Retail reality

The breadth of vendors and retailers on duty at last week’s Digital Consumer Channels (DCC) event emphasised the growing feeling that something special is happening in the Middle East consumer space. Exploiting this unprecedented opportunity hinges on the relationship between vendors and their retail channel partners.

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By  Andrew Seymour Published  May 19, 2007

The breadth of vendors and retailers on duty at last week’s Digital Consumer Channels (DCC) event emphasised the growing feeling that something special is happening in the Middle East consumer space. Exploiting this unprecedented opportunity hinges on the relationship between vendors and their retail channel partners.

It is easy to get carried away when the market is consistently growing at double digit rates, consumers are spending more of their disposable income on technology and the convergence between IT and consumer electronics is driving foot traffic to record levels.

The potential of the Egyptian consumer market alone is enough to excite any vendor, while the planefuls of tourists who land in Dubai each week have grown into an essential source of revenue for the mall-based retailers. And to add to that, I’ve lost count of the number of vendors that have announced tie-ups with Dubai Duty Free in recent months.

But let’s get back to reality here. During this period of rapid development it is vital that stakeholders in the retail channel do not lose sight of the very principles that underpin good, profitable business.

You see, the retail channel is currently the subject of great irony. For while the market continues to climb to new heights amidst widespread acclaim, Middle East IT retailers face more challenges than at any time in their history.

The market is so finely balanced that the strategic decisions retail organisations make today are certain to have a huge bearing on their prospects in the next couple of years. The more aggressive the market becomes, the less room there is for mistakes.

The overhead constraints associated with being a retailer cannot be ignored. With no purposeful online or e-tail market place in the region, retailers conduct the consumer battle from the sanctuary of their shop floors.

The soaring cost of real estate and lease prices, particularly in the UAE where some retailers have had to absorb rent hikes of more than 50% during the last two years, means only one thing: retailers must entice even more customers into their stores and sell higher quantities of product just to make the same income. On top of that, personnel costs are gradually creeping up and for any retailer pursuing the ‘big box’ retail model that can warrant a sizeable financial commitment.

In a market becoming renowned for customer choice, the pressure on technology retailers to differentiate is tremendous. The retail game used to be about ‘display and sell’ but those dynamics are no longer enough.

Retail owners in this region are savvy enough to realise it is unfeasible to compete on price alone so they have to dream up new initiatives to persuade consumers to part with their money. Payment plans, in-store areas providing internet access and home solution packages are some of the many tools designed to influence a consumer base accustomed to having its loyalties tested.

Developing new initiatives takes up time and resources, which is why retailers are crying out for their efforts to receive more support and recognition from vendors. A boss at one retail outfit moaned to me that vendors are content to refer to his business as a ‘specialist IT retailer’, yet they don’t reward this distinction by way of unique benefits or treatment.

Among the many topics discussed at DCC, talk centred on the drive to halt sliding price points and the fact that some vendors still remain over distributed, placing unnecessary pressure on retailers. Although the relationship and level of engagement between retailers and vendors in the Middle East has improved considerably in recent years, there is still plenty of work to be done.

In my opinion, complacency is one potential barrier that needs to be monitored. They might not realise it, but manufacturers are gloriously placed right now. Their products are available through more channels than ever, with hypermarkets, electronics shops and independent IT retailers all viable routes to market.

But they must be responsible enough to ensure retailers are receiving the adequate pricing and sales support to make the business sustainable and, most importantly, profitable.

By not doing so, vendors risk jeopardising the long-term availability and visibility of their products because if retailers can’t make a healthy living they will cease to function. And that scenario is no good for anybody.

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