Tech fad drives operating margins

Dubai: With all manner of tech gadgets becoming must-haves among consumers, UAE retailers are seeing a marked improvement in their operating margins in the 12 months leading up to this year's Gitex. But it's not that these in-demand products come with higher prices and fatter retailer margins.

Distributors — and even the brand principals — have also lent a hand in improving the feel good sentiments within the vital consumer electronics and technology sectors. Brand owners realise they need to influence the customer at the point of sale, whereby the retailer's role becomes even more crucial.

"A pure retailer has to create a noise in the market for a particular brand or product and they do that by having in-store locations to promote it," said Deepak Khetrapal, CEO of Jumbo Electronics, which recorded a gain of 14 per cent at last week's Gitex Shopper compared to the year before.

"The principals understand that having a dedicated space for their brands in a store will be used only to bring the customers in and give them the experience for the advertised product… at least in the launch phase.

"That cost is mitigated by most principals and that's separate money going to the retailers. It helps with the retailer margins."

Marketing costs

While their margins have increased in the last 12 months, so have the retailers' costs. Particularly the marketing costs associated with convincing a consumer that he or she really needs to go in for the latest gadget on the popularity charts.

Where UAE tech retailers are concerned, they seem to be doing the convincing only too well. According to Khetrapal, as well as senior industry sources, the UAE has one of the lowest ownership cycles for tech gadgets, with notebooks, smartphones and in the last 12 months, tablets.

"Yes, the consumer interest is coalescing around two or three products in the IT space and the ownership life cycle is becoming shorter and shorter," said Khetrapal.

"The market also has a tendency for its tech consumers to show themselves to be ahead of others — they are choosy, conscious of what's coming into the market and they want to own it.

"I wouldn't be surprised if more than 35 to 40 per cent of them would be in the market for the latest version at any given time. On smartphones, the upgrade patterns would be even higher and every six months would be the average.

"At least 80 per cent of smartphone owners need to have the latest… and the conversion rate is higher than even in the US."

These trends have done their part in helping Jumbo Electronics go in for a makeover and be seen as more of a premium retailer, a process that started just over two years ago. The results are showing up on the bottom-line.

"The average unit price we command is the highest in the local retail electronics and tech industry, there's no doubt about that," said Khetrapal. "What it means we are actually selling a lot more of the premium products.

"Even on a commodity category such as TVs, we do a lot better on sizes of 40 inches and more. The competition may well be selling more units, but the bulk of them are in the 32-inch range or thereabouts and their unit prices are lower.

"We have clearly occupied the space of a premium retailer. But such transitions are never complete."

Ready for Indian market

As with some of the other retail majors interested in getting into India, Jumbo Electronics has been hearing all the right noises from government sources there. But the regulatory reforms that would allow them to make the transition is yet to be sighted.

"The day the Indian government allows multi-brand retail, we will be there; we are good to go," said Deepak Khetrapal, CEO of Jumbo Electronics.

"As long as we have control on the operations with a majority holding, we could even consider having a joint venture partner there. But we will not take a minority. We do hope that it will take faster than two years for the required changes to be effective."

Even otherwise, a lot can still be done in the Gulf markets. Barring the UAE and Oman, the company does not have a direct retail presence in Qatar, Bahrain and Kuwait. (It does not operate in Saudi Arabia.)

"Our first task is to get the existing subsidiaries in the Gulf to a certain level rather than use all of our bandwidth to penetrate new markets," Khetrapal said. "There is enough potential to tap the markets we are already in. There's a lot more on the retail side we can do in Abu Dhabi and we are doing that."

For the year ending March 31 next, Jumbo Electronics is looking at a 12 per cent growth.

iPhone 4S: market plan

While no dates have been announced for the official launch of the iPhone 4S, Jumbo Electronics is tapping alternate sourcing arrangements.

"Since demand is so strong, most retailers here are trying to source it from somewhere or the other within the next two weeks," said Deepak Khetrapal. "As a retailer, we will try and do the same."