Ironic predicament of Middle East retailers

It is easy to get carried away when the market is consistently growing at double digit rates and the convergence between IT and consumer electronics is driving foot traffic to record levels.

The potential of the Egyptian consumer market alone is enough to excite any vendor, while the planefuls of tourists who land in Dubai each week have grown into an essential source of revenue for the mall-based retailers.

But it is also time for the retail market to take a reality check. During this period of rapid development it is vital that stakeholders in the retail channel do not lose sight of the very principles that underpin good, profitable business.

The retail channel is currently the subject of great irony. For while the market continues to climb to new heights, Middle East IT retailers face more challenges than at any time in their history.

The market is so finely balanced that the strategic decisions retailers make today are certain to have a huge bearing on their prospects in the next few years. The overhead constraints associated with being a retailer cannot be ignored. With no purposeful online or e-tail market place in the region, retailers conduct the consumer battle from the sanctuary of their shop floors. The soaring cost of lease prices, particularly in the UAE where some retailers have had to absorb rent hikes of more than 50% during the last two years, means only one thing: retailers must entice even more customers into their stores to make the same income. On top of that, personnel and training costs are gradually creeping up and for any retailer pursuing the ‘big box' retail model that can warrant a sizeable financial commitment.

In a market becoming renowned for customer choice, the pressure on technology retailers to differentiate is tremendous. The retail game used to be about ‘display and sell' but those dynamics are no longer enough.

Retail owners in this region are savvy enough to realise it is unfeasible to compete on price alone so they have to dream up new initiatives to persuade consumers to part with their money. Payment plans, in-store areas providing internet access, and home solution packages are some of the many tools designed to influence a consumer base that remains spoilt for choice. Developing new initiatives takes up time and resources, which is why retailers are crying out for their efforts to receive more support and recognition from vendors.

Among the many topics discussed at DCC - which organisers Distree say attracted more than 300 participants representing 120 retailers and 50 vendors - was the drive to halt sliding price points. Logitech was one of several vendors looking to appeal to retailers by insisting it has the portfolio and strategy to maintain prices. Antoine Presig, VP marketing at Logitech, said: "The market is fighting declining price points, but our message to the retailers is not to crash the prices. We want to work with retailers to provide more solution oriented offers at store level and help them to increase their attach rate," he added.

Qasem Ahmad, general manager at Epson distributor Al Yousuf Digital, says his concern is that parts of the market are over distributed: "Vendors think that one and one always equals two, but [having too many distributors] is not good from a business point of view. Some of them seem to think that the consumer market is a dumping hall that never gets filled up. We may have the highest growth in the world, but that is because of the installed base," said Ahmad.

Although the relationship and level of engagement between retailers and vendors in the Middle East has improved considerably in recent years, there is still plenty of work to be done. Vendors must be responsible enough to ensure retailers are receiving the adequate pricing and sales support to make the business sustainable and, most importantly, profitable.