Commodity price fluctuations put tighter squeeze on retailers

Dubai: Is value retailing in Dubai going out of fashion? Over the last 12 months, and especially in the last six, a rash of reasons have combined to raise retail prices across product categories.

The impact has been felt, quite forcefully at that, in the mid-priced fashion category and leading to a serious eroding of Dubai's longstanding — and hard won — advantages in this space.

Commodity fluctuations, especially the volatility felt by cotton prices, had a lot to do with this, and local retailers are still working out their counter-strategies. But how successful do they expect to be in coming to grips with an extremely fluid situation?

Dorgham K. Shaaban, chairman and managing director of Brands, the retailer who redefined the concept of accessible men's fashion since the early part of the last decade, stitches together his gameplan. 

GULF NEWS: How have you been tackling the cotton crisis?

Dorgham K. Shaaban: It's not just the fabric prices that are up out of all proportion, production costs have too. Most of our merchandise comes from factories in China and they have been tightening up regulations for their employees, raising salaries, etc.

Then there is the Chinese currency devaluation. The Chinese have been raising the value of the currency gradually, by a few percentage points every other week. All of these factors have been working against us at the same time. On some of the items we had to bear a 60-70 per cent increase and that's astronomical for a value retailer. But try telling any of that to a customer who is used to paying a certain sum for doing his shopping with us.

Does it mean you have held your hand on raising your retail prices?

Just raising our retail prices in response to our cost increases was never going to be a solution. We cannot increase our prices unilaterally as the competition would have made it impossible.

Instead, we went with a strategy to overcome some of the inflationary pressures through having a fixed-pricing policy with our suppliers on fixed terms.

And we booked substantial volumes before prices had a chance to go higher. We have started doing this for a year and still doing it wherever we can. We tell manufacturers these are the kinds of volumes we will be sourcing from them this year and this is what we will pay them.

We have tried to reduce our margins and running costs, on rents for instance. But the cost of living is still going up. 

Has the fixed-pricing policy been yielding the desired results?

I am trying to buy at the best possible market rate and doing so by paying from my own pockets and not the future shoppers'.

But we are also seeing suppliers getting reluctant to enter into fixed positions in a fluid market. If earlier we could do it for one year, they are now saying three to six months. As if this was not enough, we are confronting a situation where shoppers in the region have either cut down on all non-essential items. The numbers are definitely going down.

To keep up the sales volumes, we are forced to increase our merchandise range in the shops. We did so by getting more into ladies' accessories, corporate gift items and perfumes. As I see it, that's the only way for retailers to get the projected sales numbers from their shops.

But even doing that means more costs for the retailer. 

Does that mean a rather difficult year ahead?

In my view, 2011 is going to be more difficult than 2009 and 2010 for the retail sector. The retail cake is getting divided up by more and more players.

Either a retailer requires a super luxury brand to get him through these times, or he will have to offer a value-for-money rationale to get the shoppers in. Many are closing down rather than try to make something out of this difficult situation. 

What about your own expansion plans?

We have placed on hold all non-essential expansion plans for the moment. I stopped one overseas project for which the initial funds were paid for a location. It has come to a point that a businessman is better off holding on to the money rather than spend on what could prove doubtful investments. 

Is the UAE the largest market for you?

Saudi Arabia is still good, definitely the best on the margin side. This prompts me to think of one or two store additions there at a later date. 

How has the expansion of your merchandise range helped?

We added the ladies line six months ago and more or less at the same time added corporate gifts to the mix. I have four stores in the UAE and I don't see the need to close any.