Retail is Detail

The leading lights of the IT retail channel remain upbeat about the prospects for consumer demand in 2006 and beyond

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By  Andy Tillett Published  February 28, 2006

Power in retail|~|JACKYs200.gif|~|Ashish Panjabi, chief operating officer at Jacky’s|~|The consumer electronics and IT retail sector continues to boom across the Middle East. Hypermarkets are going head-to-head with focused power retailers to attract customers across the region. However, in the UAE, retailers have spent the first few months of 2006 dealing with the fallout from the unfortunate but wholly understandable cancellation of the Dubai Shopping Festival (DSF). Across the region there remains an underlying belief among retailers that not only will consumer demand continue to rise in 2006, but also that retail itself will become an increasingly sophisticated business arena in the Middle East where only the fittest organisations survive. The cancellation of DSF had a significant impact on sales of consumer electronics and IT products in Dubai during the month of January. However, some vendors and retailers believe that the way in which the sector coped is evidence of just how mature and sophisticated the supply chain has now become. Ahmed Khalil, general manager at Toshiba Middle East and Africa, says: “We definitely saw slower demand in the UAE market and this is the feedback that we received from the major retailers as well. “It was probably about 40% below what we had been expecting and forecasting for the month of January. However, we fully understand why this happened and respect the reasons for it.” “As an organisation, we actually realigned our sales activities during the month of January. This allowed us to capitalise on strong demand and sell out in Saudi Arabia and other countries such as Kuwait. It helped us achieve strong regional results for January and offset the fact that the UAE figures were below earlier expectations,” he continues. For the retailers operating in the UAE, the cancellation of DSF undoubtedly reduced overall sales volumes during the month of January, but it also provided strong evidence to justify the investments they had made in recent years to streamline their internal ordering and stocking processes. “Today, if you look at most suppliers, distributors and retailers, they all operate a very efficient value chain,” comments Arvind Nair, chief operating officer at Jumbo Electronics. “Everyone now runs a very slim and efficient pipeline when it comes to bringing product into the market. If DSF had been cancelled five years ago, the impact on the supply chain would have been much more alarming. Organised retailers do not see as much impact now. My guess is that any imbalance in channel inventory would have been totally corrected by the end of February.” Retail-focused distributors faced the most risk of being stuck with a glut of inventory in the run-up to DSF that they were then unable to shift when the festival was called off. The main priority for those caught in this position was to kick start sell out as quickly as possible during February. No distributor wants to hold stock for longer than necessary, especially when there is concern over depreciation and the vendors are lining up new products to launch in the market. UAE power retailer Jacky’s also saw a slowdown in January, but believes that it fared much better than some of the distributors operating in the market. “We saw less business than we expected [in January],” says Ashish Panjabi, chief operating officer at Jacky’s. “Some brands claimed that did fairly well — it all depends on how they were positioned and how they reacted. Fortunately as a retailer we were not hurt as badly as the distributors. They are the people that paid for stock ahead of DSF and we only buy from them as and when we need product. This meant that there were some attractive prices available from distributors in February.” ||**||Getting ready for ‘big box’ retail |~|JUMBO200.gif|~|Arvind Nair, chief operating officer at Jumbo Electronics|~|The increased levels of sophistication in the retail supply chain is more than matched by the efforts that the retailers themselves are making to improve the consumer shopping experience. In addition to traditional high-street stores, destination stores and mall-based stores, customers can now also take advantage of focused express stores stocking a limited portfolio of products. And with work continuing apace on Plug-Ins new retail outlet at Dubai Festival City, ‘big box’ retail for consumer electronics and IT products is poised to become a reality. Retailers are also becoming more scientific when it comes to deciding on store layout. Jumbo’s spacious outlet at the Mall of the Emirates is testament to this trend. Nair at Jumbo explains the strategy: “Within each store there is a ratio between product display space and consumer experience space. In this store more than 50% is consumer experience space so there is less room for products. It is a trade-off, but we know that this store is likely to attract informed buyers who value the quality of their retail experience.” The appliance of science in the retail sector shows no signs of abating during 2006. Measuring footfall, tracking each individual transaction and receiving real time information on in-store trends is now the name of the game. “We need to have detailed information,” says Panjabi. “This is what sets us apart from other retailers. When you have a number of outlets, the amount of personal time that you can spend at each store goes down, so you need more quantitative data.” “Retail is detail,” adds Nair. “We track footfall with electronic devices and we track invoices so that we know the conversion rate and how much people spend on average in the store. If the footfall is not high enough we take specific initiatives in the catchment area for that store.” As