Success masks retail challenges

Despite enjoying record sales, Mideast consumer electronics retailers continue to confront diminishing margins.

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By  Andrew Seymour Published  September 8, 2007

It is easy to get carried away with talk of success in the Middle East consumer electronics retail channel when the market is consistently growing at double-digit rates, consumers are spending more of their disposable income on technology and the convergence of IT and consumer electronics technology is driving foot traffic to retail outlets at record levels.

But let's get back to reality here. Despite the rapid development of the consumer electronics channel, stakeholders must not lose sight of the very principles that underpin good, profitable business.

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 facing retailers cannot be ignored. Soaring real estate and lease prices, particularly in the UAE, where some retailers have had to absorb rent hikes of more than 50% p.a. over the last two years, means only one thing: retailers must entice even more customers into their stores and sell greater quantities of product in order to generate consistent levels of 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 their offering is tremendous. The retail game used to be about 'display and sell' but those dynamics no longer satisfy. Retailers in this region are savvy enough to realise it is unfeasible to compete on price alone so many have dreamt up new initiatives to persuade consumers to part with their hard-earned cash.

Payment plans, in-store areas providing internet access and home solution packages are just some of the many tools designed to influence a consumer base accustomed to having its loyalties tested.

Developing new initiatives absorbs resources, which is why retailers are crying out for greater 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.

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 addressed. They might not realise it, but manufacturers are gloriously positioned right now. Their products are available through more channels than ever, with hypermarkets and independent CE and IT retailers all representing 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 spells disaster for every industry stakeholder.

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