Business | Technology
Internet shopping poses a challenge to local retailers
Despite some lower prices online, 'real' stores have advantages.
- By Scott Shuey, Chief Reporter
- Published: 22:57 August 3, 2009
- Image Credit: Bloomberg
- An employee fills orders at the Amazon warehouse in Milton Keynes, UK. Customers are increasingly using Internet shops to order goods as online prices are cheaper than in 'brick and mortar' outlets.
Dubai: Until recently, retailers in the UAE have had little to fear from online stores such as Amazon.com. Difficulties getting items delivered overseas have often kept people from shopping on the web, especially when the products were coming from Europe or the United States.
But the growth of Internet users in the Middle East and shipping services aimed at online shoppers are now making buying on the web easier, and that is causing a growing number of "brick and mortar" companies in the UAE to start taking the threat seriously.
"Because the world has become smaller and smaller, we have to very much care about the prices of our products worldwide," said Osamu Miura, the managing director of Sony Gulf.
The competition comes not only from rivals trying to break into the market. Often the worst competition comes from the companies themselves, Miura said. Following a bad Christmas in the US, Sony started to liquidate a number of digital cameras, including a number of models sold in the UAE. Sony's website - which sells directly to consumers in the US - was flooded with cameras at reduced costs.
"Their prices were much cheaper than here, so that created a problem for us," he said.
"Everyone can order from the US and have it sent by parcel, and everyone can check the prices by internet, so yes, with e-commerce the price difference is a big problem. Good for customers but confusing for local markets."
The main issue that arises is with local distributors who expect to have exclusive rights to the products but are now forced to lower their prices. Distributors are used to fighting with traders who can often bring the products into the country cheaply, but consumers who bypass them altogether are equally worrying.
When US companies liquidate their stock, it has a disproportionate impact due to the sheer amount of products that entire the market, according to Abby Thomas, a senior manager with Panasonic Marketing Middle East. Local distributors may only order about 2,000 units of a given item, but in the US a single purchase order from a company like Wal-Mart might be as high as 2 million units. The result is a sudden drop in the price globally.
"Suddenly, there's a customer who has purchased five video cameras at 30 per cent [below our] price, but we cannot control this because the US has the quantity flowing in."
The problem is further complicated by the dominance of the US and western European markets," he said. Often a factory will focus its entire production capacity on serving those markets, resulting in a shortage in Asian and Middle Eastern markets. Impatient customers often turn to the computer to help them fill the void.
Peter McElwaine (pictured), the CEO of Jumbo Electronics, the exclusive distributor for Sony in the UAE, said e-commerce in general was not threatening sales at his stores because the "whole online retail scene here is fairly embryonic."
He described the recent availability of lower-cost consumer electronics online as a one-off occurrence precipitated by companies in the US, Europe and Southeast Asia liquidating their stock following slow holiday sales.
"The price differential in percentage terms at its peak would have been of interest, people here still want to go to a store and look at items," he said.
He said while a number of companies were overstocked at the beginning of the year, that's not the situation now. Instead, many retails now have stock shortages because they over-reacted to the global economic situation.
McElwaine also doesn't see global e-commerence giants as a threat, due mainly higher costs associated with having to ship products from the US. "Amazon may be doing well with books, but they aren't selling consumer electronics in any meaningful way."
Besides, companies offer services such as warranties and installation to distinguish themselves from the online stores.
"We've had that conversation with the sales team at the distributor level about this," Thomas said. "It's very easy to order a book or small appliances, but if you're going to buy something that is $2,000-$3,000, you have to have service."
Aubrey Ghose, the CEO of AIS Brand Lab, a brand-design firm that specialises in brand-building, said that value-added service will continue to be important, but the companies may be overestimating what it means to consumers.
"Online will dominate over value in the future," he said.
Ultimately, the bottomline for consumers will continue to be cost, said Miura.
At Sony, the local prices are dictated by the Sony headquarters in Japan, where the prices are determined based on regional - not global - consumer spending. Panasonic is doing the same.
"We are always talking with Tokyo," Miura said. "If the price applies to the US, they should apply it to us. If they use the pricing in Europe, they should be obliged to use the price here."
Are you a regular online shopper? What do you buy? Do you prefer shopping online? Or do you stick to the traditional form of purchasing? Why?
Your comments
Even after paying duties, taxes and shipping charges I save approx. 400-500dhs from buying online! Stores here charge us the rents they're paying! I do enjoy shopping in malls, but ever since I found out the difference in prices online I feel cheated by the stores!
Radhika Sagar
Dubai,UAE
Posted: August 04, 2009, 10:32
I don't even bother to check locally, I know the prices are too high and the models are in most cases out dated not to mention the fact that many salesmen here don't seem to know anything about the products they are selling.
You can go to a website such as amazon, view all the latest models and even read reviews from people that already bought the item.
A few years ago it was harder to buy online as many overseas merchants would not ship outside the US or the UK but now with shippers such as Aramex offering a shop
Shadi
Dubai,UAE
Posted: August 04, 2009, 08:58
People go for online shopping is simply because of convenience and also on the flexible payment options. Though I dont shop online on a regular basis, I always prefer buying stuff in the traditional way, which gives us a physical look of the items we intend to purchase. Further, there is also a hidden risk in the online shopping, as reports on misusing of credit cards becomes very common in these days. I prefer buying mainly CDs and books online, that too only from reliable stores. The traditional way of buying stuff gives us plenty of opportunity to walk around the shopping mall, and also to meet other people in the society. It definitely adds value.
Ramachandran Nair
Ruwi,Oman
Posted: August 04, 2009, 08:20
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