US OP Annual Review 2012

US Office Products

Annual Review

2012 The rise of the mega dealer p12 Industry turmoil: a solution p20

The highs and lows of national accounts p16

US Annual Review

Contents 5 Editor’s comment

30 Counting categories Some product categories have proved far more successful than others in 2012, and the future may see an even greater divide

6 OP year in review Job moves, mergers and acquisitions, the growth of Amazon and Apple, fluctuating financial results; these and all the other headlines that featured during 2012

12 The Complete view The win of the Long Beach contract from under Staples’ nose is just one of the reasons why Ted Walter, head of Complete Office’s California arm, believes independents are on the up

35 Wholesalers being social

Each year the office products wholesalers bring out new marketing support for dealers, and next year it’s looking to be far more focused on online conversations

38 The year ahead

16 National accounts

Two years into its US Communities contract win, Independent Stationers is gaining national account momentum; in the meantime, it’s all change in Texas and California

20 Crisis or opportunity?

There’s no doubt that the entire office products industry, particularly the big boxes, needs to review the current situation; Thomas Schinkel shares his thoughts on the way forward

24 Standard bearer

The Business Solutions Association has developed four standards for electronic content that will save “hours and hours of work” for the business products industry

28 Data wars

With the launch of a software providers alliance, Red Cheetah’s Andrew Morgan certainly got people talking; coupled with MBS’s Dev response, data has become bargaining power

Planning for a combined industry show in 2013 and a flux in channel relationships are among Felicity Francis’s predictions for the coming year

‘‘

I’m happy to compete all day long on price, but that’s not what sustains our customer relationships nor is it why we’ve taken market share. I spent a number of years at one of the power channel players and I know we don’t have the same overhead, the haemorrhaging retail presence and all that comes with that.

I would actually argue that pricing is the easiest part of the game...’ For the full interview with Ted Walter turn to page 12

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Editorial Editor Felicity Francis

+44 (0)20 7841 2946 felicity.francis@opi.net

Deputy Editor Ben Sillitoe

Editor’s comment

+44 (0)20 7841 2942 ben.sillitoe@opi.net

Features Editor Heike Dieckmann

+44 (0)20 7841 2949 heike.dieckmann@opi.net

News Editor Andy Braithwaite

+33 4 32 62 71 07 andy.braithwaite@opi.net

Sales and Marketing VP – Continental Europe, Middle East and Africa Ewan Dickson

+44 (0)20 7841 2954 ewan.dickson@opi.net

VP – North America and UK Chris Turness +44 (0)20 7841 2953 chris.turness@opi.net

VP – Asia Tony Yao

+86 186 021 29588 tony.yao@opi.net

Marketing and Database Executive India Pride +44 (0)20 7841 2959 india.pride@opi.net

Sales Executive Fergus Cox +44 (0)20 7841 2952 fergus.cox@opi.net

Events Events Manager Lisa Haywood

+44 (0)20 7841 2945 lisa.haywood@opi.net

Production and Finance Operations Manager Nicky Coulson

+44 (0)20 7841 2943 nicky.coulson@opi.net

Junior Designer Charlotte Gerhardt

+44 (0)20 7841 2950 charlotte.gerhardt@opi.net

Accountant Charles Edwards

+44 (0)20 7841 2956 charles.edwards@opi.net

Publishers CEO Steve Hilleard

+44 (0)20 7841 2940 steve.hilleard@opi.net

Director Janet Bell

+44 (0)20 7841 2941 janet.bell@opi.net OPI is printed in the UK by This publication is printed on Satimat Silk which is produced on pulp manufactured wood obtained from recognised responsible forests and at an FSC® certified mill. It is polywrapped in recycleable plastic that will biodegrade within six months. The carrier sheet is also made of recycled paper.

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OPI magazine (ISSN: 1360-8460) is published monthly by Office Products International Limited and distributed in the USA by SPDSW, 95 Aberdeen Road, Emigsville, PA 17318. Periodicals postage paid at Emigsville PA. POSTMASTER: send address changes to OPI PO Box 437, Emigsville PA 17318-0437.

