Do retailers like what they see in the mirror?

It’s all about the experience — or at least that’s the philosophy IT retailers are being told to follow.

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By  Andrew Seymour Published  April 5, 2009

It’s all about the experience — or at least that’s the philosophy IT retailers are being told to follow as they ponder which direction to take their businesses moving forward.

The growth of the IT and consumer electronics retail channel has exceeded all expectations in recent years, leading to a landscape that is populated by an assortment of players from power retailers and traders to hypermarkets and boutiques.

Indeed, unlike regions such as Europe, one of the highlights of the Middle East retail channel has been that the market (so far) has not allowed itself to become concentrated into the hands of one or two powerful high-volume players.

At the same time, however, it is difficult to deny that retailers remain under intense pressure, especially when they face the arduous task of controlling costs while simultaneously attempting to attract customers who now think twice before opening their wallets.

Research house Datamonitor identified the quandary facing UAE retailers in a frank assessment of the market last week.

Its outlook for the sector suggests that a bright future still exists for retail players — but only if they implement a series of best practices that contrive to improve the all round customer ‘experience’.

Such advice is not necessarily anything retailers haven’t heard before, but Datamonitor did raise a separate point that, for me, illustrates exactly why some IT retailers probably fear they might be in deeper trouble than they initially imagined.

“For many years, manufacturers and retailers here have thought, ‘if I build it, they will come,’” stated the company. “They boast year-on-year increases in sales, thinking this means they got their strategy right. Well, now they are realising that growth was easily explained by underlying demographic and economic growth.”

Who that assertion actually applies to is unlikely to become more apparent for at least another few months but it undoubtedly carries some truth, however painful it is to hear.

Quite simply, the natural growth that the region has experienced up to now has left retailers in the somewhat fortunate position of seeing business fall into their laps without having to aggressively chase it.

While you can’t knock a market for exhibiting vitality, there has always been a danger of it lulling some retailers into a false sense of security when it comes to how watertight their business model and value proposition actually is.

Impending changes to the retail landscape, particularly in the UAE, are inevitable if you believe senior figures in the channel.

One large retailer I spoke to recently admitted the performance of every one of its stores was under scrutiny, adding that with some locations ‘taking a beating’ during the first three months of the year it was assessing their future profitability very closely.

It is unlikely to be alone.

IT and consumer electronics retailers in the UAE have prided themselves on the number of stores they have opened in recent years, citing it as an indicator of their success. During times of rapid growth such expansion remains the logical step to take, but when trading conditions are unpredictable it ruthlessly exposes the delicacy of this model.

At the end of the day, retailers will always be constrained by two major overheads that underpin everything they do - namely staff and rent. Factor in inventory costs as well and you can appreciate why the prospect of declining revenue growth causes them to break out into a cold sweat.

It would take a very brave organisation to launch a retail business in the current environment – although that’s precisely what Al Batha Group did recently by launching E-City in Dubai’s Wafi Mall.

Retailers are notorious for disclosing little in the way of concrete sales figures so I very much doubt if E-City has any plans to reveal how its induction to the market has gone over the coming months, but I’d be interested to see how its performance compares to other more established names in the channel.

If it heeds Datamonitor’s advice then it needs to place a firm emphasis on product development, particularly for categories where consumers are more concerned with quality than price. The research house also urges retailers to resist their instincts by maintaining marketing budgets, focusing more on better targeted product ranges and looking at what aspects of their customer service levels can be improved.

There are some exceptionally strong IT retailers in the UAE that have led the way with an impressive blend of pioneering concepts and innovative services. But for those that have taken their customers for granted, now might be the time when they need to change their ways - and quickly.

3723 days ago
paul

One of the key problems the retailers face is the prices they are charging relative to European stores (exchange rate only partially affects this). For many electronic items that are easy to carry, it makes no sense at all to buy in Dubai. For example, a friend sent me an email recently about a 'bargain sale' by a major local electrical retailer. But when I googled the price of the same items in the UK, I found they could be purchased 20% cheaper there. And that is including VAT - strip off VAT, and you have an even bigger cost differential. I don't blame the retailers alone, they are being squeezed by salaries and rents, the cost of the items wholesale is only a part of the costs passed on to the customer. But in these days of falling rents (commercial and residential) it does highlight the requirement for this to happen quickly, and for falls to be significant, otherwise Dubai's high cost base will quickly see further deterioration in the economy. The irony is that by trying to slow/stop property price falls, the authorities may end up damaging the economy more. The high cost of property and rent was essentially a huge tax burden on businesses that needs to be lifted if the flow of people and business out of Dubai is to be halted.

3723 days ago
Arun Chawla

Dear Andrew, It's really interesting article and things have been put out in a perfect manner. I always enjoy reading your articles as they bring out the realities and inspire everyone to contribute to make this IT Community where every one can survive and enjoy the benefits. Cheers Arun Chawla

3725 days ago
Davinci

Hi Andrew I really enjoy your thought provoking articles and always look forward to your editorials. The above article seems spot on and being in the Small Organised IT Market since the past 10 years have to point out one thing all retailers depend on the vendors which most retailers conveniently forget. Being vendor friendly is quite important in todays market where vendors can pick and choose to supply their easily cashable fast moving Products. Sadly most retailers forget this and choose to ignore the most important aspect of the channel and try to squeeze the vendors of every possible cent and offer horrible payment terms and astrocious return policies. ( take it back even if it is broken has`nt sold or is missing everything except hte product manual ) or else !! Basically retailers who do not respect the vendors might have bloomed during the boom years but the tables have turned and a very strong introspection is required to respect where the source of the goods originate from. Cheers Davinci

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