstrated this in Spain by offering its Lowi brand in Spanish Vodafone stores and in the UK by promoting its VOXI brand in store.

Telecom retail specialists NTS told us that some digital-only retail brands can opt to form a physical (albeit still minimum) connection with customers by using kiosks to help customers perform tasks such as SIM collection, payment, or replenishment.

In a bid to move beyond offering just phones, operators provide thematic areas in their stores to promote services and solutions around smart home, office, personal entertainment, and health. These specialised spaces are useful for introducing new products but can be difficult to implement where store space is limited. Smart home products are also most likely to resonate with older customers who own their home or have a more established settled status.

In 2019, leading telecoms operators collaborated on a TM Forum Catalyst project reimaging the role of the retail store in 2025. The outcome of this project envisioned opening up the store to partners and playing a B2B2C role. It also heavily emphasised the store being used as a vehicle to host events, technical demonstrations, workshops and educational sessions. Speaking with a participant in the project, it was felt that perhaps these events have not proved to be a draw in encouraging customers – particularly younger customers – back into the store. The scale of events is also linked to the floor space available. The project did cite issues relating to the level of space allotted to devices and we can already see operators scaling back on device display space as newer thematic zones are added to the store. 

Events don’t always draw customers to the store


Source: TM Forum


There are still positive outcomes in providing the public, in particular older customers, with educational resources to improve their digital literacy. A Vodafone UK executive noted that since lockdown customers who realised they were not as tech literate as they thought they were have subsequently come into the store to speak with tech experts.

Operators’ sustainability programmes and adoption of circular economy measures in stores such as handset repair, recycle, refurbishment and re-sale is one potential new use case for telecom stores. Orange’s Re program is an example of this.

Stores still serving a purpose for the moment

Operators are still looking for innovative ways to encourage customers in to the store, and some use promotional offers to stimulate purchase during low footfall periods. For example, in January 2021 Bouygues Telecom in France offered a €50 discount to customers entering the store between 9am and 11am who subsequently purchased a mobile phone and subscription package.

European demographics and aging customer profiles could also mean European customers may prefer to rely on stores to introduce them to new device formats, solutions for the home, or wearables to support personal health.

In Africa and the Middle East, operator stores can also be a destination for paying utility bills such as (water, electricity) and telcos have sought to manage this through self-care kiosks and more ideally electronic and mobile payments. While kiosks are useful in handling low level tasks, they also require regular maintenance resource which must be factored into their deployment.

At an in-market competition level, as new players enter the market or territories, they may require retail real estate to establish their presence. For example, T-Mobile USA is now targeting smaller rural markets where it is underrepresented but which (according to the operator) account for 50 million households or 40% of all households in the US. Speaking at Deutsche Telekom’s capital markets day in May 2021, CEO Michael Sievert said the operator would be smart about how it will expand its physical footprint over the next five years, building hundreds of new stores in small towns and rural areas but also using partners such as Best Buy and Walmart to expand its retail distribution presence.

In towns too small to support a retail store, Sievert spoke of using Hometown Experts or individuals dedicated to supporting smaller communities. The operator aims to grow its small and rural market share to 20% over the next five years.

Vodafone CEO Nick Read has spoken of a similar model in Spain for promoting fixed broadband. Similarly in Thailand, AIS deploys direct sales teams to smaller markets or temporary sites providing them with a mobile app to transact sales of devices, airtime and register new customers.

T-Mobile USA expansion to smaller rural markets


Source: Deutsche Telekom, Capital Markets Day – May 2021

Even Tesla re-thought its store model

In 2019, Tesla reversed its decision to close the majority of its 378 stores and instead opted to close half of the stores the car maker originally had planned to close. With electric cars cost is a fundamental barrier to customer adoption and the company initially believed the closure of most of the stores would achieve a 6% reduction in the price of a Telsa car. Stores slated for closure included those with less foot traffic, even if they had a high proportion of in-store sales. However, given most customers like to sit in a car and get a feel it, this may have been a step too far even with Tesla’s seven-day return policy – a policy they felt made the store visit less necessary. The decision to reverse the closure of almost half the stores resulted in a 3% reduction in price of the Tesla car – instead of the 6% reduction under the initial planned closures.

