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‘Perfect storm’ for Middle East retail channel

by Stuart Wilson, Friday 24 September 2010

The Middle East Retail Academy (MERA) Monthly Monitor Report (MMR) for August 2010 highlighted the tough trading conditions that faced the IT and consumer electronics retail channel last month. A combination of the traditional summer slowdown, the timing of Ramadan and consumers leaving the region on holiday created the ‘perfect storm’. The MMR Retailer Sales Index slumped to an all time low of 4.58 (scored out of 10) but optimism of a fourth quarter recovery grew.

The MERA MMR gathers the opinion of 30 top retailers and 30 top vendors operating in the Middle East. The survey uses a simple set of questions to determine levels of business activity in a given month and the short-term business prospects. The MMR Sales Index asks respondents to assess sales volumes during a given month. The MMR Confidence Index asks respondents to assess the prospects for the retail channel for the next three months.

While the Retailer Sales Index slipped to 4.58, the Vendor Sales Index rose slightly to 5.26 during working month August. The report explained: “The MMR Sales Index demonstrated a difference in opinion between vendors and retailers for working month August 2010, with vendors more satisfied with volumes and retailers less satisfied. This is something the MMR has witnessed before with vendors assessing their sell-in to the retail channel and retailers focusing on sellout to consumers.”

One vendor explained why retail sales were so depressed in August 2010: “There was extreme pressure on sell through with an obvious decline over last year. July and August were coinciding with people on vacation and Ramadan. The majority of categories were affected.”

Pricing pressure

Depressed retail channel sell through also created pricing pressure in the Middle East market. Vendors and retailers witnessed sharp price drops. One vendor explained: “High inventory for a few vendors resulted in aggressive price drops [in August] to help them liquidate their stocks. Due to the reduced customer numbers, prices fell even further in the latter part of August.”

Despite August’s ‘perfect storm’ the Middle East retail channel is more optimistic for the remainder of 2010. The overall MMR Confidence Index (scored out of 10) climbed to 6.32. The report stated: “Despite the poor sales in August, the retail channel as a whole is looking forward to the next few months. The overall Confidence Index rose sharply to 6.32 – its highest level since March 2010. Confidence levels improved for both vendors and retailers during working month August 2010. The Vendor Confidence Index climbed from 6.13 to 6.58 while the Retailer Confidence Index jumped to 5.92 from 4.46.”

One vendor did sound a note of caution: “Traditionally, the next quarter is supposed to be the positive for retail business, due to the festive season and exhibitions such as Gitex. However, the consumers are still cautious about major purchases, due to poor economic indicators coming in from global markets.”

The MMR report stated: “The Middle East retail channel believes that better times lie ahead. August 2010 was the ‘perfect storm’ as several factors coincided to depress consumer sellout. It is important that the channel takes the recovery one step at a time.”

“Severe pricing damage happened in several product categories during the summer slowdown. Vendors and retailers need to work together closely on new product launches and promotions to repair the damage and rebuild prices and margin potential,” the report concluded.

The MERA is an organisation made up of the Middle East’s leading ICT and consumer electronics retailers and vendors. This high-level organisation was established in conjunction with Digital Consumer Channel (DCC) MEA, the premier annual conference for the region’s retail channel organised by DISTREE Events. Please visit www.dcc-mea.com for more details.

For more information on the MERA or to request a copy of the MMR report, please contact fhemraj@distree.com

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