By Stuart Wilson
The Middle East consumer electronics retail sector is rapidly evolving. From the implementation of franchise-based business models to the emergence of new store formats and sophisticated supply chain models, the pace of change shows no signs of abating in 2006.
DSF cancellation|~|JUMB200.gif|~|UAE power retailer Jacky’s Electronics plans to invest heavily in a bid to track the purchasing trends of customers shopping at its chain of stores.|~|The consumer electronics and IT retail sector continues to boom across the Middle East. Hypermarkets are going head-to-head with focused power retailers to attract customers across the region. However, in the UAE, Dubai-based retailers have spent the first months of 2006 dealing with the fallout from the unfortunate but wholly understandable cancellation of the Dubai Shopping Festival (DSF).
Across the region there remains an underlying belief among retailers that not only will consumer demand for consumer electronics continue to rise in 2006, but also that retail itself will become an increasingly sophisticated business arena in the Middle East where only the fittest organisations survive.
The cancellation of DSF had a significant impact on sales of consumer electronics and IT products in Dubai during the month of January. However, some vendors and retailers believe that the way in which the sector coped is evidence of just how mature and sophisticated the supply chain has now become.
Ahmed Khalil, general manager at Toshiba Middle East & Africa, says: “We definitely saw slower demand in the UAE and this is the feedback that we received from the major retailers as well. It was probably about 40% below what we had been forecasting for the month of January. However, we fully understand why this happened and respect the reasons for it.”
“As an organisation, we actually realigned our sales activities during the month of January. This allowed us to capitalise on strong demand and sell-out in Saudi Arabia and other countries such as Kuwait. It helped us achieve strong regional results for January and offset the fact that the UAE figures were below earlier expectations.”
For retailers operating in the UAE, the cancellation of DSF not only reduced overall sales volumes during the month of January, but it also provided strong evidence to justify the investments they had made in recent years to streamline their internal ordering and stocking processes. These improvements, which have occurred at every level of the channel chain from vendor through to distributor and retailer, helped minimise the possibility of a glut of inventory building up.
“Today, if you look at most suppliers, distributors and retailers, they all operate a very efficient value chain,” comments Arvind Nair, chief operating officer at Jumbo Electronics. “Everyone now runs a very slim and efficient pipeline when it comes to bringing product into the market. If DSF had been cancelled five years ago, the impact on the supply chain would have been much more alarming. Organised retailers do not see as much impact now. My guess is that any imbalance in channel inventory would have been totally corrected by the end of February,” he adds.
Retail-focused distributors faced the most risk of being stuck with a glut of inventory in the run-up to DSF that they were then unable to shift when the festival was cancelled.
The main priority for those caught in this position was to kick start sell-out as quickly as possible during February. No distributor wants to hold stock for longer than necessary, especially when there is concern over depreciation and the vendors are lining up new products to launch in the market.
||**||Scientific approach|~|Na200.gif|~|Jumbo’s Arvind Nair is a firm believer that retail is all about the detail.|~|UAE power retailer Jacky’s Electronics also suffered a slowdown in sales January, but believes that it fared much better than some of the distributors operating in the market.
“We saw less business that we expected [in January],” says Ashish Panjabi, chief operating officer at Jacky’s. “Some brands claimed they did fairly well — it all depends on how they were positioned and how they reacted. Fortunately as a retailer we were not hurt as badly as the distributors. They are the people that paid for stock ahead of DSF and we only buy from them as and when we need product. This meant that there were some attractive prices available from distributors in February.”
The increasing levels of sophistication in the retail supply chain is more than matched by the efforts that the retailers themselves are making to improve the consumer shopping experience. In addition to traditional high-street stores, destination stores and mall-based outlets, customers can now also take advantage of focused express stores stocking a limited portfolio of products. And with work continuing apace on Plug-Ins new retail outlet at Dubai Festival City, ‘big box’ retail for consumer electronics and IT products is also poised to soon become a reality.