Stores in high visibility locations initially closed due to “low throughput” were reopened, highlighting the usefulness of the store as a billboard for the brand. Tesla reiterated that sales would continue online worldwide and prospective customers entering the store would be “shown how to order a Tesla on their phone in a few minutes.” Tesla believes its seven-day or 1,000 miles returns policy is enough to remove the need for a test drive (effectively a store visit), however cars would still be available for test drive onsite and a small car inventory (stock) level would be maintained to serve customers who want to purchase and drive away immediately.


Table of Contents

  • Executive Summary
  • Table of Figures
  • Introduction
    • Impact of online on the high street
  • Target: Innovation in fulfilment
  • AIS Thailand: Building experiences
    • Expanding into virtual shopping
    • AIS experiments in physical retail
    • My AIS app becomes a super app
  • South Korea’s unmanned stores
    • LG Uplus
    • SK Telcom’s retail network and unmanned store
  • Vodafone: Focusing on efficiencies
    • Vodafone Digital First
    • Vodafone experience store: Billboards aligned to be digital first
    • UK franchising partner model: Local, smaller towns
    • COVID-19 and Vodafone store re-format continues
  • Orange France: How to leverage pop-ups
    • Moving from physical to digital sales
    • New digital skill sets and KPIs
    • La Petite Boutique stores: Promoting suburban and rural fibre broadband take up
  • Altice Portugal: MEO proximity stores
    • Live streaming video chat
  • Safaricom: Working with dealers
    • Balancing digital first and a dealer network
    • Experience stores
  • US: AT&T and Verizon’s hybrid approaches
    • AT&T restructures its corporate store footprint
    • Verizon: Touchless Retail
  • Three Ireland: Connected lifestyle stores
  • Conclusions and recommendations
  • Recommendations

Related research

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Consumer strategy: What should telcos do?

Globally, telcos are pursuing a wide variety of strategies in the consumer market, ranging from broad competition with the major Internet platforms to a narrow focus on delivering connectivity.

Some telcos, such as Orange France, Telefónica Spain, Reliance Jio and Rakuten Mobile, are combining connectivity with an array of services, such as messaging, entertainment, smart home, financial services and digital health propositions. Others, such as Three UK, focus almost entirely on delivering connectivity, while many sit somewhere in between, targeting a single vertical market, in addition to connectivity. AT&T is entertainment-orientated, while Safaricom is financial services-focused.

This report analyses the consumer strategies of the leading telcos in the UK and the Brazil – two very different markets. Whereas the UK is a densely populated, English-speaking country, Brazil has a highly-dispersed population that speaks Portuguese, making the barriers to entry higher for multinational telecoms and content companies.

By examining these two telecoms markets in detail, this report will consider which of these strategies is working, looking, in particular, at whether a halfway-house approach can be successful, given the economies of scope available to companies, such as Amazon and Google, that offer consumers a broad range of digital services. It also considers whether telcos need to be vertically-integrated in the consumer market to be successful. Or can they rely heavily on partnerships with third-parties? Do they need their own distinctive service layer developed in-house?

In light of the behavourial changes brought about by the pandemic, the report also considers whether telcos should be revamping their consumer propositions so that they are more focused on the provision of ultra-reliable connectivity, so people can be sure to work from home productively. Is residential connectivity really a commodity or can telcos now charge a premium for services that ensure a home office is reliably and securely connected throughout the day?

A future STL Partners report will explore telcos’ new working from home propositions in further detail.

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The UK market: Convergence is king

The UK is one of the most developed and competitive telecoms markets in the world. It has a high population density, with 84% of its 66 million people living in urban areas, according to the CIA Factbook. There are almost 272 people for every square kilometre, compared with an average of 103 across Europe. For every 100 people, there are 48 fixed lines and 41 broadband connections, while the vast majority of adults have a mobile phone. GDP per capita (on a purchasing power parity basis) is US$ 48,710, compared with US$ 65,118 in the US (according to the World Bank).

The strength of the state-funded public service broadcaster, the BBC, has made it harder for private sector players to make money in the content market. The BBC delivers a large amount of high-quality advertising-free content to anyone in the UK who pays the annual license fee, which is compulsory to watch television.

In the UK, the leading telcos have mostly eschewed expansion into the broader digital services market. That reflects the strong position of the leading global Internet platforms in the UK, as well as the quality of free-to-air television, and the highly competitive nature of the UK telecoms market – UK operators have relatively low margins, giving them little leeway to invest in the development of other digital services.

