Digital Revolution

Sales of DVD players, MP3s, digital camcorders, games consoles and digital TVs are thriving, illustrating consumers’ gravitation towards a ‘digital lifestyle’. Nowhere is this trend more prevalent than in the Middle East, where the market is being dramatically transformed. Channel Middle East investigates the role that the regional channel is playing in the digital lifestyle revolution.

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By  Dawinderpal Sahota Published  March 27, 2007

|~|70sBakshi200.gif|~|Maish Bakshi, BenQ|~|Sales of DVD players, MP3s, digital camcorders, games consoles and digital TVs are thriving, illustrating consumers’ gravitation towards a ‘digital lifestyle’. Nowhere is this trend more prevalent than in the Middle East, where the market is being dramatically transformed. Channel Middle East investigates the role that the regional channel is playing in the digital lifestyle revolution. With the consumer segment proving to be such a significant portion of the overall ICT and consumer electronics landscape, it was always inevitable that the two channels would overlap. Huge growth in the uptake of digital lifestyle products has seen many distributors, and classic IT resellers, searching for ways to get a piece of action. Dubai-based distributor Empa recently set up a dedicated joint venture distribution firm — called e-retail — which is focused entirely on the retail sector. The company has already bagged exclusive regional rights for Taiwan-based electronics vendor Hannspree in the same way that Jumbo Electronics looks after Sony’s products in the Middle East and Al-Futtaim works with Toshiba in the UAE. There is little doubt that gaining access to the large consumer electronics stores represents the major priority for many vendors that want their products to be displayed to a large audience. Distributors, too, know that they need to form strong relationships with these retailers in order to increase their revenues in the consumer space. Regional distributor Emitac claims it has a long history of serving the Middle East consumer electronics market and has seen the market dramatically evolve. Director of sales and marketing, Vijay Saraf, reckons it has only been more recently that the true potential of the market has been unleashed: “The power retailers, initially, for the first two or three years didn’t have a clue — or any experience of the retail business, and in fairness neither did the suppliers, so we have all grown together. But the Middle East digital lifestyle market is still maturing and developing so there are plenty of opportunities around.”||**||Mall Magnetism|~|Jordan---Creative200.gif|~|Jordan Lee, Creative|~|With new shopping malls cropping up all over the region, manufacturers are vying to get their products into the destinations where they will be most visible. That invariably means the large power retailers who can afford to set up multiple outlets. As well as having stand-alone outlets, Plug-Ins, Jacky’s and Jumbo Electronics, Carrefour, Geant and Union Co-operative each occupy a vast amount of retail space in the region’s most prominent malls. Mohamed Jweied, retail business manager at Emitac, commented: “In this region, the climate is hot — so the malls here have started to grab a lot of customers in big amounts. If you’re looking to buy any digital lifestyle product, you’re preferred destination will be a mall. They have become part of the culture in the Middle East” According to Manish Bakshi general manager MEA at vendor BenQ, the rise in the number of shopping malls — particularly in the UAE — has heavily impacted classic IT resellers who used to serve consumers. “At first, it was the resellers in Computer Street who were seeing consumer demand in the UAE,” he said. “Then, when big outlets like CompuME set up, that’s what became popular amongst consumers. Now it’s the malls which are seeing the demand, and it’s the same in Saudi,” he added. Consumer electronics vendor Creative has traditionally looked upon the IT channel as the route to market for its consumer products given that its beginnings are in IT peripherals. However, as the vendor has broadened its scope to increase its focus on MP3s, for example, it has gradually turned to the power retail segment as its primary channel. That has forced the company to look for distributors that can provide reach into both the retail and reseller environment. “In the past, we were reliant on the IT channel but now it’s a little different as we want to concentrate on value added selling,” said Jordan Lee, Middle East sales manager at the vendor. “We have been trying to encourage our distributors to focus on this area. We’re looking primarily at hypermarkets such as Carrefour and Geant as this is what we identify as a high growth area.” Lee