No part of this magazine may be reproduced, copied, stored in an electronic retrieval system or transmitted save with written permission or in accordance with provision of the copyright designs and patents act of 1988. Stringent efforts have been made by Office Products International to ensure accuracy. However, due principally to the fact that data cannot always be verified, it is possible that some errors or omissions may occur.

Office Products International cannot accept responsibility for such errors or omissions. Office Products International accepts no responsibility for comments made by contributing authors or interviewees that may offend.

Office Products International Ltd (OPI), Diamond House, 36-38 Hatton Garden, London EC1N 8EB, UK Tel: +44 (0)20 7841 2950 Fax: +44 (0)20 7841 2951

WE

chose this year’s cover image because it feels as though what we at OPI are currently observing is a fairly even game.

We were talking a few years ago about the growth of the big boxes and the demise of independent dealers; now we are reporting worrying financial results for the big boxes, and the growth of some mega independents.

It’s hard to say who’s in the lead anymore.

Take this issue’s Big Interviewee, for example (turn to page 12). Ted Walter is head of Complete Office’s California arm, a business only established in 2007 that is beating Staples to very large contracts. Walter believes it is Complete’s ability to offer an agile and personal service that has brought it success.

Meanwhile, the name ‘WB Mason’ is making dealers and big boxes alike quake in their boots as the dealership continues its march across the East Coast. Will anything stop CEO Leo Meehan now he’s surpassed his $1 billion target?

This isn’t to say the game is over for the big boxes. Perhaps we should stop referring to them as ‘big boxes’, though, as Staples, Office Depot and OfficeMax all look at stores sizes – Thomas Schinkel gives an enlightening opinion on their dilemmas on page 20. Also, Staples is still the largest e-tailer in the US after Amazon.

Speaking of Amazon, we should add a third team to our football game: the competitors external to the OP industry.

Amazon is slowly becoming a huge threat – and customer for the wholesalers – while Grainger certainly shouldn’t be ignored with its increasing list of SKUs. The ball is in everyone’s court as market share is passed around the field.

However, I’ve heard many people say that the player that best learns to run with a strong online presence and brand will take the lead.

“The ball is in everyone’s court as market share is passed around the field”

Felicity Francis, Editor

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Year in review

OP year in review It’s been yet another year of change in the office products industry, so what were the big news stories over the last 12 months?

December 2011 ★ Fellowes ended the year manufacturing in the US once again. The company began production of its high-end shredders at its facility near its headquarters in Itasca, Illinois, following issues with its former joint-venture partner in China in 2010. ★ The Highlands Group (THG) announced plans to spin off its contract furniture division in the mid-Atlantic region. David Dignan, formerly President of the Mid-Atlantic division at the US manufacturers’ rep group, was named principal of the newly formed entity – The Dignan Group – which has a focus on sales of contract furniture. Dick Seppala, formerly VP of Office Supplies at THG’s mid-Atlantic division, took on the role of VP for the northeast region of the rep group.

January 2012

★ Well-known US office products figure Dave Guernsey was elected as Chairman of the Board for the National Federation of Independent Business (NFIB), the largest small business association in the US with operations at the federal government level and in all 50 states. The Guernsey’s Office Products boss was described by NFIB’s President and CEO Dan Danner as having the “talent, energy and the ideal résumé” to take on Dave Guernsey the role.

February 2012

★ Fellowes was in the news once more, naming John Fellowes as new President. Previously EVP, Fellowes replaced Joe Koch who continues as board director. ★ Educational reseller School Specialty appointed Mike Lavelle as its President and CEO, replacing David Vander Zanden. The new recruit was previously President of the Education Group of Houghton Mifflin Harcourt, the largest K-12 education company in the US. ★ Kodak filed for Chapter 11 bankruptcy protection in the US, having admitted liquidity problems in 2011.

The filing relates only to the company’s US businesses, with non-US subsidiaries not included and not subject to court supervision. Later in the year Kodak would announce plans to sell its imaging businesses and exit the consumer inkjet market. ★ Apple, which as the year progressed increased both as a threat and an opportunity for traditional OP firms, reported an incredible net profit of $13 billion in its first quarter. The quarter was a new record for Apple in terms of sales and profit as it set new all-time highs for sales of iPhones, iPads and Mac computers. The net profit figure of $13.06 billion was a 118% increase on last year; sales of $46.3 billion represented an increase of 73%; operating profit was $17.3 billion, or 37.4% of total sales.

