Rackjobbers rule

Pure retail distributors stand head and shoulders above their broadline counterparts when it comes to delivering the range of value-added services that Middle East retailers require. This year’s Digital Consumer Channel event served as a wake-up call for vendors that have so far failed to understand that building a successful retail route-to-market requires a radically different channel model.

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By  Stuart Wilson Published  May 17, 2006

Pure retail distributors stand head and shoulders above their broadline counterparts when it comes to delivering the range of value-added services that Middle East retailers require. This year’s Digital Consumer Channel (DCC) event served as a wake-up call for vendors that have so far failed to understand that building a successful retail route-to-market requires a radically different channel model.

More and more vendors are realising that to truly cover all the sales opportunities that exist in the Middle East market they need to operate a dual distribution strategy working with one set of partners focused on the reseller segment and another set capable of dealing with retailers.

Time and time again vendors pointed out that many of the major broadline players operating in the region were incapable of providing retailers with the constant replenishment, rackjobbing and merchandising services required — especially if the retail outlets were outside the UAE.

If broadline distributors are serious about becoming a genuine force in the retail space they need to step their game up and either identify third party service providers or build up their own service offerings in-country. This is the only way to breach the chasm that currently exists between vendor expectations and the deliverables that distributors are capable of.

The recently formed Technology Distributors Association (TDA) for the Middle East and Africa (MEA) region also started to make its mark at this year’s DCC event. Running in parallel to the main conference agenda, representatives from regional distribution powerhouses met with senior representatives from both the vendor and retailer community to identify the pressing issues faced by the regional channel.

And believe me, they had plenty to talk about by all accounts.

From the retailer perspective, various issues were raised with the TDA including the impact of the grey market in product supply to the Middle East. The continued practice of multi-region pricing policies implemented by vendors remains a real bone of contention for distributors and retailers alike.

Until vendors wake up to the fact that giving a distributor special pricing to help them develop a specific country does not necessarily mean that all the product they buy will actually end up at its intended destination, this problem will continue to run and run.

Independent power retailers also pointed out the ongoing problems with hybrid distribution operations that also operated in their own right as retail chains. The region is reaching a level of maturity whereby it is hard to justify vendors still appointing exclusive distributors for specific countries.

It not only gives the exclusive partner the ability to dictate the margins that trickle through the channel layers, but it can also lead to discontent among retailers.

In the UAE we still have the clever situation whereby a family group can effectively hold the exclusive distribution rights for a vendor and also operate their own power retailer.

While these companies will typically insist that Chinese walls ensure there is no conflict of interest, you do not have to scratch too far beneath the surface to reveal the discontent of rival retailers.

The constant push tactics of vendors and distributors also had some retailers seething, claiming that they were the ones left stranded with bloated inventory levels as a result.

Coupled with the abject failure of some vendors and distributors to communicate the product roadmap to retailers, this left some feeling that the channel players above them were hoodwinking them and frequently leaving them holding obsolete and out of date stock.

The retail market in the Middle East has come a long way in a short space of time but this year’s DCC event left no-one in any doubt that there is a great deal further to go.

With Plug-Ins gearing up to open its new ‘big box’ retail outlet at Dubai Festival City, customers have never had more choice of where to buy from. Destinations stores, mall-based outlets, high street stores, independent retailers and the nascent e-retailers in the market all want their share of customer wallet.

The retail market is growing fast but to realise its full potential and allow regional sales to grow as quickly as possible, everyone needs to be making a fair margin.

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