Peripheral vision

Although PC sales continue to soar in the region, resellers and retailers are always looking for additional ways to drive margin. For many that means relying on the dependable revenue stream offered by the peripherals market. But as Channel Middle East finds out, it's a sector undergoing major transition.
Peripheral vision
By Dawinderpal Sahota
Wed 12 Sep 2007 04:00 AM

The peripherals market has seen strong growth in tandem with the region's spend on PC systems and electronics products, providing a breath of fresh air to IT resellers suffering from squeezed margins on commodity hardware products. In fact, it wouldn't be an exaggeration to say that peripherals have acted as a lifejacket for resellers struggling to meet ambitious targets set by systems vendors, often providing the same, if not greater, dollar returns in terms of profit per unit.

Flash disk vendor SanDisk claims it has been impressed by the growth seen in the market over the past few years and has correspondingly set high expectations for the future. According to Tareq Husseini, sales manager for the Middle East and Africa, the vendor is working to set up distribution agreements to reach its ambitious target of "doubling" its growth on an annual basis for the next five years.

To sell to corporate accounts really is a completely different ball game — you have to be in touch with corporate resellers, they have the expertise to cover the specific markets. These products are not the same as the retail products we offer.

SanDisk is not alone in its high hopes of what the peripherals market can offer, with IT giant Microsoft also gearing up for prosperous times ahead. Armagan Demir, head of Microsoft's entertainment and devices division in the Middle East, is hoping the vendor's wide range of peripheral products will play a considerable part in driving the growth of the market over the coming year. "The Middle East market is growing at a strong rate, with growth expected to be between 30% and 40% over the next 12 months," he said.

While resellers in the region often lament the margins they make from a PC sale, they have no such complaints when it comes to the accessories they sell alongside them. According to Andre van Rensburg, country manager for the Middle East and Africa at Belkin, the accessories vendor can offer a retailer up to 60% in profit margin on its products. "On a notebook bag, they may only be able to make single-digit margins," he admitted. "But maybe on our unique products, those can reach 20%, and on cables - because we have good quality cables - that figure can go even higher. Margins can range from 5% or 10% to as high as 50% or 60%," he claimed.

Logitech's regional general manager Heinz Ettinger concurs that, on average, retailers in the region are looking at healthy double-digit margins from the vendor's peripherals portfolio. "Across the Middle East these days, the power retailers are currently looking for a margin of 20% to 22%," he affirmed.

With the retail segment experiencing a boom across the region, the corporate sector has until now, taken second priority in the eyes of many vendors. However, some are beginning to identify an opportunity they're missing out on and are taking steps to put a channel in place to cater to this market. Van Rensburg admitted Belkin is keeping a keen eye open for appropriate resellers in the region to help it crack this segment, and Logitech has similar intentions.
"Now we're also starting to introduce the business-to-business line, but that is going to go through a specific corporate reseller channel," revealed Ettinger. "To sell to corporate accounts really is a completely different ball game - you have to be in touch with corporate resellers, they have the expertise to cover the specific markets. These products are not just the same as the retail products we offer, they're often multiple units per package and also very attractively priced, because large banks, governments and corporate accounts want to have products that are found in the stores but at a completely different price level," he said.

In more mature markets, retailers have adapted their channel strategies to harness a stronger partnership with peripherals vendors. Retail stores in Europe and the US have transformed considerably over the past few years in an effort to engage directly with vendors. Hard drive specialist LaCie is hoping the Middle East eventually mimics the behaviour of retailers in these markets, but concedes there is some way to go before that vision becomes a reality.

They need to put themselves in the shoes of the consumer. If a consumer goes to buy a notebook, he inevitably needs other products but is not aware of it. So you ask the simple questions.

"Most of the retailers, whether they're organised retail hypermarkets or traditional retail outlets such as those on Khalid Bin Al Waleed Road, are still not ready to do direct business with vendors," admitted Rajeev Mukul, VP sales Asia and Middle East. "So for the time being we will be serving these retailers through distributors. But we will be very closely in touch with retailers, and our distributors will really act as stock fulfillment agents," he added.

Van Rensburg reckons retailers in the region aren't short of enthusiasm when it comes to developing direct relationships but confesses that steps need to be taken on both fronts before the vendor can enjoy such a relationship in the Middle East. "Retailers are saying to us that they want a direct relationship with Belkin, because they look at retailers in Europe and want that same direct agreement," he said. "Some of them believe that they are big players and want the same relationship. But we cannot do that, sometimes because their infrastructure cannot manage that, and our infrastructure in the region is set up so we can't manage that. But in the future there are possibilities - we may go that way depending on how the market develops."

LaCie hopes its recent announcement to set up local operations in the Middle East may spur retailers in the region to make the necessary moves to engage in such a manner with the vendor, and revealed it already has one partner in the region with whom it enjoys such a rapport. "We are stocking goods in Dubai and I think some of the large retailers may align their own strategy to do direct business with us because they won't have to carry too much of our stock, they can take it from us on a daily basis," said Mukul. "In Saudi we are working with Jarir Bookstore, which buys directly from us and sells through its own stores. We will also evaluate this kind of option in Dubai. In the mid to long term, most large retailers may get aligned to do direct business with vendors," he added.