Figure 1 summarises where the five main network operators (and broadband/TV provider Sky) are positioned on a matrix mapping degree of vertical integration against the breadth of the proposition.

Most UK telcos have focused on the provision of connectivity

UK telco B2C strategies

Source: STL Partners

Brazil: Land of new opportunities

Almost as large as the US, Brazil has a population density is just 25 people per square kilometre – one tenth of the total UK average population density. Although 87% of Brazil’s 212 million people live in urban areas, according to the CIA Fact book, that means almost 28 million people are spread across the country’s rural communities.

By European standards, Brazil’s fixed-line infrastructure is relatively sparse. For every 100 people, Brazil has 16 fixed lines, 15 fixed broadband connections and 99 mobile connections. Its GDP per capita (on a purchasing power parity basis) is US$ 15,259 – about one third of that in the UK. About 70% of adults had a bank account in 2017, according to the latest World Bank data. However, only 58% of the adult population were actively using the account.

A vast middle-income country, Brazil has a very different telecoms market to that of the UK. In particular, network coverage and quality continue to be important purchasing criteria for consumers in many parts of the country. As a result, Oi, one of the four main network operators, became uncompetitive and entered a bankruptcy restructuring process in 2016. It is now hoping to to sell its sub-scale mobile unit for at least 15 billion reais (US$ 2.8 billion) to refocus the company on its fibre network. The other three major telcos, Vivo (part of Telefónica), Claro (part of América Móvil) and TIM Brazil, have made a joint bid to buy its mobile assets.

For this trio, opportunities may be opening up. They could, for example, play a key role in making financial services available across Brazil’s sprawling landmass, much of which is still served by inadequate road and rail infrastructure. If they can help Brazil’s increasingly cash-strapped consumers to save time and money, they will likely prosper. Even before COVID-19 struck, Brazil was struggling with the fall-out from an early economic crisis.

At the same time, Brazil’s home entertainment market is in a major state of flux. Demand for pay television, in particular, is falling away, as consumers seek out cheaper Internet-based streaming options.

All of Brazil’s major telcos are building a broad consumer play

Brazil telco consumer market strategy overview

Source: STL Partners

Table of contents

  • Executive Summary
  • Introduction
    • The UK market: Convergence is king
    • BT: Trying to be broad and deep
    • Virgin Media: An aggregation play
    • O2 UK: Changing course again
    • Vodafone: A belated convergence play
    • Three UK: Small and focused
    • Takeaways from the UK market: Triple play gridlock
  • Brazil: Land of new opportunities
    • The Brazilian mobile market
    • The Brazilian fixed-line market
    • The Brazilian pay TV market
    • The travails of Oi
    • Vivo: Playing catch-up in fibre
    • Telefónica’s financial performance
    • América Móvil goes broad in Brazil
    • TIM: Small, but perfectly formed?
    • Takeaways from the Brazilian market: A potentially treacherous transition
  • Index

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How telcos can flex their physical strength

Telcos can learn from Amazon

This executive briefing explores how and why Amazon is expanding its physical footprint in its home market of North America. Although Amazon was born on the Internet, physical assets from lockers and retail stores to fulfilment centres and airplanes are absolutely fundamental to its mission to provide the most convenient means of accessing as many physical and digital products and services as possible.

Flagging the many parallels with telecoms, this report analyses the way in which Amazon is melding its physical and digital propositions to generate as many economies of scale and economies of scope as possible. For each example, the report considers the potential lessons for telcos.

Like Amazon, telcos have an extensive range of physical and digital assets and capabilities. But unlike Amazon, telcos tend to focus these assets on a single purpose, rather than serving multiple purposes and multiple groups of customers.

This report gives a high level overview of how telcos could do much more with their remaining data centres, their core and access networks, their retail stores, vehicle fleets, devices and apps. Indeed, each of these assets could help telcos to secure a major role in the Coordination Age – a new era in which telcos and their partners could move beyond providing connectivity to help the public and private sector better coordinate the use of key resources and assets, such as road space, fresh water, energy and farm land.

Finally, the report also flags the potential for telcos outside of North America to partner with Amazon. Beyond its home market, Amazon still has little in the way of physical assets, whereas telcos in Europe and Asia have large physical footprints that could be better utilised.

Note, this high-level report will be supplemented by future reports that will analyse in-depth how telcos can make better use of each category of asset, as STL Partners did in this report exploring best practice in the rollout of apps: Telcos’ apps: What works?