admits this has resulted in the company dropping some of the resellers and smaller retailers it has been working with, but insists it has been a “progressive movement”. ||**||Powerful Retailers|~|Jweied-SAraf200.gif|~|Mohammed Jweied and Vijay Saraf, Emitac|~|Some distributors which have built a business that addresses the power retail segment claim they have had to adapt their strategy in order to gain access into these accounts. A spokesperson at one regional consumer electronics distributor claims power retail is the most appropriate channel for digital lifestyle products, but admits that targeting this market requires a certain set of tactics. “These power retailers are run a little more professionally than the resellers who we’re used to dealing with. As a result it means that our approach towards them has to be more professional too. For example, with power retailers you have to deliver the goods within a specified window, which they give us. It’s not quite as laid back,” added the spokesperson. Having dedicated staff is another key factor in maximising growth in the digital lifestyle market. “We have someone employed to just handle our business with Carrefour,” admitted Saraf at Emitac. “Our level of engagement with Carrefour is so high and we do so much business with them that we need a full-time employee to be dedicated to that one account,” he added. As the stakes in the digital market continue to rise, vendors are looking for new ways to ensure that they have the resources in place to take advantage of the huge opportunities. BenQ, for instance, recently began offering retailers the services of its ‘Purple Army’; a battalion of sales assistants stationed in retail outlets across the region, whose aim it is to increase the vendor’s market share. “The Purple Army is a new scheme we have put in place. Young 20 to 25-year old employees who are paid incentives on top of a fixed salary will be on hand to assist consumers with their purchases and will be rewarded for the BenQ product sales they make,” explained Bakshi. As the emphasis shifts to power retail, what does it mean for the smaller retailers who used to dominate the landscape? Vendors and distributors acknowledge that the role of the smaller retailers may have changed, but they are adamant that it hasn’t diminished. As the surge in digital lifestyle products continues apace, some sources admit that the real opportunity for resellers is in reselling to markets where the power retail segment is not so strong. “Five or six years ago, 95% of the retail business used to happen on Computer Street,” said one UAE market source. “Most of these dealers were doing a bit of retail, export, sub-distribution and sales to corporates. Home users don’t really go there today. These dealers are valuable because they can re-export to countries in Africa. This is a very important area for any distributors who don’t serve the African market directly, for example. The role of the reseller today is different to what it used to be five or six years ago.” However, not all resellers think there is value in the retail channel, even if the digital lifestyle products are growing at such a fast pace. Sunny Menghani, managing director at Quality Computers, which has several showrooms on Khalid Bin Al Waleed Road claims resellers are more interested in the b-to-b market these days: “That side of Computer Street has gone — we’re not really selling to consumers anymore. Instead we’re re-exporting abroad to places like Africa and elsewhere in the Middle East, and that’s where our demand is coming from.” Bakshi at BenQ disagrees. He claims there is still scope for hybrid dealers and smaller retailers to be successful in the digital lifestyle consumer market. “These smaller retailers have low operational costs and can offer a more personalised approach,” he said. “The advice they give is often better than what you would get from a power retailer. They also have less space so have a faster stock rotation and that’s what has been keeping them alive so far.” Software giant Microsoft claims that it treats Dubai’s Computer Plaza and Computer Street in the same way as any power retailer. Armagan Demir, head of the vendor’s entertainment and devices division, said: “For us, Computer Plaza is an account in itself. Just like we have an account for Plug-ins, Jacky’s or Carrefour, we have named accounts for Computer Plaza, as well as Computer Street, even though they consist of a multitude of small companies. So these resellers don’t get neglected by us.”