well as examining closely the dynamics of consumer flow within their stores, retailers are also paying close attention to the product portfolio that they carry. The process of convergence, which is inexorably linking the consumer electronics space to the IT world, is reflected in the long-term plans of retailers in the region. CompuMe, which is currently one of the most focused IT retail chains in the region, is preparing to make significant changes in 2006. “There will be a transformation that positions CompuMe not just as an IT retailer, but also as concept electronics and communications stores,” explains Dikran Tchablakian, vice chairman at CompuMe. CompuMe has also been working hard during the last year to introduce a franchising model into its retail operation. This has involved selling off its operations in Egypt to distributor Nordix and executing a similar deal in Saudi Arabia with the NTG group — owners of distribution powerhouse AIM. A similar move is planned in the UAE where CompuMe is finalising a partnership with mobile phone distributor i2. “CompuMe stays as the regional brand for the stores and we continue talking to the vendors on a regional level about promotions and in-store presence and point-of-sales issues,” explains Tchablakian. “Financially the franchise model is very simple. The companies we work with in each country pay a flat fee and a percentage of revenue.” CompuMe’s position as a pure play retailer — admittedly now strengthened by its use of a franchising model — sets it apart from many of the other power retailers operating in the region. For many of the major names in the consumer electronics and IT retail space, the retail operations that they run are supported by other business activities. “If you want to be a pure IT retail business in the Middle East, you can’t do it,” adds Tchablakian. “You need other arms to your business such as distribution or a mix of products. Jarir has books and can afford to use IT to drive traffic. Jumbo has its relationship with Sony, while Plug-Ins has Panasonic because of the link to the Al Futtaim Group.”||**||Quicksand margins |~|shop200.gif|~||~|The Middle East retail sector remains embroiled in a battle to build and preserve sustainable margins. Creating economies of scale remains a top priority and independent retailers are finding it increasingly difficult to compete against the big boys. “There is a definite trend,” concludes Nair. “The growth in market share is definitely growing in favour of the power retailers and the mall-based stores.” All take specific initiatives in the catchment area for that store. We look at these areas in real depth. For the mall-based stores you have to work out if it is an individual store weakness or a mall weakness.” As well as examining closely the dynamics of consumer flow within their stores, retailers are also paying close attention to the product portfolio that they carry. The process of convergence, which is inexorably linking the consumer electronics space to the IT world, is reflected in the long-term plans of retailers in the region. CompuMe, which is currently one of the most focused IT retail chains in the region, is preparing to make significant changes in 2006. “There will be a transformation that positions CompuMe not just as an IT retailer, but also as concept electronics and communications stores,” explains Dikran Tchablakian, vice chairman at CompuMe. CompuMe has also been working hard during the last year to introduce a franchising model into its retail operation. This has involved selling off its operations in Egypt to distributor Nordix and executing a similar deal in Saudi Arabia with the NTG group - owners of distribution powerhouse AIM. A similar move is planned in the UAE where CompuMe is finalising a partnership with regional mobile phone distributor i2. “CompuMe stays as the regional brand for the stores and we continue talking to the vendors on a regional level about promotions and in-store presence and point-of-sales issues,” explains Tchablakian. “Financially the franchise model is very simple. The companies we work with in each country pay a flat fee and a percentage of revenue, which depends on the volume of sales and number of stores they operate - it is a very flexible model.” CompuMe’s position as a pure play retailer - admittedly now strengthened by its use of a franchising model - sets it apart from many of the other power retailers operating in the region. For many of the major names in the consumer electronics and IT retail space, the retail operations that they run are supported by other business activities. For instance, both Jumbo and Jacky’s also run massive distribution operations. Operated as totally separate business units, this activity mix nevertheless gives their business greater stability. “Frankly speaking, if you want to be a pure IT retail business in the Middle East, you can’t do it,” adds Tchablakian. “You need other arms to your business such as distribution deals or a mix of products. Jarir Bookstores has books and can afford to use IT to drive traffic. Jumbo has its relationship with Sony, while Plug-Ins has Panasonic because of the link to the Al Futtaim Group.” Despite rapid increases in consumer demand and the aggressive expansion plans that most retailers now have in place, the Middle East retail sector remains embroiled in a battle to create and preserve sustainable margins. The market is changing day-by-day and retailers are realising that they need to stand out from the crowd and appeal to specific segments of the market. Creating economies of scale remains a top priority and independent retailers are finding it increasingly difficult to compete against the big boys. “There is a definite trend,” concludes Nair. “The growth in market share is definitely growing in favour of the power retailers and the mall-based stores.”||**||

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