Pikom to retailers: We feel for you, but move up the value chain
By A. Asohan October 3, 2012
- Retailers urged to bundle services and cross-sell with higher margin products
- Pikom makes concession to organize fewer PC Fairs after feedback from retailers
THE National ICT Association of Malaysia (Pikom) said it empathizes with IT retailers – 100 of whom have threatened to form a break-away association -- and the issues they face, but urged them to “move up the value chain.”
In a statement to Digital News Asia (DNA), Pikom said “the retail industry is always the first to bear the brunt of any slowdown in the economy,” adding that it was not just a phenomenon locally but globally as well.
“Pikom has always exhorted the industry to move up the value chain, including bundling services and cross-selling with higher margin products as part of the product offering,” it added.
DNA recently reported that about 100 IT retailers have declared their intention to form an association that would be separate from and independent of Pikom, saying that they needed a more dedicated platform to raise issues related specifically to the retail industry.
Retailers said that amongst the issues they face are the steady decrease of retail prices and profit margins, and increasing operating expenses and rental costs. They also alleged that they were being “bullied” by vendors and their margin-squeezing.
“In the retail industry, margins are but one factor in the entire cost equation – there are also rebates and marketing funds that the retailers are able to tap into,” Pikom however said. “It is how a retailer manages his business in an efficient manner that will set him apart from the competition.”
“Price fixing also goes against the very nature of the ICT industry which is open, innovative and competitive. Market efficiency, rather than mandated margins. should be the determinant of the selling price to the end-user,” the association said.
The retailers, led by 1 Utopia Berhad managing director Chin Boon Long after a recent forum discussion attended by more than 140 retailers, also complained about the large number of IT fairs in the country.
“Retailers do not benefit when IT fairs are held too frequently, up to nine times a year,” Chin (pic) had told DNA.
“This changes the consumer buying behavior whereby they will not buy their desktop or laptop from IT retail shops anymore … this has left some retailers with no choice but to participate in the IT fairs just to clear their stock commitment to the vendors,” he said.
Meanwhile, Pikom defended its PC Fairs and said it has always worked towards a healthy and competitive retail industry.
“This includes the number of PC Fairs in the country which has contributed to the overall growth of the industry and provides a catalyst for ICT adoption in various towns and cities,” it said.
Pikom said that over 20% of the estimated 5,000 retailers in the country are its members, and that it “regularly engages” with them on issues that are affecting them.
“For a number of years, Pikom has maintained organizing three PC Fairs in major cities. Based on the feedback from members, we will only organize two PC Fairs in major locations outside the Klang Valley.
“However, we are not able to dictate how many other fairs are organized by private companies in the country. What we can and will always do is to provide value in the PC Fairs,” it added.
Seven ‘pain points’
Earlier, the retailers said the seven key issues they face revolve around low margins for IT products; price protection/ rebate claims; stock commitment; financial liquidity; the Malaysian Government’s free laptop scheme; trade fairs (like PC Fair above); and having no union to represent them.
On margins, they said the current profit margin of around 5% to 8% is too low and can barely cover operating expenses such as rental, salaries, and other costs. They propose increasing the selling price of IT products, claiming that laptops sell in Singapore for a few hundred ringgit more.
They also said that the prices for laptops have not taken inflation rates into account and have remained stagnant and even reduced over the past 10 years.
On the rebate front, the retailers claimed that delays in rebate payments from vendors are putting a strain on their cash-flow.
On stock commitments, the retailers said that there is an “excessive supply of IT products in the market” currently, adding that because of demands from vendors and distributors, many retailers have stocked too much inventory, forcing them to dump prices just to clear their stock.
The retailers said they also liquidity issues, and do not have money to repay their current debts and because they have stocks in hand, have to dump prices to sell their stocks in order to repay their debts.
Meanwhile, government initiatives such as the free one million laptops to be provided to secondary school students are also causing difficulty.
While lauding the Malaysian Government’s aim as a “noble” one, the retailers alleged that “the implementation is flawed as certain students benefiting from these campaigns abuse this privilege by reselling their ‘free’ laptops into the market.”
Finally, the retailers lamented the fact that there are no unions to champion their cause.
IT retailers want their own association, Pikom says will address issues