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Thu 12 May 2011 09:58 AM

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The changing face of family firms

Does the retailer Jumbo Electronics hold the key to the longevity of this region's family firms?

The changing face of family firms

This month’s cover story is the recently appointed CEO of Jumbo Electronics, Deepak Khetrapal, and the man charged with turning the Dubai-based electronics retailer around.

In our interview Khetrapal makes no qualms about the fact that the retailer has been struggling in recent years. What once used to be the retail kingpin of the Middle East has suffered amid increased competition from the likes of Plug-ins and Sharaf DG and a workforce lacking in innovative ideas. It was no secret in the electronics industry that the group’s dominance was starting to wane.

“We were the undisputed best retail store and the best [that] people came to for electronics. But somewhere, the public perception is that Jumbo is not keeping up with the times,” says Khetrapal. “There was a certain realisation on the part of the board and the shareholders that perhaps the dynamism for which Jumbo had been known, has in the past couple of years, been getting rusty,” he adds.

Knowing that Jumbo might not survive unless drastic action was taken, the firm’s board hired Khetrapal. This month marks his first twelve months as CEO and what a difference he’s already made. Sales are already up twenty percent, equating to a 50 percent rise in sales volumes compared to the previous year, and the market is showing no signs of abating. “In terms of total sales that we’ve completed, we’re closing to about $2bn of total sales in this market and neighbouring markets, as a group. [This] is not a small number, and I think, leads many retailers in our group by a large, large amount,” he says.

How’s he done it? Khetrapal has worked from the ground up, looking at the firm’s competitors, analysing the changing market conditions and examining each store on its own merit. It certainly hasn’t been easy; his management style has come up against some strong opposition from many of the firm’s long-standing employees who remained insistent that they knew the Jumbo customer better than he did.

Take, as an example, his plans to push Apple products. Prior to Khetrapal’s appointment Jumbo looked at the likes of the iPhone, iPad and iPod as niche products, so they were kept buried at the back of the store. Knowing the huge success Apple has had in recent years Khetrapal decided to market them to all of Jumbo’s customers. Today, Apple products account for ten percent of Jumbo’s total sales.

Family companies such as Jumbo Electronics account for more than 80 percent of businesses operating in the Middle East. While an estimated $1 trillion is expected to be handed down to the next generation within the next five to ten years.

But as these family firms move into the second and third generations many, like Jumbo, are struggling to keep apace. When I spoke to one of the region’s most successful business leaders and founder of the Al Habtoor Group, Khalaf Al Habtoor, last year he was insistent that he would offer shares of his company to the public and list on a regional stock exchange in order to ensure his company’s survival.

“Public companies don’t die. They continue with the new owners, the new shareholders,” he told me. “The problem [with family companies] is if the founder dies, for example, the family starts fighting and then the name is buried with the founder, which is what I don’t want to see. I want continuation, things to go forward for generations after generations.”

I’m sure Al Habtoor is not alone. Many of his peers across the Gulf have spent entire lifetimes building up hugely successful companies from scratch. I’m not in any way suggesting that all of these firms will struggle when they hand over the day-to-day running to the next generation but who is saying that all of them will be ready to, or for that matter want to take it on? Perhaps, like Jumbo, they could benefit hugely from bringing in an outside CEO to bring in fresh new ideas.

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