For retailers to attain a high attachment rate - to see consumers leaving the store with a bundle of accessories along with the purchase of any PC or notebook - vendors and retailers concur that the onus is on the retailer's sales staff. Electronics retailer Switch claims it invests heavily in the training of sales staff, claiming its personnel's skills can be the key differentiator in the sale of peripherals. "Customer loyalty is often not very strong in this market, and the decision that a consumer makes is largely based on the salesman's recommendation and what proportion of shelf space the brand is occupying," claims general manager Rahul Mistra.
Van Rensburg agrees that a salesperson must be able to clearly and confidently explain the necessity of complementary products to a customer, in order to secure a sale of a peripheral. "They need to put themselves in the shoes of the consumer," he advised. "If a consumer goes to buy a notebook, he inevitably needs other products but is not aware of it. So you ask simple questions. Is he buying a notebook because he travels? If so, does he have a notebook bag? Does he like using the ‘nipple' mouse? If not, does he have an external mouse? So it's a matter of questioning the customer and adding value. It's important to show him that there's a definite need for it," he added.

One channel source even suggested that retailers may be able to levy premium prices for peripherals products, due to lack of consumer knowledge. "The laptop has to be bought at the market price, because the customer would have done his research and checked the product in different locations," said the source. "But he may not necessarily have looked for peripheral prices everywhere because he did not come to buy a peripheral in the first place," he added.

If you go to a power retailer in this region, you will see products are displayed price point-wise. But now it’s not the right approach anymore, it’s more important to display the brands together.

Vendors also claim that retailers in the Middle East would stand to gain by taking a leaf out of the books of their counterparts in more mature markets, and display peripherals on shelves according to brand category, as opposed to price, size or even type of product. This formula has worked a treat in Europe, reckons Logitech's Ettinger.

"If you go to a power retailer in this region, you will see products are displayed price point-wise, and this is what we saw in Europe around five or six years ago," he said. "But now it's not the right approach anymore, it's more important to display the brands together. You can have six or seven different brands in the same price point and this makes the decision process of a consumer very difficult. We've seen in Europe that going by brand is a better solution, even if it is different product categories and different price points. To have all the different products from a brand displayed together is much more effective and we're trying to encourage the power retailers to go that way," he added.

Belkin claims it too has benefited in the more mature markets by retailers arranging their displays in this way. While van Rensburg applauds retailers' efforts in this area, he reckons retailers trying to reinvent the wheel in the region will inevitably fall flat.

"Some of the retail stores are pretty good because they send their merchandisers and planners overseas to see what they're doing in stores like Dixons or Staples in the UK and come back to Dubai to try and implement similar ideas in the stores," he said. "Some of the others try to develop their own ideas, rather than be brand-oriented and those tend not to be all that successful. The best way to do it is to piggy-back off the brand name and merchandise according to that," he suggested.
With the peripherals market becoming congested, vendors reckon that the time is approaching for retailers to select which brands they want to represent in their outlets and which they can survive without. Ettinger claims Logitech has already witnessed retailers approaching such crossroads elsewhere, and urges retailers in the region to take heed of their examples.

"Retailers are starting to realise that they have too many brands, and like in the US and Europe, they're going to realise that they need to significantly reduce the number of brands," he claimed. "All these products are very similar and it's very difficult for a power retailer to handle so many products, and this is where Logitech wants to bring expertise, because we went through this already in Europe. We can encourage them step by step to go to a brand-focused display instead of a price-focused display," he added.

We are not very far from the day that retailers start sourcing accessories under their own brand. Today, people are not really thinking along those lines, but in the future I could quite realistically see that happening.

Mistra at Switch concedes the vast choice of vendors is causing the retailer to reconsider what it offers in its portfolio. He claims a retailer's floor space and shelf space is too valuable to supply everything the market has to offer. "Our biggest challenge is to choose what to carry and what not to carry. After all retailers only have a limited shelf space when it comes to accessories," he said.

Jihad Youssef, general manager at peripherals vendor Genius Technologies, suggests retailers need to look at the wider picture and consider the vendors that will provide sustenance. He claims that in the decade the vendor has been present in the region, competitors have come and gone, and urges retailers to take notice of past events. "I always tell customers not to just look at the new brands that are coming in, see the people that are leaving as well," he said. "Go back two or three years and learn from history. We've been in this market for 10 years and during this time a lot of brands entered the market, but you look at who can sustain a business, who's going to stay? If I have a partner in Saudi Arabia, that means he's my partner, whether we're winning or losing. So if you bring in a brand, you need to be sure it is worth the risk," he warned.

Headset specialist Plantronics says it invests heavily in securing its position as one of the frontrunners in the peripherals market. Howard Shenton, regional general manager, East Europe, Africa and Middle East, claims the vendor ploughs a significant proportion of its revenue into innovating cutting edge designs. "We spend 10% of our revenues on product research and development," he said. "We produce award winning comfortable and intelligent product ranges containing leading edge technologies such as intelligent noise cancelling, digital signal processing and stereo and MultiPoint bluetooth," he added.

Youssef reckons the innovations in the design and functionality of peripherals products are a key draw to consumers in retail outlets. He touts the vendor's new opti-wheel mouse as a prime example of the type of product that attracts consumers to visiting retail stores. "The peripherals business is the bread and butter of a retailer's showroom," he claimed. "People like to come in and see the new advances and see something new. When you look at the latest notebooks, you don't see something new everyday because laptops have a long lifespan. However Genius brings an average of seven or eight new products to the market every month. So peripherals means traffic, it means that people will come to visit the showroom regularly," he added.

With peripherals heralded by some as th­­­e staple of a retailer's profit, Switch's Mistra predicts that those with the means to do so may begin taking the matter into their own hands. He reckons it is quite likely that before long retailers will begin to source their own branded peripherals, given their importance to a retailer's operation. "We are not very far from the day that retailers start sourcing accessories under their own brand," he said. "It will be much more profitable if a retailer gets into sourcing its own-brand peripheral products. Today, people are not thinking along those lines, but in the future I could quite realistically see that happening," he concluded.

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