PC vendors target Middle East power retailers directly
Move raises serious question marks over future role of distributors
PC vendors are exploring the possibility of engaging directly with large retail accounts in the Middle East - but the move threatens to harm relationships with distributors who fear it will cost them a huge chunk of their business.
PC vendors have traditionally used the distribution channel to reach hypermarkets and power retailers in the Middle East, with the exception of Saudi powerhouse Jarir Bookstore, which has had direct relationships with some of the largest PC hardware suppliers for a number of years.
However, several vendors have confirmed they are currently assessing their logistics and sales engagement models as the battle for market share in the highly competitive retail channel grows ever hotter.
Earlier this year, HP's Personal Systems Group began a direct logistics arrangement with Extra in Saudi Arabia and is now carrying out feasibility studies with other retailers that could result in the model being rolled out further.
Elena Danici, retail sales and marketing manager at HP PSG Middle East, stressed that the preferred mode of engagement for many retailers would continue to be through distribution, but said there were cases where a direct relationship might make sense for both parties.
"I would say that we are cautiously investigating this option," she said. "I think that everybody in the market today is checking what would be the best and most efficient way - time and cost-wise - of getting the products [to the market]. All options are on the table for all players."
Toshiba is one vendor that is looking to drive direct engagements with retailers sooner rather than later, starting in Saudi Arabia.
Binu Thomas, head of sales at Toshiba Gulf, confirmed that it plans a big shake-up in strategy over the next two quarters.
"We'll basically have 10 named accounts in the region and will manage them directly," he explained. "Right now they are managed semi-directly and the fulfillment happens through the distributors, but at a future stage we will go directly with them."
Vendors feel that a direct transactional and logistics arrangement with retailers for mass volume products, such as notebooks, will lead to stronger growth and profitability.
But the sentiment is not shared by PC distributors, who point out that they provide a set of services that a vendor would find difficult to replicate, including stock management, customs clearance, price management and after-sales support.
Of most concern to them, however, is that efforts by vendors to bypass them could eradicate a significant revenue stream that they have spent a long period developing.
"This could have a very serious and detrimental impact on our business," said the managing director of one major hardware distributor in the region. "You need to remember that we have put a certain amount of investment in when it comes to people and infrastructure and this would leave us completely ill-prepared as far as that cost and investment is concerned."
Make sure you grab a copy of the next issue of Channel Middle East, where we will be exploring this topic in more detail.