On the rise
With vendors and distributors expanding their focus and dealings with the consumer electronics retail channels, the power retail segment in the Middle East is increasing becoming the preferred route to market for most technology vendors. But what is behind the rise of the consumer electronics retail segment?
The increased availability of technology products and consumer electronics has caused the lines between retailers and their brands to become blurred as they strive for customer engagement. The journey of retail has gone from stores and catalogues only, and grown to include online, apps and mobile.
According to IDC MEA, the tablet market recorded robust year-on-year growth in the final quarter of 2014, with holiday purchases and aggressive end-of-year promotions spurring a particularly strong performance in the consumer retail segment. The latest figures show that the overall MEA tablet market grew 26.1% year on year in Q4 2014 to total 4.43m units, with the activities of several far East manufacturers spurring significant annual growth in shipments of Android (33%) and Windows (131%) tablets.
“The telco channel experienced its highest ever rate of growth during the final quarter of 2014,” said Victoria Mendes, a research analyst at IDC Middle East, Africa, and Turkey. “There are a couple of reasons behind this growth – in South Africa, Vodacom, one of the biggest telecom operators in the country, introduced its own tablet and shipped approximately 170,000 units during the quarter, while in Turkey, local vendor Casper shipped around 100,000 tablets through the telco channel.”
GfK Retail and Technology, another research firm specialising in tracking services for all kinds of hi-tech markets in the retail sectors, said the UAE Technical Consumer Goods (TCG) market grew by 2.6% in Q4 2014, compared to Q4 in 2013, while The Saudi Arabian TCG market for Q4 2014 recorded growth of 4.2%, compared to the same period in 2013. In Turkey, GfK reported that Turkey’s TCG market grew by 19.1% in Q4 2014.
Vishesh Bhatia, CEO, Jumbo Group, a conglomerate that has CE retail chain stores, IT distribution and systems integration subsidiaries in the region, said the Middle East is fast growing as a focus region for electronics sales, driving global brands to roll out new products in the local markets sooner than ever before. Bhatia added that this is great news for power retailers in the region because it means they have more opportunities to revitalise the segment, enhance their profiles and cater to a customer base that includes residents and tourists from all over the world.
“The power retail sector is continually on the rise. Last year, the electronics market grew by 6% as estimated by IDC,” he said.
Bhatia pointed out that according to Gartner Inc estimates, IT spending in the region is expected to reach $243bn by 2018, which will account for 5.6% of global IT spending. “Additionally, the spending estimate for devices by 2018 is at $56.5bn. Essentially, these figures tell us that the sector remains strong and is expected to expand,” he added.
Ali Mohammed Akbar Khan, assistant general manager, at Bahrain-based IT and consumer electronics distributor, AJM Kooheji Group, said the Middle East has grown rapidly in the last few years and there are more players in the market now than ever before.
Khan said according to analyst firm Research and Markets, the global CE industry is expected to reach an estimated $1.2bn in 2017. “The retail channel has seen lots of changes because there are more retail locations that have emerged in the last few years. Differentiating business has become even more critical, whether it’s a brand or a retail store,” he said. “In various categories we have also seen sales jump as a result of product launches.”
Khan said power retailers need to maintain and increase the experience to consumers by raising the standards of their stores and the key factor for attracting consumers is not only the price but the customer experience you offer along with the products and added services.
He said the challenges the retail channel is facing are not unknown as these have been the same in the past and shall continue in future but the behaviour in consumerism has changed. “The retail channel needs to be dynamic in offering the best value addition to consumers and counter attack grey and counterfeit goods by giving a strong message to consumers about the complete cycle of product purchase,” he advised.
Industry pundits say while there is no denying the power retail segment has created a brand for itself and is growing rapidly in the region, profitability should be the fundamental focus of any power retailer in the market today.
Hesham Tantawi, VP at regional distributor Asbis Middle East, said the rapid growth seen in the mobile sector has adversely affected the traditional PC business resulting in a downslide in the business of high street resellers. “This has been compounded by a strong surge of the power retail sector with most IT multinationals preferring to work with retailers and not traditional reseller channels,” he observed.
He said unless resellers are willing to accept the reality happening in the market, this trend will continue and most businesses will be forced to close. “The issue of power retailers getting business from high street resellers is not going to change. There are several reasons why vendors are going with the retail channel and one of them has to do with the fact that the power retail segment has established credibility in the eyes of the vendors,” he said.
Tantawi bemoaned the practise where IT dealers sell to each other something that’s not done in the consumer electronics retail channel. “Retailers have their own challenges like the threat from online shops, but they don’t do what high street IT resellers are doing on Dubai’s Computer Street and that is to sell products to each other,” he lamented.
Sakkeer Hussain, sales and marketing director, D-Link Middle East and Africa, agreed and said the power retail sector in the Middle East has a very strong standing. Hussain added that among the many reasons for the predicted growth rate of around 10% in 2015 is the popularity of shopping malls with families as a destination point to enjoy outings, where family members can shop and have fun, all in one place. “New mall announcements and Dubai’s successful Expo 2020 bid are further reasons that support this growth trend,” he said.
Competition of online e-commerce sites and e-tailers is not the only challenge power retailers face. Like the traditional reseller channel, margins on hardware even in the retail space have been declining due to a number of reasons not least the stiff competition that exists in the market today.