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May 03, 2017

Righting the Balance in Cell Phone Repair

Ed McKinley

A weird imbalance prevails in the cell phone business. On one side of the equation, the stores founded to sell prepaid minutes also repair phones. But on the other side, the shops launched to specialize in repairs usually don’t sell minutes.  

More specifically, about 80 percent of prepaid stores now double as repair shops, while perhaps 10 percent of the nation’s 15,000 or so repair centers are selling minutes, according to Avi Yosopov, CEO of PhonePartsDistributors.com, a wholesaler of repair parts and used cell phones.

Despite their resistance to selling minutes, the repair specialists have been growing in number for the last five to seven years, observes Sean Michaels, president of MaxBack, a company that buys and sells used electronic devices, including phones. That growth shows little sign of abating, he says.

Meanwhile, however, the repair marketplace is becoming more confused as big box office supply stores get into the business, says Lee Terkel, vice president of sales and marketing for cellhelmet, a phone accessories supplier. “Things are juxtaposing in all sorts of odd and strange ways,” he observes.

The fragmentation of the market also includes incursions by small shops selling that specialize is selling barely related products – like battery stores, notes Matt Roldan, chief customer officer at Sourcely, a company that provides internet services and repair parts to the cell phone industry.

 

Embracing repairs; rejecting minutes

It’s natural for prepaid centers to offer repairs simply because people walk in with phones that have problems, says Ramin Heydari, CEO of The Preferred Prepaid, a company that provides wireless products and services to retailers.

Prepaid stores are also attracted to the repair business because it represents another revenue stream in an industry with compressed margins on its core products, observers agree. Offering repairs keeps customers coming back and thus reduces attrition, they note.

Conversely, repair specialists often choose not to sell minutes even though industry observers admonish them not to turn their backs on an opportunity. “If you’re just offering one thing in your business, you’re really cutting yourself short,” says MJ Nale, who operates an online phone repair school called Phonlab.

Repair shop owners often shun minutes because they’re not familiar with the business, says Yosopov. “They’re just not educated in the exact details of how it works,” he adds.

That fault lies with a lack of training and support from the carriers and distributors, according to Heydari. Those omissions leave repair shops with a “hodgepodge” when it comes to selling minutes, he says.

It might also be contrary to the nature of many repair shop owners to take on a sales role, Roldan says. “A lot of times, they’re repair guys. They’re not business guys,” he notes. “They’re tinkerers. They build things.”

Besides, about 90 percent of repair shops operate with only one person working on the premises so spending time selling doesn’t work well, says Heydari. “They’re making $100 on a thirty-minute repair and don’t want to waste time answering the customer’s questions on various prepaid services,” he says. “They don’t see the benefit.”

In addition, some repair people regard the retail side of the business as a lower-end pursuit that’s lacking in sophistication and is usually confined to poorer parts of town, Yosopov says. “They think of a cluttered, non-corporate-looking store with a thousand different banners in front of it from a hundred different companies,” he maintains. “A lot of people take a step back from that.”

Instead, lots of repair people aspire to opening shops in white-collar areas and catering to consumers who have postpaid accounts, Yosopov says. “Do I agree with their decisions?” he asks rhetorically. He answers himself by saying no.

Combining repair with selling minutes and accessories makes more sense, Yosopov  contends, adding that those who fail to bring together all the elements of the business will be left behind by competitors.

 

Starting small in minutes

Even though repair shops can place themselves in a better competitive position by offering minutes, they don’t have to break the bank to do it, Yosopov suggests. They can start small by stocking just a few SIM cards, he notes.

Once they have that capability to sell minutes, they can begin to strike up conversations about how they can beat competitors’ rates, Yosopov suggests. “Then, ‘Boom!’ they’ve got a sale,” he exclaims.

But starting small can result in remaining small, Heydari warns. Repair shops that sell minutes tend to lag far behind in the prepaid category compared with stores that consider minutes their main reason to exist, he notes. Marketing and location can hurt repair shops when it comes to selling minutes, he says.

