UAE leads the Middle East consumer electronics sector

The booming UAE economy is attracting massive foreign investment and turning the spotlight on the potential of the greater Middle East consumer electronics (CE) market, writes Raed Nasser

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By  Raed Nasser Published  March 7, 2006

|~|plasma200.gif|~|The plasma and LCD TV categories recorded massive sales growth across the Middle East in 2005.|~|Despite a relatively small population, the UAE is one of the Middle East’s leading markets in terms of consumer electronics (CE) sales. The combination of high disposable incomes, a transient population consisting largely of tech-savvy ex-pats, and a booming tourism industry, has transformed the local economy over the past decade and led to increased demand for CE goods and appliances. The UAE CE sector took massive strides in terms of growth from 2004 to 2005. This can be largely attributed to three factors: rapid product innovation and technology advancement; increased competition between CE vendors targeting the country; and a rapidly evolving retail channel, with a strong emphasis on hypermarket retailing. The total value of CE retail sales in the UAE reached US$1365 million in the 12 months to December 2005, with an increase of 20.74% value-wise. The overall market for products including camcorders, home audio systems, DVD players, radio recorders and digital cameras, grew 12.84% in 2005. Specific CE categories outperformed others during this period. While the colour TV (CTV) market grew by 12.59%, sales of high-end LCD displays, plasmas and rear projection TVs increased by 184%, 181% and 102% respectively over the corresponding period. Similarly, the market for radio recorders grew by 7.45% while the DVD and home audio system categories increased by 25.59% and 10.21% respectively. Indeed, the demand for these products is spurring competition between CE vendors, which in turn is forcing wholesale prices down, leading to further growth in each CE category. The retail channel market is also evolving rapidly, leading to increased competition, lower prices and stimulated demand. The influx of new brands and the creation of new product categories have led to intense competition among CE vendors, transforming the retail sector from a seller to a buyer’s market. With the rise in demand for new high-tech products and increased market fragmentation, CE vendors are relying more than ever on their channel partners to ensure their products receive maximum exposure in the retail marketplace. Up until recently, consumers typically visited major department stores to purchase durable consumer goods. The emergence of channel retailers such as general electric stores (GES) and multi-product category super/hypermarkets including Carrefour and Panda has revolutionised the retail sector. The GES category is enjoying sustained growth with booming sales of CE, household appliances, IT products and mobile phone handsets and accessories. While hypermarket retailers currently boast just 35% total market share in terms of sales of CE and digital media products, they are investing heavily to bolster their presence in the sector. ||**|||~||~||~|This model of growth is also being seen to varying degrees in other countries across the Middle East. Indeed, the rapid evolution and growth of the CE sector across the region has taken many by surprise. As a result, many CE vendors are scrambling to gain a foothold in the rapidly developing markets of the GCC and Levant, which is challenging the dominance of existing vendors and leading to the introduction of new high-tech products at an unprecedented rate. With 330 million consumers and a steady GDP increase of 3.5% yearly, expenditure on CE goods and appliances is rising at a remarkable pace across the Middle East. From the massive malls of Dubai, to the electronic souk in Cairo, there are more than 15,000 dedicated point-of-sale and an estimated 35,000 CE retail outlets across the entire region. When taking into account the countries of UAE, Saudi Arabia, Iran, Kuwait, Oman Bahrain, Qatar and Yemen, the total value of the CE market in the region rose 8% in 2005, from US$2.2 billion in 2004 to almost US$2.4 billion. Approximately eight million consumer electronics products were sold in the region in 2005. In terms of major domestic appliances, including refrigerators, freezers, air conditioners, cookers, microwave ovens and washing machines, the total value of the market in the surveyed countries rose an impressive 31% in 2005 to US$1.75 billion. Total units shipped increased 16% during this period, up from 3.3 million in 2004 to 3.8 million in 2005. Meanwhile, the market for small domestic appliances, including irons, vacuum cleaners, shavers and hairdryers, rose 7% in value in 2005 to US$1.8 billion, up from US$1.65 billion in 2004. Almost nine million units were shipped in total, up 11% on 2004. Overall, there should be a significant rise in the total market value for CE appliances across the region in 2006. One key reason for this is the continuing influx of cheap, predominantly Asian manufactured goods and start-up brands targeting the lucrative Middle East consumer market. With little or no brand heritage, these manufacturers are cornering the market for entry-level product lines, and are providing stiff competition for their more established counterparts. The irony is that these smaller Asian manufacturers challenging the dominance of their established rivals rarely maintain aspirations in terms of producing high-end CE products, yet these established vendors must maintain a presence at each price-point in the marketplace both to protect their brand image and ensure the depth of their product offering. The increasing popularity of these budget-focused brands among Middle Eastern consumers is also recasting the retail landscape and leading to increased market fragmentation, which in turn is further encroaching on the formally indomitable position of major vendors such as Sony, Panasonic, LG, Samsung and Philips. This trend is being witnessed across the entire region, except for perhaps in Iran, where Japanese vendors monopolise the market aided by savvy marketing campaigns and comprehensive product lines. Their continuing dominance has made it difficult for competing European and Korean manufacturers to gain little more than a foothold in the country’s booming market for CE products. In regards to future market trends, CE vendors operating in the Middle East must diversify their product offerings or risk being left behind in the race for market leadership. Manufacturers who only focus their efforts on particular product categories will struggle to maintain market position. In the future, competition between CE vendors will become increasingly furious, which will undoubtedly lead to a string of corporate mergers and acquisitions within the marketplace. This in turn will lead to a period of consolidation with the surviving brands emerging as formidable competition for established vendors not only in the Middle East but also key markets worldwide. Raed Nasser is managing director of GfK Marketing Services Middle East, a Dubai-based consumer market research firm. ||**||

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