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Amazon: Coordinating convenience

As telcos explore new opportunities emerging in the Coordination Age, they could learn a lot from Amazon, a company that has mastered the coordination of complex digital and physical supply chains. Born on the Internet, Amazon is associated in most people’s minds with the rise of online shopping – buying goods with a click of a button from the comfort of your armchair. Although one might assume that Amazon keeps costs down by minimising its capital spending and its physical footprint, its approach is far more nuanced than that. Indeed, Amazon is building out a broad physical presence across North America that belies the notion that success in digital commerce is all about data, algorithms and slick software. Despite its relentless pursuit of automation, Amazon employs approximately 647,500 full-time and part-time staff, most of them working in fulfilment centres and other logistical facilities.

Rather than minimising costs, Amazon is looking to maximise convenience. Indeed, Amazon is gradually increasing its spending on fulfilment, which has climbed from 13% of sales in 2016 to 14% in 2017 and 15% in 2018.

Figure 1: Amazon’s fulfilment costs are rising

Amazon's fulfilment costs by segment

Source: Amazon

Amazon’s physical assets

In the Coordination Age, digital technologies are being used to coordinate the efficient use of physical assets and resources. While Google is focused on using its world-class software expertise to coordinate the use of physical assets owned by others, Amazon is betting that its expertise in managing physical assets (as well as developing software) will give it a competitive edge over its rival. As telecoms operators also own a broad mix of digital and physical assets, Amazon’s strategy provides a potential playbook for telcos. By straddling the physical and digital worlds, Amazon believes it can bring greater value to both consumers and companies.

One of the ways in which Amazon is increasing convenience for customers is by reducing the latency in its distribution network – it is building out an increasingly dense network of physical assets to reduce delivery times, so that consumers regard Amazon as first port of call for an even wider range of products and services. Amazon wants to sell people what they want, exactly when they want it. For Amazon, as with telcos, high quality coverage of major population centres is vital.

To that end, Amazon is building up a major physical presence in North America – its home market. Amazon’s balance sheet now shows US$45 billion of property and equipment in the U.S. with a further US$16.7 billion in the rest of the world. That compares with US$27.5 billion of property and equipment on the balance sheet of Target Corp., a retailer with more than 1,800 stores across the U.S. Figure 2 shows the value of the property and equipment assets in Amazon’s North America division is growing far faster than those in its International division. That suggests Amazon can’t afford to pursue an asset-heavy strategy across the world and could be open to partnerships with telcos with data centres, retail stores and phone boxes in markets beyond North America.

Figure 2: Amazon’s physical asset base in North America is growing fast

Value of Amazons physical assets by segment

Source: Amazon annual reports

As Figure 2 shows, the physical footprint of Amazon Web Services is also growing rapidly, underlining Amazon’s relentless expansion in online entertainment and cloud computing, as well as retail and logistics (see Figure 3). Indeed, Amazon is highly active in the six distinct market segments shown in Figure 3, underlining how Amazon is comfortable handling a vast range of physical goods and digital bits and bytes. It also operates its own network infrastructure, including undersea cables, and wind farms.

Figure 3 might suggest Amazon is a conglomerate, but it has integrated its propositions across multiple markets in a way that traditional conglomerates wouldn’t contemplate, building extraordinary synergies across six distinct markets over the past 20 years.

Amazon has built these synergies by moving fluidly between B2B2C propositions, B2B propositions and B2C propositions. Amazon is both a retailer and a marketplace for physical goods, and a supplier of cloud services and apps to both consumers and businesses.  As a result, it sometimes competes directly with is customers, but in a way that its customers seem to accept. Most famously, Amazon competes with Netflix in the video-on-demand market, while hosting Netflix on Amazon Web Services (telcos do something similar by serving third party MVNOs).

Figure 3: The milestones of Amazon’s expansion across six segments

Table of Amazon's milestones across six segments

Source: STL Partners

The rest of this report compares Amazon’s physical assets against those of telecoms operators, to draw some parallels on how telcos could make better use of their vast physical assets.

Table of Contents

  • Executive Summary
  • Introduction
  • Amazon: Coordinating convenience
    • Amazon’s physical footprint
    • Comparing Amazon with telcos
    • Whatever you want, however you want it
    • Exploiting end-user devices
    • Better consumer apps
  • How telcos can better harness their assets
    • Partnerships with Amazon

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