End of the road?

Traders on Khalid Bin Al Waleed Road are facing the biggest challenge in their history as the financial crisis takes its toll on credit terms and buying behaviour among re-export clients. Channel Middle East asks if Computer Street is able to make it through the storm.

  • E-Mail
By  Julian Pletts Published  February 9, 2009

Traders on Khalid Bin Al Waleed Road are facing the biggest challenge in their history as the financial crisis takes its toll on credit terms and buying behaviour among re-export clients. Channel Middle East asks if Computer Street is able to make it through the storm.

"Only the strong companies will remain." That is the stark warning from Quality Computers' Sunny Menghani about the future of resellers on Khalid Bin Al Waleed Road.

Traders such as Menghani are no strangers to fighting for every last profit margin that they get. Throughout the Street's existence - which spans almost as long as Dubai has been a metropolis and certainly as long as computers have been hot property - Street players have been evolving and adapting.

You have to clear inventory, but some people just want to go and dump their products without actually understanding the market. The market is unstable so we have to be very careful.

Without wishing to go too deeply into the history of the Street, there have been some major milestones that need highlighting to indicate the experience traders have under their belts - experience that will serve them well in surviving the current financial chill.

Over the years, many firms on the Street have developed comprehensive re-export businesses, combining their showrooms with facilities in Jebel Ali to connect to markets all around the Middle East, Africa and beyond.

Sub-distribution is a way of life for many traders, although whether there is a future for such business given the kind of scant margins associated with it these days depends on who you talk to. There are those who claim wholesalers are too willing to take risks by over-extending credit or prolonged payment terms to customers, leaving them exposed.

On the other hand, however, it has been suggested that wholesalers - with their base of long-term customers from multiple markets - might be better placed to ensure trade on the Street continues to flow at a time when larger authorised distributors are unable to take chances or secure insurance for some customers.

Of course, now the financial crisis has enshrouded the Middle East, there is no doubt that it is the time for computer merchants to make the most of the survival and re-invention skills that have served them so well until now. The immediate question is whether they have the capacity to see themselves through the slowdown.

There have already been some casualties. At the end of last year, Green Forest Computer and SM Computers both ran into difficulties, leaving distributors to chase payments.

They aren't the only ones. Vendor sources claim they have seen up to seven traders encounter serious troubles during recent weeks, compounding the nervousness being felt in the channel. Blame the financial crisis, we might, but this is not the first time Computer Street has experienced turbulence.

After all, it was only two and a half years ago that the Dubai channel was gripped by a credit crisis which resulted in Micron, MST Computer and Fortex-MID disappearing from the market.

Though it remains too early to judge if the current downturn will prove as disastrous as many fear, traders remain concerned, pointing out that the longer it persists and dents morale on the Street, the greater the chance of it fracturing some of the long-term relationships that traders have cultivated with each other.

One reseller claims the availability of credit has already reached an unprecedented low, creating a cash-based market where companies simply cannot afford to offer any flexibility on payment terms. The same source admits that in some cases products are being sold for a single dirham margin.

"Sales in the market have gone down by 40% and this has what has affected me," admitted Menghani at Quality Computers. "I can seen in my records that if I have been doing US$10m, I am now doing US$6m."

Mohammed Jaber, CEO at Winning Deal Computers - a trader that is traditionally known for reselling components and wholesale services - insists business has not stopped, but it has deteriorated compared with what it is used to.

There is nothing that has completely dropped off 100%," he said. "With the re-export market and customers from abroad, the number has reduced and it's not like it was before. We used to have people coming from countries from all around the region, but nowadays it is not like that."

Jaber has an outlook on the current crisis in common with many of his Khalid Bin Al Waleed Road peers. He thinks it is inevitable that more companies will leave the market during the next few quarters, ones that do not have the liquidity to survive the slump.

"So far we are not hearing any screams, but believe me, if after a few months the situation gets worse, companies will go out of business," warned Jaber, pinpointing smaller and less- established names on Computer Street as those who are most vulnerable. "Some traders can take the loss for three, four, even five months, but after that it becomes a case of enough is enough. They have everybody to pay - rent and sales people cost money."

Tarun Nandi, the boss of one of the largest and most recognised players on the Street, Bluebell Computers, says that thanks to the fact everybody is being incredibly cautious in the way they are doing business, this period might actually serve to absolve the Street of any fringe or backdoor dealing.

"What will survive after this is clean business," predicted Nandi. "Because what will happen is that a cleaning up of the business will take place." As long-term incumbents, traders such as Bluebell are best placed to take the temperature of the Street.

Nandi is pragmatic in his stance, almost to the extent of being hard. "Local people have to pay cash. I only give insurance to people I have known for a long time - I'm not even giving credit to people I have known for two or three years," he admitted.

Having said that, he acknowledges that there needs to be some concessions made in the ‘cash-only' lock-down mentality that seems to be taking hold. "Supporting regular customers is important," reflected Nandi. "If I don't support them they will go bust in three months."

As with most channel eco-systems, what happens at any level of the chain has a direct impact on all the other links. That is particularly true at the moment as the dynamics between master distributors, sub-distributors, resellers and re-export are all influenced by the caution being shown by the banking community and insurance providers.

Add a Comment

Your display name This field is mandatory

Your e-mail address This field is mandatory (Your e-mail address won't be published)

Security code