Retailers encounter the ‘perfect storm’

Middle East IT and electronics retailers are cranking up their sales strategies for the bumper fourth quarter as they bid to banish the memory of a summer period that only brought them pricing pressure and pain.

  • E-Mail
Retailers encounter the ‘perfect storm’ Severe pricing damage occurred in several product categories during August, leaving vendors and retailers hoping the fourth quarter will provide some respite.
More pics ›
By  Andrew Seymour Published  October 19, 2010

The retail channel has not had an easy ride this year, and August proved to be no different judging by the results of the latest Middle East Retail Academy (MERA) Monthly Report (MMR) published by Distree Events, which stages the annual Digital Consumer Channel (DCC) conference in the UAE.

It called August 2010 the ‘perfect storm’, as a number of factors coincided to depress consumer sell-out and leave retailers wondering if trading conditions could get any worse.

Every month the report gathers the opinion of 30 top vendors and 30 top retailers operating in the Middle East — including the likes of Carrefour, Jarir, Sharaf DG, Microsoft and HP — in order to track four key indicators: sales, footfall, confidence and pricing.

Pricing pressure

The results of the MMR Sales Index for August (which asked retailers to assess their sales volumes on a scale of 1 to 10, with 1 being terrible, 5 expected, and 10 excellent) revealed just how tough August was for the channel. The retailer Sales Index slumped to 4.58 (from 5.38 a month earlier) during August, the lowest figure that the MMR has seen since its launch last year.

One retailer told MERA that sales during Ramadan had been the lowest of the year, down a whopping 35% on the previous month. Suppliers appeared to indicate greater satisfaction with retail sell-in than their channel counterparts, however. The Sales Index for vendors climbed to 5.26, from 5.06 a month earlier, with some participants suggesting Ramadan promotions had helped them achieve August targets.

MMR’s Pricing Index — which monitors the severity of pricing pressure and price erosion — bore out the suggestion that price cuts were a major part of the retail channel’s arsenal during the month by indicating that August saw more intense pricing pressure than any other month since the Index opened.

One major vendor attributed this trend to over-stocking among some brands: “High inventory for a few vendors resulted in aggressive price drops to help them liquidate their stocks. Due to the reduced customer numbers, prices fell even further in the latter part of August.”

The MMR also noted that pricing pressure was heavily impacted by product segments. The mobile PC space was hit particularly hard, but markets such as memory and imaging appeared to show a degree of stabilisation.

MERA’s Footfall Index, meanwhile, fell to 4.00 from 5.46 a month earlier (with 1 being very dissatisfied and 10 being very satisfied), demonstrating the challenges retailers faced in attracting customers during the peak of summer, irrespective of the sales promotions they offered.

“With the exception of a few bigger malls, most mall locations suffered with poor footfall this month,” one retailer told MERA.

Confidence boost

Despite the sluggish conditions encountered during August, the channel appears to be confident that an improvement in fortunes is just around the corner. The MMR Confidence Index for both vendors and retailers rose sharply to 6.32 — its highest level since March this year.

The Index shows that vendors remain slightly more optimistic than their retail partners, with some adamant that back to school promotions and GITEX offers will see a spike in sales.

That said, not all parties are convinced Q4 will deliver the respite the market is pining for. One vendor warned that customers might take a bit of persuading before they open their wallets, telling MERA: “Traditionally, the next quarter is supposed to be positive for the retail business due to the festive season and exhibitions such as GITEX. However, consumers are still cautious about major purchases due to poor economic indicators from global markets.”

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