||**||Convergence Crazy|~|sunny200.gif|~|Sunny Menghani, Quality Computers|~|Another key trend in the digital lifestyle market is the ever-increasing emphasis on IT convergence. A number of IT-focused vendors are now clambering to exploit the opportunities that this is bringing. Creative has extended its product portfolio and carved out a strong position in the MP3 market, while BenQ has moved from IT peripherals to include digital cameras, mobile phones and LCD TVs in its offering. Even Microsoft has found itself competing with the likes of Nintendo in the games console market. And the software goliath sees no boundaries to where IT convergence could take the market. “Already you can play movies on your PC through your Xbox onto your TV,” said Demir. “I think soon everything in your house will be connected — all digital electronic goods, and eventually even electric appliances,” he added. The digital convergence trend is one that has got everybody talking in the digital lifestyle channel. Gaurav Brahmwar, managing director at UAE reseller Computer Depot, reckons that the ongoing technology changes make it a fast-paced market with limitless opportunities. “We already have mobile telephones with MP3 capacity. The next stage I expect to see is fully-fledged feature blockbuster movies on your phones,” he said. Lee at Creative added: “MP3 players are being the most affected by the IT convergence movement so that is the area that we are focusing on by offering MP3 players with more features and better value for money.” Emitac’s Saraf is also convinced that the close relationship between traditional IT and digital lifestyle products enhances the significance of the market. “The number one camera provider worldwide is actually Nokia — and that just signals the importance of convergence in the digital lifestyle field,” he said. One major factor that will influence the development of the digital lifestyle market is how vendors are able to manage their channels. Certain products are so high in demand that electronics retailers are going to great lengths to get hold of them. Earlier this year it was reported that some well-known retailers in Dubai had been supplying grey market Sony PS3 systems causing much unrest amongst the vendor and its exclusive distributor in the Middle East, Jumbo. One channel source even claims that Microsoft’s new Xbox 360 has been available on the grey market for the past two months, illustrating the kind of challenges facing authorised players that serve the digital lifestyle devices sector. Microsoft’s Demir claims he is unaware of grey market Xbox 360s finding their way into the market, but he insists that if it were, the vendor would immediately withdraw its support to the guilty party. “We would not support the reseller or distributor who is bringing these products into the market,” he added. “We would not communicate with them, offer any warranties or any kind of after-sales service to them.” Of course, the Middle East, with its unique dynamics is not the same across the board and there are discrepancies amongst markets. The UAE and Saudi markets are considered as the frontrunners of this digital lifestyle trend. “Dubai is taking the lead in this region, especially because of its tourism industry it attracts people from all over the world, and these tourists want to visit, amongst other things, the malls,” said Jweied. “Looking at the cities in the region, you can see Abu Dhabi, Manama, Riyadh, Jeddah, Kuwait and Doha following suit,” he added. Lees claims that Creative has seen positive trends in every corner of the region: “Even in Iran, despite the political and economic instability and problems, we’ve recorded at least 100% growth. In the beginning we were talking about a couple of hundred thousand US dollars a year, and now we’re talking millions,” he revealed. With the UAE being the unanimous leader in adopting the digital lifestyle trend, Bakshi believes that second place is a closely fought contest between Saudi Arabia and Egypt. “Saudi Arabia and Egypt are growing phenomenally,” he said. “Both markets are demanding the latest technologies and the newest models, but Saudi is growing faster than Egypt at the moment. 42-inch LCD TV screens have seen a fast uptake in Saudi and Saudis have higher purchasing power and more relaxed duty laws.” However, Bakshi reckons Egypt is a safer bet for the long term. “Egypt has a big and young population. It seems that every week there is a new government scheme to increase the uptake of IT. It has a strong IT infrastructure and I can see it overtaking Saudi within a few years.” There can be no denying that the digital movement is well underway in the Middle East. Consumers are flocking to their nearest malls and retail outlets to get their hands on the latest technologies, sometimes even before the official launch dates. With IT convergence playing an ever-increasing role in the digital lifestyle arena, IT distributors and resellers have the experience and knowledge to take advantage of the opportunities this brings.||**||

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