Marketing and location can hurt repair shops when it comes to repairs, too, cautions Yosopov. In fact, prepaid centers probably perform more repairs than the repair specialists do, he says. “They’ve been around longer and have an existing clientele base that they’ve accumulated over the years,” he notes.

Still, some repair shops in prime retail locations handle a lot of repair business – about the same volume retailers achieve, Yosopov observes. Other repair shops pay a thousand dollars a month rent for a neighborhood space and thus have little foot traffic to drive business, he notes. “It really varies,” he says of repair shop volume. “It’s all over the place.”

 

Who repairs what

Whatever the volume and whatever the shop chooses as its main function – prepaid minutes or repair – they find themselves replacing a lot of cell phone screens, says Roldan. In fact, screen repair accounts for about 80 percent of the repair business, he says.

Remember that it’s mainly component-level repair, cautions Heydari. Hardly anyone in the cell phone stores or repair shops is changing out chips or modifying circuitry, he says. Ninety percent are module changes – either a speaker or microphone – big components, he contends.

Replacing major components that way usually requires 30 minutes to an hour, Heydari estimates. If the shop tells a customer a repair will take longer, it’s just because the shop has a backlog of work, he notes.

 

Learning to make repairs

Training classes can provide a starting point in the repair business, and Yosopov began with a course that featured a good curriculum and a good training facility but he found that a week just wasn’t enough time to learn what he needed to know. “I definitely was not happy with it,” he recalls.

That’s why Yosopov plans to offer hands-on training in his Long Island distribution facility. After teaching enrollees the business, his company can help them find jobs or supply the parts and phones to start their own businesses, he says. “Plus, we’re always hiring because we have a lot of repairs piling up,” he notes.

The internet can provide a good source of training, too, says Nale, who operates his Phonlab school online. He began by offering his classes in person in a business incubator in Hawaii but chose instead to reach a wider clientele on the internet.

Nale certifies students as smartphone techs upon completing his course of instruction and passing some tests. He’ll also be seeking academic accreditation for his school, which will require several years of documented results, he notes. The school expects to have a thousand students soon, and 15 had finished classes and had been certified by press time, he says.

The school designs classes with the future in mind, Nale contends. He predicts that phones will become so modular that consumers will make their own repairs and upgrades. At the same time, phones will become nearly impervious to impact, he adds. As those trends unfold, repair specialists will have to understand phone software to remain relevant, and the school develops classes to fulfill those needs, he maintains.

Students pay $39 monthly to become Phonlab members, and the school helps many of them start their own shops, Nale says. The school also takes their calls when they’re standing in front of a customer and can’t handle an unfamiliar repair, he says. And even the best techs still have something left to learn and can continue their classes after certification, he says.

Instructors have varied backgrounds and some have built reputations for their groundbreaking tinkering with technology, Nale claims. Students come from all parts of the industry, everywhere from small repair shops to the big national carriers, he reports.    

 

Starting a repair shop

People who aspire to launching their own repair shops often have a computer background and start by repairing phones for friends and family, Yosopov says. Then they see the demand, scrape up some capital and open a shop, he says.

Some computer-repair shops simply branch out into cell phone repairs, notes Roldan. Then there are the phone repair-stores that begin working on computers, too. “There is definitely some cross-pollination,” he observes.

However, it’s easier to enter the phone repair business than the computer repair industry because computers come in a wider variety of models and thus require a larger parts inventory, Roldan says.

The investment in parts varies for phone repair shops, Roldan continues. It’s tough to say how much inventory the business requires because it differs depending upon location and marketing, he contends. The parts bill for typical repair shops ranges from $2,500 to $5,000 monthly, he says.

Inventory should include screens, charging ports, earpieces, buttons and lots of other small parts, Roldan notes. And the parts vary from model to model. “You need to have a few of everything just to make sure,” he says.

Besides inventory, repair shops should have marketing plans, Roldan emphasizes. “You have to know how you’re going to acquire customers,” he advises. His company provides ways of marketing online, he says.

