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Middle East sales events: what vendors really think

by Stuart Wilson, Wednesday 1 May 2013

This year’s DISTREE Middle East will unite vendors, distributors and retailers involved in the region’s ICT and consumer electronics (CE) channel for a series of discussions and workshops. The proliferation of special sales events – especially in the UAE market – will be one major topic. With Gitex Shopper happening twice a year, the launch of Abu Dhabi Electronics Shopper (ADES) and national sales events increasing across the region, one critical question looms large: does the channel actually benefit from these events? Channel EMEA set out to discover what vendors really think.

It is important to differentiate between two types of sales events that currently happen in the Middle East retail channel. Some events, which take place in a single physical location, require retailers to invest in taking out space, hiring promoters and setting up stands at a specific venue to participate – think Gitex Shopper and ADES for example.

Other calendar-based events happen across the market, allowing all retailers to utilise their existing network of stores and floor space – think Dubai Shopping Festival (DSF) and back-to-school promotional periods for example. As more and more sales events are added to the annual calendar, the incremental benefits to the overall market are being questioned more vociferously each passing day.

One international multi-category vendor told Channel EMEA: “Events such as ADES and Gitex Shopper Spring are creating too much pressure on both brands and retailers to cut margins and make products more appealing. They are not generating additional revenue.”

The vendor continued: “A few events are good but now it is overkill. People hold back purchases and wait for the special offers. This makes every sale more expensive from a discounting perspective and affects the run rate [business].”

“Retailers expect us to fund their participation in terms of rental costs and promotional offering. And non-participating retailers expect stronger promotions to draw crowds to their stores. I would like to see less of these events,” he concluded.

Positive picture

The views of some vendors differ from those of the event organisers who are understandably keen to paint a hugely positive picture. According to Dubai World Trade Centre (DWTC), the inaugural Gitex Spring at the beginning of April generated sales of US$25.3m in four days and attracted more than 123,000 visitors.

Trixee Loh, senior VP at DWTC, said: "The all-new Gitex Shopper Spring 2013 was an undisputed success, affirming the vision of His Highness Sheikh Mohammed bin Rashid Al Maktoum, UAE Vice President, Prime Minister and Ruler of Dubai, who gave the initial directive for the DWTC to organise a second Gitex Shopper show."

Similarly, the inaugural ADES took place in mid-March 2013 with the organisers claiming that 68,000 visitors attended over four days spending a total of US$6.81m. For vendors, there was a mixed reaction to the comparative success of the two events.

Georges Kaed, marketing manager MENA at Symantec, commented: “These events are a platform to drive several promotions, which increases retail competition and sales during the event. We cannot deny the sales these events are driving and they address consumer demands, but on the other hand it creates a slow month before and after each event.”

“For now the events are doing a good job and achieving objectives, but increasing the number of events might decrease the impact on the market and consumers - we do not want to confuse end-users with too many events per year,” he added.

The figures published after these events should be treated with caution - especially regarding visitor numbers and sales volumes. The methodology behind visitor counts is often flawed, while the sales figures rely on numbers provided by the retailers themselves, which are not verified.

Sales spike

It is important to take a balanced view when assessing the success of these events and understand that there are both positives and negatives in terms of the overall impact on the retail channel for ICT and CE products.

Rajnish Kautia, head of sales at Sony’s IT division in MEA, commented: “Sales events [like Gitex Spring and ADES] help generate high volume sales in a short span of time creating a big spike compared to regular averages. Higher volumes are seen by brands that use these events to liquidate their stocks through bulk deals with traders from the UAE or outside.”

“The typical investment made by retailers and brands for these events seems to be much higher than for regular business or for other key events in the UAE such as DSF or Dubai Summer Surprises (DSS),” he continued. “The majority of the investment and spend by brands and retailers goes towards space rental and branding at the venue, plus promotional bundles for the customer offers and price discounts to achieve desired targets.”

“Unless huge volumes are achieved, the event is not profitable for the majority of participants – be it retailers or vendors. Furthermore, bulk deals done during an event impact channel sales for the next few weeks, both in the UAE and in surrounding markets as far as Pakistan,” Kautia explained.

