Less rhetoric

If the IT retail channel is to devote more of its time and delicate margins to in-store and post-sales services, change must come from the top.

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By  Julian Pletts Published  May 24, 2008

If the IT retail channel in the Middle East is to devote more of its precious time and delicate margins to in-store and post-sales services then change must undoubtedly come from the top. That was the resounding message which emerged from this year's Digital Consumer Channel (DCC) event, held last week in the UAE.

The relationship between vendors and technology retailers remains a fascinating one. Both sides ultimately crave the same end-result, but there is often an element of discord when it comes to balancing vision with reality.

At the moment, there is a firm emphasis from vendors on the ability of retailers to develop consumer lifestyle experiences and store-in-store models, where products are displayed in eye-catching home or work-like environments instead of just being stacked on the shelf. Yet at the same time retailers continue to bitterly complain that many of the vendors calling for stronger innovation also require them to meet exorbitant volume targets.

Their concern is that with margin erosion common across most product sectors, there simply isn't the financial capacity for retailers to craft such dynamic in-store activities.

No more strongly was this stalemate debated than in a DCC workshop hosted by the Channel Middle East editorial team. A large bone of contention for many of the retailers in attendance was the level of support vendors afford retailers, which as one participant said, are the "theatre" for their products after all.

"The change has got to come from the vendor," proclaimed one retailer. "What should happen is that vendors put in place strategies to have a specific margin across the board from the wholesaler, to the distributor and to the retailer and then enforce that by advertising the prices, like some vendors are doing today. It would then be successful."

With topics such as volume pressure, increasing costs and the problems of hiring sales staff not looking as though they will dissipate anytime soon, retailers feel it is unreasonable that they should be the ones expected to get the ball rolling. With the most pessimistic retailers warning that few companies are making serious money, it is clear that retailers and vendors have to sit down, acknowledge the issues facing both sides and take steps to develop strategies to overcome them.

This is not to say that it is all doom and gloom for store operators in the Middle East. Plenty of vendors of all types were at DCC looking for ways to expand their channels and secure shelf space. All evidence suggests that although the consumer retail space is progressively more competitive, the draw of this market is still not only formidable, but increasing every year.

As the market continues to grow and consumers develop even more discerning tastes and gain access to more choice than ever before, vendors will argue that they are vindicated in increasing the pressure for players in the retail channel to differentiate.

It is, however, not enough to simply call for differentiation. Vendors hold just as much responsibility for the issues that befall the consumer retail channel as the shop owners that front it. One retailer was spot on when it said that vendors have unrealistic expectations of the market and rely too heavily on research figures to drive their approach to the consumer channel.

Vendors have to understand and address the real size of the Middle East market and recognise the difference between countries. Take the Egyptian market as a good example. Increasingly attractive to vendors, but despite having a relatively high population Egypt has a low GDP. It is therefore wrong to push high-end products. Conversely, we could look at Kuwait, which harbours a high GDP but a low population, perfect for high-end product retail.

Unless manufacturers and retailers can agree on the true market size, vendors will continue to pursue a short-term approach based on applying tough targets and shoehorning mass volumes, which will only serve to restrain retailers from pioneering new forms of differentiation.

But if such a development comes to pass it might be possible to drastically reduce some of the barriers that retailers insist are preventing them from performing more effectively. Change, it would seem, has to come from the top.

Julian Pletts is the assistant editor of Channel Middle East English.

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