Channel economics

The Middle East IT market continues to be tested by the challenging conditions it faces. But how does it compare to other regions around the globe and how are consumers buying habits changing?

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Channel economics (ITP Images)
By  Andrew Seymour Published  August 6, 2009 Channel Middle East Logo

How does that alter things?

This market concentration completely changes the rules. The average selling price of a market is still important - and the basis of the business of course - but it has a taken a completely new direction in the fact that the price is the actual background to the real competition. And the real competition now goes within the price point towards differentiation, usage, value add by the channel and value add by the manufacturer. That is a totally different ball game than simply offering a technical spec bundle at a new price point. It changes the rules of engagement for everybody.

Are there any industries that the IT retail market could learn from?

Definitely. As strange as it may seem, the IT industry could look at the white goods industry for products such as refrigerators and washing machines. It is an extremely established market place where real differentiation happens and there is very strong positioning in terms of both price and performance.

Is there a common mistake that you see IT retailers making?

At the moment there is a high risk that we have got a lemmings race. This is the time to stay solid on consistent positioning. Trying to duplicate your next-door neighbour's strategies is a sure-fire recipe for failure. At this moment, cloning is not an option.

Do you see a change in the way that vendors are engaging with the channel?

The vendors are a lot more visible in-store because I think everybody realises that when there are difficulties it is time to pull together. At store level I clearly see them not just engaging with rack jobbing, but store display, maximisation of retailer investment and making sure that together every piece of the business is brought to its optimum in terms of efficiency. This is a trend that is just as noticeable in the Middle East as Western Europe. It is not a case of new countries and old countries, it is really across the board that we see a very strong push from the vendors at shop level to assist the retailers.

Has there been any particular trends that have surprised you this year?

Yes, if you think about the product purchase that you could delay the most then my first thought would be, "I can make this TV last one or two more years." But that has not happened at all. If you look at LCD trends during the first quarter then, off the top of my head, the UAE was plus-16%, Saudi Arabia was plus-74%, Egypt was plus-96% and Algeria was plus-300%.

This proves once again that this digital convergence revolution has penetrated the minds of consumers. You would not spend money if you were uncertain about your future or not absolutely sure that you needed that product. That, for me, is why for this flat-screen TV trend has been surprising.

Down, but not out

It is common knowledge that the Middle East market has been in decline this year, but to what extent isn't always clear. Fortunately, research house GfK has been keeping close track of developments and can shed some much-needed light on the performance of the region's two largest markets, Saudi Arabia and the UAE.

Second quarter numbers aren't yet available but GfK data shows that the overall size of the UAE technical consumer goods market - which encompasses everything from cameras to IT - shrank 10% year-on-year to US$735m during the first quarter of the year, with consumer electronics and telecoms the worst hit sectors.

Saudi Arabia exhibited a similar downwards trend, as overall sales wilted 6% to US$1.2 billion despite growth in the IT, photo and office equipment segments. The US$226m Saudi consumer electronics market also grew in Q1 on the back of strong home theatre and video game console sales, although the feat wasn't repeated in the UAE, where the market crashed 15% annually and 22% sequentially in Q1.

The bright point for the UAE during the first quarter was the IT and office equipment markets, which spiked 12% and 14% year-on-year respectively. Robust sales of mobile PC sector propelled the value of the IT market up to US$201m, while the US$15m office equipment market saw MFD growth compensate for declining standalone printer sales.

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