In total, Channel EMEA received responses from 15 brands regarding the impact of sales-based events on market dynamics and the positives and negatives associated with the growing trend to stage more events. What became clear is that A-brands, premium brands and vendors with strong brand recognition were much more pre-disposed to question the value of these events – even while admitting they created a clear sales spike.

Ghazwan Tarabishi, field force manager at Samsung, commented: “Gitex Shopper Spring made a significant impact in sales and was above expectations due to the emergence of newer devices with Windows 8 and touch-based devices. ADES did not show any value-add, perhaps due to weak marketing of the event.”

“The benefit of these events is a better top line and better visibility, but the high trade spend and investments reduce the bottom line. These events create a shift in the consumer buying timeline, not necessarily an increase in overall market size,” Tarabishi added.

“The Middle East retail channel is already too clogged with events and run-rate sales have been impacted in a very big way,” he explained. While many vendors cite that the UAE market now has too many sales events each year, they are keen to see the phenomenon expand into other markets. One storage vendor explained that it would like to see sales events take place on a larger scale in markets such as Saudi Arabia, Kuwait and Bahrain.

Mohammad Al Mufleh retail sales manager at Iomega, said: “It is good to have an event in each country every year.”

Channel finances

Many A-brand vendors are starting to seriously question the return on investment (ROI) generated by sales events and the negative impact on channel financial stability.

One of the largest A-brand PC vendors operating in the region, said: “These events [Gitex Spring and ADES] did not meet our sales expectation just after DSF. They were not appropriate in timing and locations. They created buzz but it is not healthy for the retail business. We would make the same sales with less investment in marketing and less price erosion without them.”

“We need to keep one event per year in UAE,” the vendor simply concluded.

This was a sentiment echoed by other A-brand PC vendors.

“These events are good once a year, however, more than that turns the IT retail business into a seasonal business instead of a run-rate business,” said one. “Customers would only buy during these peaks.”

“The consumer buying pattern changes to buying only when there are deals during such events and not through standard retail sales. This increases the pressure on such events due to extremely low buying prior to the events,” the vendor explained.

“We do not see a need to add any more events in the UAE. We need to enable IT retail to move more towards a run-rate business rather than a deal-based or promotion-based business. One event a year provides a much needed boost to the IT retail sector and sets the momentum for the rest of the year,” the vendor concluded.

Al Mufleh at Iomega added: “Consumers hold their purchases for a few weeks before these events and we have to consider this in planning distributor inventories and shipments.”

Another A-brand PC vendor stated: “I don’t believe these events are good for the health and stability of the retail channel; we are teaching consumers to hold their purchases until these seasonal events, which are affecting the run rate business on a monthly basis.”

“Benefits include clearing aging inventory, but problems created include fast reducing ASPs, and profit deterioration within the value chain,” the PC vendor added. “We definitely want to see less of these events. They are not good for the brands and the required investments are not sustainable.”

One smartphone vendor explained: “Although Gitex is a huge opportunity for distributors and retailers, it always comes at a hefty price to vendors. Now we have a situation where all months of the year have one promotion or another running - either by a retailer themselves or through an event like Gitex. We feel one Gitex in autumn was the perfect scenario.”

“UAE consumers are getting used to buying electronics only when there is a sale offer attached to it,” continued the smartphone vendor. “We are in favour of one big Gitex event, but there needs to be a cap on how many sales events happen each year.”

Event frequency

The frequency of special sales events and the impact this is having on consumer behaviour –especially in the UAE – can be a double-edged sword for vendors. The market position of each vendor goes some way to determining their viewpoint. Vendors seem increasingly keen for these events to focus on reaching genuine end-users, rather than becoming a platform for bulk discount deals.

Srinath Nagarajan, business head at tablet vendor HCL, said: “These events are good provided the focus is on end customer sales more than bulk selling to dealers. The benefits are definitely the spike in volume, awareness of new products and a great platform to communicate to customers.”

Vishal Ghate, product manager at Asus, commented: “These events are a good way to showcase the latest range of products and build brand visibility. They also enable one-on-one interaction with the customer and that helps us to explain the key features of our models.”

One security software vendor told Channel EMEA: “These events are good for retail and create a platform for new product launches. They give a spike in sales because they are not part of the normal buying pattern."

Kautia at Sony added: “As a premium brand, we feel that such events drive low price offers and deals, which is against the brand image and identity. Also, these events result in less earnings for the industry overall.”