Perhaps 20 percent or 30 percent of repair people choose to become franchisees, although no one really know the true numbers, notes Roldan. Of those who do take franchises, some remain low-level with just a few locations while others operate hundreds of franchised shops, he says.

A Google search yields numerous franchisors, many with names that conjure medical images. In no particular order, they include CPR, Cellairis, DrPhoneFix, LifeLine, Staymobile, iCare and uBreakiFix. Some entrepreneurs have grown their businesses into regional operations with multiple stores.   

 

The imperative of accessorizing

Although repairs shops often exhibit a reluctance to sell minutes, most show enthusiasm for selling accessories, says Terkel. “You walk into a well-heeled repair shop today, and you will see all of the ancillaries that are sold in wireless,” he says.

Customers often wait in the shop for an hour or so for a phone repair, giving them plenty of time to peruse whatever accessories the repair shop chooses to display, Terkel notes.

At the same time, prepaid retailers are attracted to the accessory business because their margins are squeezed on activations, renewals and devices, Terkel says. “The profitability of the accessory side of the business is becoming more and more paramount,” he declares.

What’s more, prepaid retailers are going upmarket with the accessories they offer as their clientele becomes more middle class as families learn they can cut their wireless expenses by switching from postpaid to prepaid, Terkel maintains.

“Chargers, tempered glass – those are going to be their opportunities,” Roldan says of accessories. “The No. 1 upsell in the industry is tempered glass,” he notes. For consumers, a $30 tempered glass shield protects a screen that could cost $90 to $300 to replace. For repair or retail shop owners, the margin comes to 90 percent, he says.

 

Refurbished phones

Retailers and repair shops alike can profit from selling new-looking older phones with replacement housings and components, observers agree. But getting into that business can prove problematic because suppliers sometimes insist upon large-scale purchases, says Yosopov.

Before becoming a parts and used phone distributor, Yosopov entered the industry by opening a repair shop. He wanted to augment his repair business by offering used phones for sale and soon discovered he had three options.

First, Yosopov could buy used units from a wholesaler who charged nearly as much as the phones brought on eBay or Amazon and required a purchase of at least 200 devices. Second, he could buy the ten or 20 phones he needed but would have to pay the wholesaler more than the devices cost online. Third, he could simply buy them on eBay or Amazon.

For distributors, used phones pose risks because they might not sell in time to avoid depreciation, Yosopov says. That danger intensifies when repair shops are buying phones one or two at a time, he notes. It’s also difficult to stock all the many varieties of used phones available in their differing brands, models, colors and data storage capabilities, he says.

Meanwhile, many of the used devices in the U.S. are shipped abroad for sale in other countries, says Yosopov. “If you’re able to unlock them, they’re worth a lot more there,” he notes because so many consumers get new phones here.

Buy-back schemes provide one way of acquiring old phones in the U.S. and at the same time can subsidize the cost of repairs, says Roldan. For example, a consumer might go into a repair shop and find that a repair to an iPhone 7 costs $250. The shop can offer that customer $100 for an old iPhone 6 and thus reduce the cost of the iPhone 7 repair to $150, he notes.

Shops can fix the trade-ins and sell them to consumers or sell them online or to wholesalers, Roldan says. Some of the old phones they receive are in good enough condition to resell without repairs, he notes. Providing used phones is becoming a core competency of some repair shops, and Sourcely provides an online platform to expedite buying phones from consumers, he says.

Meanwhile, companies that specialize in used electronics equipment see an impending opportunity in second-hand cell phones, says Michaels. Until now, most of the equipment his company has handled has been has been in good enough shape that it didn’t need repair.

But that’s changing as carriers become more aggressive in their efforts to compel consumers to turn in old phones, Michaels says. Sometimes they’re offering $200 for trade-ins, for example, which could be more than the market value of the phones, he observes. It’s the carriers’ attempt to gain market share or retain subscribers, he notes.