Retailers are also becoming more scientific when it comes to deciding on store layout. Jumbo’s spacious outlet at the Mall of the Emirates is testament to this trend. Nair at Jumbo explains the strategy: “Within each store there is a ratio between product display space and consumer experience space. In this store more than 50% of our floorspace is dedicated to enhancing the consumer experience so there is less room for products. It is a trade-off, but we know that this store is likely to attract informed buyers who value the quality of their retail experience.”
This scientific approach to retailing shows no signs of abating in 2006. Retailers know that the key to success is no longer about cramming in as many boxes as possible into each outlet and recruiting aggressive sales staff. Measuring footfall, tracking each individual transaction and receiving real time information on in-store trends is now the name of the game.
“We need to have detailed information,” says Panjabi. “This is what sets us apart from other retailers. When you have a number of outlets, the amount of personal time that you can spend at each store goes down, so you need more quantitative data at your fingertips. It is an area we plan to invest in heavily over the course of 2006.”
“Retail is detail,” adds Nair. “We track footfall with electronic devices and we track invoices so that we know the conversion rate and how much people spend on average in the store. If the footfall is not high enough we will implement specific initiatives in the catchment area for that particular store. We investigate these issues in real depth. For the mall-based stores you have to work out if it is an individual store weakness or a mall weakness.”
||**||Transformation|~|Punj200.gif|~|Jacky’s COO Ashish Panjabi conceded that the retailer’s sales turnover slowed in January as a result of the Dubai Shopping Festival cancellation.|~|As well as examining closely the dynamics of consumer flow within their stores, retailers are also paying close attention to the product portfolio that they stock. The process of convergence, which is inexorably linking the consumer electronics space to the IT world, is reflected in the long-term plans of retailers in the region. CompuMe, which is currently one of the most focused IT retail chains in the Middle East, is preparing to make significant changes in 2006.
“There will be a transformation that positions CompuMe not just as an IT retailer, but also as concept electronics and communications stores,” explains Dikran Tchablakian, vice chairman at CompuMe.
CompuMe has also been working hard during the last year to introduce a franchising model into its retail operation. This has involved selling off its operations in Egypt to distributor Nordix and executing a similar deal in Saudi Arabia with the NTG group — owners of distribution powerhouse AIM. A similar move is planned in the UAE where CompuMe is finalising a partnership with regional mobile phone distributor i2.
“CompuMe will remain as the regional brand for the stores and we will continue to talk to the vendors on a regional level about promotions and in-store presence and point-of-sales issues,” explains Tchablakian.
“Financially the franchise model is very simple. The companies we work with in each country pay a flat fee and a percentage of revenue, which depends on the volume of sales and number of stores they operate — it is a very flexible model.”
CompuMe’s position as a pure play retailer — admittedly now strengthened by its use of a franchising model — sets it apart from many of the other power retailers operating in the region. For many of the major names in the consumer electronics and IT retail sector, the retail operations that they run are supported by other business activities. For instance, both Jumbo and Jacky’s operate massive distribution operations. Operated as separate business units, this activity mix nevertheless provides their businesses even greater stability.
“If you want to be a pure IT retail business in the Middle East, you can’t do it,” adds Tchablakian. “You need other arms to your business such as distribution deals or a mix of products. Jarir Bookstores has books and can afford to use IT to drive traffic. Jumbo has its relationship with Sony, while Plug-Ins has Panasonic,” he says.
Despite rapid increases in consumer demand and the aggressive expansion plans that most retailers now have, the Middle East retail sector remains embroiled in a battle to create and preserve sustainable margins. The market is rapidly evolving and retailers are realising they need to stand out from the crowd and appeal to specific markets. Creating economies of scale remains a top priority and independent retailers are finding it increasingly difficult to compete against the big boys.
“There is a definite trend,” concludes Nair. “The growth in market share is definitely growing in favour of the power retailers and the mall-based stores.”