“With reduced earnings, less investment can be made by brands for future events and there is also a reduced budget for improving customer experience in retail and after-sales service. Such events also destablise the retail prices across the channel in the region - for example, a branded laptop purchased in a bulk deal would end up in another market at much lower prices [than available locally].”

A storage vendor commented: “Everything has a positive and a negative side to it. The positive is that you’re hitting your numbers. The negative is that this inventory stays in the channel for at least two to three weeks after the event at the promotional price.”

One other concern raised by vendors is the ability of these events to create a division in terms of how they deal with retail partners. Many hypermarket chains, which receive regular repeat footfall week after week due to food shopping, do not see the need to participate in sales events based at a single venue.

Kautia at Sony explained: “Retailers who decide to participate or not weigh it up based on their own business and sales strategy. For some it’s about brand awareness, for others it’s about maximising sales revenues. Most of the retailers who do not participate – mainly hypermarkets - already have strong in-store footfall, so they do not find it viable to invest in an event that would require additional investments to achieve sales in a highly competitive environment.”

“Marketing support for retailers at the event will certainly exceed the investment for retailers who decide to avoid the event, due to operational costs. As such it does create some challenges with regards to promotion offering to those ‘inside or outside’ the event,” Kautia added.

Some believe that the industry needs to work harder on giving each sales event a specific identity or purpose in the market.

Jihad Youssef at accessories vendor Genius, said: “I would suggest some of the events are not repeated, but to have different concepts and events instead. This could include warehouse sales, mobility and accessories shows and of course Gitex Shopper.”

Winners and losers

For venue-based sales events it seems that the only winners are the few retailers without a significant store network that choose to participate, and some emerging brands happy to hitch a ride on the significant marketing spend shelled out by A-brands. Consumers also benefit by paying less for a product that they had always intended to purchase anyway.

The losers are the vendors, distributors and retailers that finance these sales-based events, investing huge sums into marketing, set-up costs and cutting margins to the bone to make the sale. The entire channel is damaged by the knock-on price reductions that ripple out across the region through the bulk sales made to dealers during these events.

One premium storage vendor commented: “The hiccup we are facing in the UAE is that the consumer has too many events so it is very hard to sell on regular retail pricing. Whoever needs IT or consumer electronics doesn’t have to wait very long for the next exhibition or calendar event like DSF or DSS.”

These events drive all the major stakeholders in the retail channel to sacrifice bottom line profitability for short-term top line growth that causes huge damage to margins, predictability and run-rate business. To an outsider it is a crazy situation. These events have gathered a momentum of their own that is hard to stop. If one vendor or retailer signs up for an event, competitors feel obliged to follow suit for fear of missing out and everyone ends up losing.

As one A-brand vendor concluded: “There is no doubt these events create an appreciable spike in sales. However, the investments associated with these sales events are obscene, and the return on investment is almost non-existent.”

“It’s a catch twenty two situation: either invest and gain the spike in sales, or don’t and lose sales - and potentially the future support from each retailer. I believe these events should not be held on a regular basis, and I believe they should be used to sell aging stock at reduced prices, rather than new and current products,” he concluded.

The debate regarding the issues mentioned in this article will form a core part of the conference programme at DISTREE Middle East 2013 in Abu Dhabi on May 21st to 23rd.

Additional reporting by Fatima Farid fatima@distree.com

DISTREE Middle East 2013

DISTREE Middle East is the ultimate professional networking event for senior executives from the consumer electronics, digital device and ICT products retail channel in the Middle East region. DISTREE Middle East is a focused event for retail executives based on the successful concept of bringing high-level buyers from emerging markets into productive contact with vendors.

DISTREE Middle East 2013 will take place on May 21-23rd at Fairmont Bab Al Bahr Hotel, Abu Dhabi, UAE. For more information and to secure your place at the region’s number one retail channel event, contact fhemraj@distreevents.com quoting code DME13.

For retail executives, attending DISTREE Middle East is time well spent. In just three days you can hold dozens of face-to-face meetings with existing and potential new vendors, meet with your peers from across the region, find out more about the latest industry trends and market data. All this at one exclusive event: DISTREE Middle East - the ‘must-attend’ event for vendors and retailers associated with the region’s consumer electronics, digital device and ICT products channel. www.distree-me.com


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April, 2020

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