Retail boom needs smooth supply chain
Dubai businesses must make smooth the journey of their products from supplier to the customer to help sustain the growth of the region’s booming retail sector, a forum on maximising revenue has heard.
Retail specialists said installing efficient back office distribution systems would ensure the right products were always on the shelves and help support customer service.
One such system, Vendor Management Inventory (VMI), guarantees that sold products are immediately logged and replenished from a company’s supply chain.
Ramachandran Padmanabhan, Operations Manager for Al Futtaim Logistics in the UAE, said the approach was popularised in the 1990s by companies such as US retail giant Walmart and Procter & Gamble.
“The benefits of it for the supplier are demand smoothening, increased operational flexibility and higher customer switching costs. For the customer, it reduces the administrative costs, improves service levels, reduces risk and improves cash flow,” he said.
Badly managed VMI will result in an increase sitting stock and a rise in the costs of inventory management, reducing overall cash flow, said Padmanabhan.
He said as the majority of products sold in the UAE were imported, the logistics and distribution industry was crucial to the growth of the retail sector. Dubai’s establishment as a regional hub has given it access to 5.8 billion consumers within eight hours of flying time.
“Supply chain management, links the market place, the distribution network, the manufacturing process and procurement activity. The primary objective for the logistic system is to maximise the value to customers and to the businesses themselves by providing the required level of service at the lowest total cost,” said Padmanabhan.
“Logistics is vital to the UAE because the majority of products are not manufactured here,” he added. It is estimated that every year more than $17 billion (Dh62.3bn) is spent on domestic imports in Dubai, and it is a gateway to a $150bn import-export market. Dubai has the eight largest container terminal in the world and hosts more than 170 shipping lines and 110 airlines.
The conference, Maximising Retail Revenue, also heard about the battle between motorbike makers Honda and Yamaha that started in 1981, when Yamaha announced it intended to become the largest motorcycle manufacturer. The battle was decided by Honda’s ability to out-distribute its rival.
Honda had 60 models, and over the next 18 months introduced or replaced 113 models. Yamaha over the same period only introduced 37 models.
Padmanabhan said: “Honda had flooded distribution channels and buried Yamaha with variety.” He said popular distribution slogans to promote rapid customer response time included Federal Express, which promises to deliver packages by 10.30am the next morning, and Chrysler, which reduced vehicle delivery times from an average of 234 weeks (in 1980s) to 160 weeks (in 1990s), and reduced cost by 20- 40 per cent.
The forum in Dubai heard that distribution was also vital to support strong customer service because it ensures the product is always available in the market.
Rick Coles, Managing Director, International Training and Development Consultancy, said with Dubai’s abundance of retail customer-facing services, it was crucial that businesses maintain strong front-line management. “The chief cause of unhappy customers is unhappy staff. You might get little or no effort from staff and in the worst cases you get sabotage.
“Researchers found a clear link between poor frontline performance and perceived management failings. Around 60 per cent of frontline workers agree their immediate managers’ behaviour towards them has a direct impact on the level of service they provide to customers,” he added.
Coles said employees would avoid firms that had a low customer service track record as they would not want to be surrounded by high levels of customer complaints.
By 2009, the retail spend in Dubai’s shopping malls alone is expected to exceed $7.6bn, with Abu Dhabi’s at $1.9bn. Dubai has 16 times more sales-floor space in shopping malls per capita than the average for the European Union’s 25 countries.
Padmanabhan said: “The UAE is a place where there’s a huge opportunity for the retail sectors and for tourism and hospitality sectors. Customer service is definitely a vital part of this. Before we look at customer service, we have to make sure the product is available, whether its a particular car or the size of shoes or trousers you want.
The Chairman of the Dubai Shopping Malls Group (DSMG), Eisa Adam, announced recently that Dubai’s overall indoor retail space is expected to increase up to 20 million square feet by 2010, when more malls would be ready, including the Dubai Mall – the world’s largest shopping centre.
DSMG expects the upcoming annual Dubai Shopping Festival to secure a 50 per cent increase in sales in comparison with the volume of sales achieved in any other month of the year. Previously, the retail sales during the festival usually account for 25 per cent to 30 per cent of the sales volume achieved throughout a year.
Padmanabhan said: “People here have cash and won’t wait for long. In certain industries here the demand at the moment is whether you can deliver in 24 hours. It’s the same in the supermarkets, where people want particular brand and if it’s not available then they will go to another market.”
“Any retailer must be careful that the products are available and this is supported through the logistics,” said Padmanabhan.
Dubai is expected to contribute 70 per cent of the mall GLA of the UAE by 2010. An additional mall based GLA stock of about 22 million square foot by 2008 is predicted.
Dubai Shopping Festival 2008
The shopping frenzy that is expected to grip Dubai again this year has guaranteed an injection of funds for the region’s retail sector for the past 12 years. The month-long event saw shoppers last year spend a whopping Dh10.2 billion, with organisers anticipating an increase of between 10 per cent and 15 per cent this year.
The festival takes place between January 24 and February 24 and retailers have until the end of January to register in order to get the chance to capture vital extra revenues for the year. During this year’s DSF non-participating retail outlets will not get permission from the Department of Economic Development to conduct any promotion or sale and all participating retail outlets will have to honour their offers throughout DSF 2008.
Suhaila Gobash, DSF Sponsorship Manager, said: “There are only a few more days left for retailers to register with us and the response we’ve had this year has been nothing short of incredible. Shopping is a key focus for this festival and we are sure the retail sector will come up with innovative promotions this year.”
Eisa Adam, the Chairman of the Dubai Shopping Malls Group, said the festival is expected to attract visitors from GCC, Europe and Asia.
Mega Malls around the world
- South China Mall
Dongguan/PR China 9.7m sqft 2005
- Berjaya Times Square
Kuala Lumpur/Malaysia 7.5m sqft
- Siam Paragon Bangkok/Thailand
5.4m sqft 2005
- The Dubai Mall/Dubai/UAE
12.1m sqft 2008
- Mall of Arabia/Dubai/UAE
10.8m sqft 2008/9
- West Edmonton Mall/Edmonton/Canada
3.8m sqft 1981
- Mall of America/Minneapolis/United States
4.2m sqft 1992
- Cevahir Shopping Mall/Istanbul/Turkey
4.4m sqft 2005
- Bluewater/Kent/United Kingdom
3.4m sqft 1999
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