Frankly speaking

A handful of movers and shakers from the retail channel community debated some of the topics shaping their businesses at the recent Digital Consumer Channel event

Tags: Beirut Duty FreeDesktopsEconomic crisisMars Information TechnologyPromate Electronics CompanyThe Sultan Center - KuwaitUnited Arab Emirates
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Frankly speaking
By  Andrew Seymour Published  July 17, 2009 Channel Middle East Logo
Channel Middle East and Channel Arabic were on hand to moderate the discussion and hear why listing fees, stock allocation and brand development were some of the major issues on their minds.
Khaled Abu Ayash (KA), Middle East sales and marketing director at Promate

Imad Ghandour (IG), buyer of electronics at Beirut Duty Free

Malik Hammoud (MH), senior category manager for non-food products at Kuwait-based chain The Sultan Centre

Ali Mohammad Akbar Khan (AM), general manager at Bahrain-based wholesaler Mars IT Distribution

Vernon Vaz (VV), head of the COE division at UAE-based Nishat General Company, an office products distributor for brands such as Dymo and Kobra

It has certainly been a tough year for IT retailers in the UAE, in addition to the usual margin and sales pressures. What has it been like in your market?
IG: Today, in Lebanon, we don't feel any pain. There is not yet any effect although I guess we are going to see some soon - possibly at the end of June. It has been said that the Lebanese who lost their jobs in Dubai will be coming back home and we have the elections too. Up to now we haven't really been affected, but it is possible that might change.

AM: Bahrain has felt it slightly. You can certainly feel this quarter that it has been affected. If you talk specifically about retail then it has only affected the electronics business. As far as I know, I don't think many people have lost their jobs and hopefully this situation won't change. Our problem is not a recession one, it is that there is too much competition. It is not like before. Sharaf DG has opened in Bahrain and its style is different. The market was not ready for this style and some vendors have dumped stock with it in Bahrain.

KA: Have you seen a shift in the product mix? Are people buying cheaper products or different kinds of products?

AM: When you talk about retail, if there is a major promotional sale then it does well. Normal sales are slightly affected in retail electronics, but not in government or everyday food and groceries.

IG: No, we haven't seen any changes. Maybe it is going to be tougher for the salesmen to sell a product that costs US$2,500 as it might be harder to pay cash and we don't offer any installments on payments at the airport.

MH: People have heard the crisis rumours and held onto their money even though they weren't affected so we have done promotions on basic items to keep the people from being afraid of spending. We were more affected in Dubai because we had a deal done with all our suppliers and were supposed to open 10 outlets at the same time. We were opening in small communities such as Dubai Investment Park and Jumeirah Beach Residence, but the problem was that the developers were supposed to have 80% occupancy in their areas and it turned out to be 30%. On top of that, they didn't finish our sites on time. We had our trolleys, fixtures and everything else coming in and it had to be reshipped back.

Retailers often complain they don't receive enough support from vendors. But at the same time, vendors say there are a lot of barriers to partnering with retailers - particularly listing fees and other costs.
VV: Space is an issue, yes. Basically, we have to pay for the space, which is a problem. That expense goes onto the product at the end of the day, which they should realise. I'm not going to take my margin and just give it to them - both parties have to work for it. They have to give me that certain percentage, which I can work with, rather than putting me against the wall. This is what the retailers are trying to do right now.

MH: Not all retailers are doing that, actually. I will tell you one thing that is happening. Let's say you are a distributor for a brand and you are coming to sell to me. I am more than interested in buying from you if the price commitment is there because this is one of the major factors. And if you have any promotion it must be upon an agreement with the supplier so that it doesn't lead to issues for them in the market. If I have it on my shelf for US$3, for example, and you give it to somebody else for US$3, where is my back margin?

I have overhead costs, I operate all hours of the day and I am giving you exposure. My rent is very high and my overheads are very high. However, we give space, we don't sell it. I wouldn't accept a distributor coming to me and saying, "okay, I'll pay you US$3,000 for this space for a year." We don't do that. I need more margin. What happens is the distributors get marketing support from the mother companies and they put it in their pockets, let's be frank here, most of the distributors do that.

AM: There are two partners running the show - the retailer and the company supplying the product. And both are working for the end-user. So this attitude of, ‘I'm the boss and I'm giving you this much space so you should give me something in return' is wrong. It is a matter of approaching these things hand-in-hand. You have to support your vendor or distributor, and they have to support you as well. At the end of the day you will get a margin and they will get a margin. If you screw the distributor so much in terms of rebate, marketing or shelving that it does not get anything then do you think it will care about you?