Whatever the goal, that pricing increases the number of phones traded in, Michaels says. But carriers don’t really want to deal with the large numbers of phones that need repairs that will come in as part of the new trade-in policy, Michaels continues. That provides his company with an opportunity to step in and buy the phones that need work. His firm can then make the repairs and sell the devices profitably.

With all this emphasis on selling used phones in repair shops, it might seem likely that a move into selling new ones could take hold, too. But repair shops seldom offer new phones to their customers because they’re expensive to buy and to sell Rolden says.   

 

The importance of repair

Regardless of the approach that repair specialists choose – franchised or not, offering minutes or not – their numbers are continuing to grow and that trend appears likely to continue, Roldan says. “There aren’t any real barriers to entry,” he says. “Anyone can be in cell phone repair.”

Even with easy access to the market, repair remains a great, mostly untapped source of income for repair specialists and cell phone stores alike, in Heydari’s view. “These channels definitely have more potential than is being used,” he maintains.

And the skills of the repair specialists constitute an invaluable asset for the industry, Heydari says. “They’re pretty intelligent, savvy people – they’re more than just clerks,” he concludes.

 

A special thank you to Kathy Katcher, Publisher of Wireless Repair Magazine, for her assistance with this article.   Visit Wireless Repair Magazine online at www.wirelessrepairmagazine.com.

 

 

 

 

 

 

 

 

 

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Comments:

05/05/2017 - By Bob Lafon
The “Weird Imbalance” in the cell phone business. – not so weird after all.

The notion that there is an apparent imbalance or appearance of an imbalance in the cell phone world is not a correct assumption. It’s an “apples & oranges” comparison. While apples and oranges are similar in that they’re both fruit and have healthful benefits, you can quickly see that each has a different color, texture, taste, and healthful benefit. The similarity is only in that they are both fruit.

Likewise is the case with Prepaid and Postpaid cell phone services. While the Prepaid marketplace is becoming more and more viable for consumers at all fiscal levels, it still remains the popular choice for those with lower incomes who value the benefits, but may lack the finances needed to purchase the more expansive coverage and feature rich plans of the national facilities based carriers. Both Prepaid MVNO’s and Carriers have stores, sell phones, offer minutes, data, and other features. In that they are again similar, but not the same.

Repair makes sense as a source of incremental revenue for Prepaid shops, to the degree that someone who has broken a phone screen or has battery issues on a premium device may want to have that device repaired rather than incur a potentially larger expense in replacing the device. But that’s a smaller segment of device users in Prepaid, as most still acquire the “free” phone or purchase a more entry level model. Conversely, the carrier’s customers often purchase very high end devices with prices upwards of $700 . The larger, more lucrative market segment is still those who purchase phones and services through carriers.

If you look at the repair segment, the strong majority of repair shops are located in metropolitan and suburban areas, where those carrier customer’s work and reside. The repair segment is clearly targeting a higher-end demographic; people who pay more for their phones and services through carriers. So for repair shops, selling minutes doesn’t make a lot of sense, as this is not their target demographic. While it makes more and more sense for Prepaid retailers to offer repair as another way improving profits and drawing more customers, it makes no real sense for repair shops to get into the business of selling minutes. The sole exception being those repair shops that chose to do business in more urban settings. In this case, selling minutes is complimentary and makes complete sense, as they are serving the same demographic as the Prepaid segment.

No amount of training and support will change the Zebra’s stripes. These are simply similar, but still very different market segments serving differing demographics. Repair shops would be well served to continue focusing on accessories, as noted in comments by Lee Terkel of Cellhelmet. They will also be well served to pursue the creation of their own Certified Pre-owned phone (CPO) programs. They can offer premium used devices that have been tested and are warranted by the repair shop as viable replacement devices for those whose repair costs may exceed the price of a quality used device. The repair segment will also benefit from expanding their repair offerings to tablets, laptops and even drones. For Prepaid, none of the aforementioned is applicable simply because they are a different animal.

None of what’s discussed above is intended to denigrate one segment, or show one segment as superior to the other. These are simply different market segments serving different demographics and there’s a slight overlap with Prepaid beginning to offer repair.

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