Caution about electronics market growth forecast

Dubai: The Middle East's consumer electronics and technology market is poised to defy the global economic slowdown with a sales forecast this year exceeding the record high sales of $37 billion in 2008, according to industry sources.

The market is forecast to grow to $39-$40 billion in 2009, said Vishesh Bhatia, group director of electronics and technology division at Al Futtaim Group, quoting a report of GfK-MEMRB Marketing Services, a marketing research company.

"However, given the harsh global economic climate from which this region is certainly not immune, more realistically the market size must be expected to shrink. I would not be surprised if in fact the market size struggled to reach 2007 levels," he adding with a note of caution.

He said "innovation and customer-centric service" will determine whether there is continued growth of the consumer electronics and technology market.

The market is undergoing a reality-check and large established retailers need to speak and act in unison, Bhatia said.

In his view, retailers who are making an effort to build customer loyalty through good customer service are finding themselves at least partially insulated against this economic backlash.

"Government-led initiatives such as Dubai Shopping Festival, Dubai Summer Surprises and Eid in Dubai can help to drive sales. But more is needed. Close working with government agencies to focus on sector problems may help to alleviate the impact [of the downturn] and for sure there will be an impact on the industry," Bhatia said.

The GfK-MEMRB report shows that 65 per cent of sales are expected in digital products like computers, cameras and mobile phones.

The industry grew by 9.6 per cent in 2008 due to continued strong demand for electronics items.

"Sales of mobile and smart phones, which are the dominant digital products, made up 41 per cent of digital consumer market in 2008 to $10 billion. Mobile phones and smart phones enjoyed a major share of this with sales of $10 billion in 2008. Desktop and notebook computers at $5 billion were followed closely by LCD televisions at $4 billion.

The retail sales of digital consumer technology industry alone are expected to exceed $24 billion last year," according to the report.

The main growth will come from LCD and plasma TVs which will contribute revenue of $2.2 billion, followed by personal computer business with $600 million revenues and monitors with $290 million revenues.

Shrinking population

Bhatia said the biggest challenge the industry faces is the likely reversal of population as the construction and real estate sectors are shedding jobs.

This will have a negative impact on retail volumes. Additionally, there is a growing lack of confidence in an early economy recovery. And the impact will be further felt in belt-tightening and postponement of discretionary purchases by consumers.

"I think customers will spend only if there are obvious deals. But there is a limit to how much demand this will generate and more importantly sustain. There is an uncomfortable overstock situation not just in the UAE but globally caused by the sudden and sharp drop in sales. Stockists will sell these off at low prices and once this stock correction ends, such deals may not be available. It is any ones guess how demand will move at that time," Bhatia said.

"Laptops and digital cameras should continue to dominate. Rapidly dropping prices of flat panels will encourage consumers to make this too a dominant category. Nokia's new range for second quarter should be a winner. On the other hand marginal products such as digital dictionaries, some slimming products will not deserve the shelf attention," he said.