KA: I have another question. If I look at Dubai Duty Free then it is able to sell a lot more electronics - I think the number stood at around US$200m in 2008 - compared to Beirut Duty Free, or Jordan or Qatar for example. Why is this? Is it just because of the traffic or is it because of product management?

IG: Dubai airport has the capacity for 40 million or more people a year, traffic in Beirut airport is only six or seven million a year, maximum. The electronics shop is smaller than the one in Dubai, nevertheless the average spending per passenger in Beirut is higher. It is the only duty free in the region doing double-digit growth and we are expecting to grow yearly.

KA: Do you think people expect lower price electronics in duty free?

IG: Yes, we always offer the minimum prices. I have the variance of 20% with the local market because you have to bear in mind I pay no VAT or customs, and people have to pay cash.

Vernon, your company specialises in building channels for office products and IT brands. What is the biggest challenge you have faced when trying to get into new retail accounts?

VV: It is to list the product, that is the only issue. It is not about the cost because we are willing to pay for it - it is about getting the right person. There are usually two or three guys involved and each one wants it done this way or that way, so it takes time to get to the right guy. The real boss negotiating the decision doesn't know what is happening. That is a big issue we are facing right now.

Do you think the reason for that could be because you are developing brands which may not have that much exposure in the market?
VV: We are dealing with international brands. Everybody is dealing with international brands over here. People here are from all over the world so everybody knows the product and they have either used it in a different country or they are using it over here. That is not the issue, the issue is with listing the product. We have a product called Dymo, which is a labelling machine that requires the customer to buy a consumable because they cannot use a non-compatible product. Retailers take the machine from us, but they are not willing to take the consumable. Yet, their money is made on the consumables, that's where the margins are.

MH: This is an issue that some vendors have had in Kuwait and we solved that very easily. Some suppliers, when they hear about Sultan, are afraid to go and approach us because they see how many outlets we have got and they don't know how they can get their product into the stores. So we created an office where the suppliers can drop in with their documentation and sample, and one of our staff will tell them what details they need to provide. Once they are there, they get to meet the concerned buyer for 15 minutes. If the buyer rejects the product he has to do it within 24 hours in a written format explaining the reasons why, such as because the pricing does not fit the strategy or the discount is not enough.

AM: Starting this kind of initiative is very good. But is that something you have done in direct response to the competition?

MH: No, we are very big in Kuwait and just wanted to make it easy for the suppliers so that they don't have any problems and can always get new products to us or start promotions. It makes our life easier, their life easier, and makes money for both of us.

VV: I would like to give a similar example. We just met the main guy from one of the largest retailers in Dubai. He knows our product, but the people under him haven't understood the consumables part, which I mentioned earlier. He said, "if you have any problems and they don't list it, come back to me and we will take care of it." He is fed up of selling laptops where the margins are dipping and we have shown him good margins in our products. These are the products they are going for right now in this industry. People are becoming tired of selling laptops, keyboards and mice.

Is the level and quality of support that vendors give to retailers dependent on the volumes being done?
IG: No, not normally. You would be surprised, but sometimes I get better support from the small brands than the big brands. In electronics, you face the price protection issue on a daily, weekly and monthly basis. Sometimes, if my shipments are missing it takes forever to get new stocks because unfortunately for us in Lebanon most of the offices are in Dubai.

Another issue I have with vendors is when a new line-up comes. There will normally be stock allocated for Lebanon, but what happens is the regional manager of the brand will decide to sell the Lebanese stock to Qatar or Kuwait or somewhere else because they pay more. I end up without stock and I can't do anything about. This is totally unfair. It is a common issue. It is like a black market through regular channels.

What steps are you taking to try and overcome this issue?
IG: We always try to buy locally, but if we have this problem and I have to wait a couple of months for a product then I have to find another solution. I have been out of a few products in the past few months because the Lebanese distributor has not received any stock. And I am in direct competition with Dubai Duty Free, basically. They have all the products two or three months before me.

IT vendors addressing the Middle East have traditionally put a lot of focus on the UAE market, especially Dubai. Do you think this has been to the detriment of other markets in the region?
KA: Yes, definitely. Because this is our backyard we tend to look more into what is happening in the UAE and a lot of the time we forget that we are regional vendors. It is by default. Even other territories in the UAE, such as Abu Dhabi and Fujairah, are under-served, so it is also the case with even larger markets. I have tried many times to separate Dubai and focus more on the outside market and it does pay for vendors that can do that, especially these days.

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