Nitin Sanghavi is considered to be so knowledgeable about retail that he once acted as an advisor to the World Bank on the subject. He speaks about retail in the region an why Ikea is seen as cheap in some parts of Europe, and chic in China.
Search for retail's winning formula in the UAE and beyond
An increasing number of brands are heading to the UAE to cash in onthe shopping culture and high disposable income. But with such an eclectic population, a marketing professor explains why retailers must have a deep understanding of their customer base. Gillian Duncan writes
Nitin Sanghavi knows retail. The professor of retail marketing and strategy at Manchester Business School, who once acted as an adviser to the World Bank on the retail trade, studies a range of topics including consumer behaviour. He was in the UAE last week to teach and consult. He speaks here about retail in the region and explains why Ikea is regarded as cheap in some parts of Europe and chic in China.
There was some interesting research from Barclays that said two thirds of British retailers expect their overseas sales to increase over the next five years and rank the Middle East fifth-highest as their preferred future destination. Why is the UAE so popular with British retailers?
I think there are three reasons. In the Mena region especially the growth is substantial. Some of the brands are achieving three to four times the growth rate they would get in their home market. Markets themselves are expanding. Disposable income is still rising and spending power is still high. Then if you look at the [Dubai] Government's projection of 20 million visitors by 2020, that represents substantial opportunity for retailers to really think about it where in their home markets, for example, they are not really going to be on the upside for quite a few years to come. I think people in the UK, retailers, realise that going forward you have to have a balanced portfolio. For example, China and India alone are going to account for 37 per cent of the population by 2018. You really can't afford not to be in those two markets.
The Middle East market is an interesting one though because it is quite small but it seems to very popular and profitable for some brands.
People like shopping here. People spend. Tourists come to shop here, especially from Russia, Iran, India, Asia or other Middle Eastern countries. It's not just about buying clothes. It's about the experience as well. Dubai provides that. You also have very good infrastructure here and communication, so you are not reinventing things here. Plus you have a large domestic market here. That helps as well. Finally I think here is a good [location] for expansion into the Mena region. You have a little over 100,000 British expats here as well. Those are some of the helpful things that make it more attractive for UK retailers to move into the market, for example.
Part of your work involves studying how demographic changes impact on retailers. Tell me a bit about that.
[In the] UK for example, [there are] more people 55-plus than under 25. That has never happened in the history of the country, ever. What does it mean when you have more people above 55 than under 25? There are these profound issues that retailers face that really require deeper understanding about customers, lifestyle changes and how you respond to those things.
But here in the Middle East there is the opposite situation, so how do retailers address that?
What is happening is that you have a very high birth rate anyway here and the population is on average very young. You also have a transient population, especially in Dubai. You have a large expat community, so it really is an eclectic group of consumers you are dealing with. You have Emiratis, expats, tourists, people from other Arab countries. So there are differing tastes, differing perspectives on brands and other things. So you have one challenge to address that. Then you have a wide spectrum in terms of pricing as well that people are looking for value for money versus the very top brands where money doesn't matter. You really need to understand [markets] very carefully. For example, Ikea is different here than it would be in Sweden or the UK.
If you look at Ikea positioning in Sweden or Norway, they are seen as middle to low market, for young people who are starting out homes. They are not seen as for middle class, well-established people. In the UK, it is liked by young people but also the middle classes, getting into the upper middle classes as well. Here there is a fairly wide spectrum. I guess probably a large number of customers will be expats, or people from other countries who are looking for real value for money, style and fashion. In China, especially for young people, it is a very chic brand. And in Japan for example, the biggest growth they are seeing is the use of Ikea furniture in the hairdresser's. They love the furniture because they can't get that style and theme anywhere else. You have different perspectives that you need to bear in mind.
How well do brands manage the diversity here in the UAE?
Some have really been very successful because they have been pragmatic at keeping their eyes and ears on the ground. They talk to customers continuously and get the feedback on what is working. I think Ikea is doing well. Marks & Spencer is beginning to do quite well because they are beginning to listen to the local markets about what is going on. Guess is also now beginning to understand the need to adapt because before it was always US-based. Now they understand. Esprit is getting there ... Debenhams is also beginning to really understand this issue. You have some good retailers here like Alshaya who really understand the local market.
You acted as an adviser to the World Bank on retail. What did you consult on?
It was really about [how] retail is seen as a way of transferring knowhow, especially in terms of developing infrastructure, customer communications and providing people with some basic necessities in an affordable way. The idea was to look at a number of countries, not just in developed [markets] but developing countries and poorer countries, and see how we can fix some of those things in a meaningful way and make it work. For example, in India I established a whole chain of rural retailing for poor farmers and villagers. The World Bank gave the necessary support on it and the Indian government came in and gave some support as well. And today we have 350 stores all in rural retailing. Farmers are fascinated and loving every minute of it. It's been a wonderful experiment and is now a very successful business.
Can you tell us about any interesting research you or any of your students have done recently?
There are [several] strands of research PhD students are looking at. One is on the image of international brands in different markets. That has been a fascinating piece of research. When we interviewed Boss and said how do you think your brand is perceived in China versus the Netherlands versus the UK? Their answer was we are a global brand, we guess the same. But when we interviewed 700 customers in each country we found fascinating differences, subtle but very important differences. So we will be going back to the brand to say this talk of a global brand is fine, but you really haven't understood the subtle differences in each market.
What kind of differences did you see?
The way the brand values were seen, the way the brand positioning was seen, very subtle but important differences.
Does any of the PhD research focus on the Middle East?
[Yes] I have a Saudi student doing a PhD. She has seen substantial growth of online fashion buying by Saudi women, so she is doing her PhD in terms of why, how, what are the reasons and what are the key lessons, so there is some fascinating research. She is in the second year now, so hopefully by the end of this year we will have more interesting data and research coming out. That's proving very interesting because nobody has ever looked at it.
What kind of things has she discovered?
She's in the second phase only, so it is a little bit early to make any judgments. But the reasons why people buy [online] is for privacy issues. It really gives them unique opportunities to express themselves when they are buying.