The UAE’s brick-and-mortar retailers are mounting an all-out assault against the price advantage that e-tailers have had. In a marketplace where freewheeling consumer spending has come down appreciably, the big retail chains are scoring some direct hits with their high-profile promotions and super-sweetened offers.
With the exception of apparel, retailers are using the bait of extended payment plans to entice shoppers to buy from them. Such offers now cut across multiple categories to include everything from tech gadgets and home appliances to furniture (Home Centre’s running a 0 per cent payment scheme) and gold jewellery. Just about everything is available on a monthly plan keeping the budget-conscious buyer in mind. The number of such schemes have shot up quite markedly in recent weeks.
According to Ajai Kumar Dayal, Head of TriDayle Consult, while the practice of payment via instalments have been around for some time, “It just gets emphasised a bit less or more depending on the general economic climate.
“It works in three ways — the retailer has a tie up with a bank who provides the finance with the interest burden being borne by the retailer instead of the customer,” said Dayal. “So, for the customer it becomes a zero-interest purchase against his bank account or card limits.
“In some cases, the retailer provides the finance to the customers. In this case, they usually get an insurance cover against defaults, bearing the cost of the premium themselves.
“The third route is where the retailer undertakes the risk, betting on the probability of low defaults. Since there will usually be a lot of small-amount customers, defaults will probably be limited in number and size.”
In the state the local retail sector finds itself in now, retail chains are focused on making sure their stocks do not pile up significantly and add to their costs. If by offering split payment plans, they can effect a transaction, all the better.
E-tailers are starting to take notice that selling at a markdown to what is available at the physical stores on its own will not do the trick for them. Or to the same extent that this used to in the past.
Some e-tailers are offering instalment-based purchases, but this “remains an exception”, said Haneen Dabain, founder of Pricena.com, a price comparison portal. “The main problem holding back wider online-[based] financing solutions is that still more than 80 per cent of such shopping transactions are done through cash-on-delivery [which means all of the payment has to be made in full].”
Another weapon in the brick-and-mortar retailer’s armoury is the promise of fulfilment of warranties. “Consumers are wary of purchasing a product without a warranty and this point has become evident to online retailers who are starting to offer better services and after-sales,” said Dabain. “But we think there’s still room for improvement.
“To appear more attractive, some e-tailers are offering a price stripped out of the warranty, leaving the consumer with the option of purchasing the warranty separately at an extra charge.” [But for many retailers, warranties are an easy way to pad up their margins]. “Although the average cost of a warranty for a manufacturer is typically 2 per cent of sales, some stores do not shy away from trying to make a profit off the warranty surcharge, sometimes marking up the price by more than 10 per cent,” said Dabain.
“A small number of e-tailers are offering extended warranties as an additional way to increase profits.”
These days, e-tailers are also more than willing to do away with the freight charges to win over customers.
“Out of the 73 online stores on Pricena, only six do not offer free delivery. All of the remaining stores offer free delivery beyond a certain order amount, typically above Dh200-Dh300.
“In electronics, the typical margin for a retailer is about 8 per cent, and the average delivery cost is about Dh20 within Dubai. So any order above Dh250 is profitable for the retailer.
“In fashion the typical margin is 40 per cent, and any order above Dh50 is profitable for the retailer. We’re talking gross margins here, so excluding all other fixed costs.”
But, often, ‘free’ delivery charges need not be as straightforward as it seems. “Consumers should take into account the total price when comparing as some e-tailers can offer free delivery as a way to attract buyers but will actually pass on the cost of delivery in the product’s price,” Dabain said.