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★ US Office Products Industry ★ Annual Review 2012

Jim Preston

★ The CEO of purchasing consortium BPGI, Jim Preston, announced his retirement, raising questions throughout the industry about the future of the group. Preston, a well-respected and well-liked industry figure, had been at the helm of the organisation for ten years and said his reason for leaving was to spend more time with his family.

★ In another senior job change, US furniture maker Bush Industries announced that its ex-CFO Jim Garde had replaced Jim Sherbert as CEO. ★ There was also a high-level promotion at global office products vendor 3M, with COO Inge Thulin promoted to the top job of President/CEO. Sir George Buckley, who held the role for six years, announced his retirement. ★ It emerged that WB Mason had taken over from Staples as wholesaler United Stationers’ biggest customer, accounting for 10.8% of its total sales in 2011, around $540 million. Staples has traditionally been United’s biggest customer but the change has occurred after the big box increased its direct purchases from manufacturers in 2011 and WB Mason continued on its impressive growth trajectory.

March 2012 ★ TriMega made the decision to close its SmartXpress B2C e-commerce programme after just over 12 months.

The dealer group had acquired the SmartXpress business in January 2011 with the aim of giving its dealer members a greater share of e-commerce sales to consumers and micro-business, but said it had encountered “significant delays and cost overruns” in its efforts to build a new platform to market to the various internet search engines. ★ OfficeMax named John Kenning as the new President of its Contract division. Kenning joined ‘Max from security solutions firm ADT, where he ran the ADT Commercial unit, a $2 billion division with 10,000 employees. Before ADT, Kenning held a senior sales role at Nortel Networks. ★ United Stationers unveiled a website to help resellers with sales of its Alera brand of office furniture. MyAlera.com uses internet marketing technology that is designed to connect furniture buyers with local Alera office furniture dealers. The site contains complete information and details for all of the Alera products, and will also provide important

furniture news on a regular basis to office furniture dealers and buyers. ★ Following market rumours, HP confirmed the merger of its Imaging and Printing Group and its Personal Systems Group (PSG) into a single business unit. Todd Bradley, who has served as EVP of PSG since 2005, was given responsibility to head the combined entity, which was given the name Printing and Personal Systems Group. ★ The National School Supply & Equipment Association (NSSEA) revealed encouraging visitor numbers for its Ed Expo & Dealer Conference in Baltimore, Maryland.

Almost 2,000 resellers of back-to-school products attended, 88 of whom were there for the first time.

The National School Supply & Equipment Association

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Year in review April 2012 ★ Kyocera Mita revealed news of a rebrand, changing its name to Kyocera Document Solutions to reflect its evolution into an organisation that supports hardware, software and services as an integrated package. ★ Brian Dunn, CEO of troubled consumer electronics retailer Best Buy, resigned unexpectedly, with the company saying it was conducting an investigation into his personal conduct. The company was already in the midst of a turnaround plan of closing 50 big box stores in the US, expanding its network of smaller format stores and focusing more heavily on e-commerce. ★ Amazon announced the launch of AmazonSupply, a B2B website offering more than 500,000 products in 14 categories, including ‘office’. The move marked the world’s largest e-tailer’s first real foray into the B2B sector. Later in the month, Amazon reported Q1 revenue of $13.18 billion. ★ In-keeping with industry trends, Staples announced the launch of a managed print services (MPS) offering.

The new programme is run by the Staples Technology Solutions unit of the Staples Advantage B2B division.

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★ US Office Products Industry ★ Annual Review 2012

May 2012 ★ As expected, ACCO’s acquisition of the MWV Consumer & Office Products business was finalised in a deal worth in the region of $860 million. ACCO CEO Bob Keller said: “The combination of our businesses creates a powerhouse of complementary brands and products that we will be able to market across all relevant channels.” ★ OPI’s Global Forum, held at the Ritz-Carlton Chicago, focused on all the major topic areas currently occupying the OP industry, including the future of retail, the power of mobile and how the channel is evolving.

Around 100 of the industry’s most high-profile executives gathered for debate and networking, and OfficeMax CEO Ravi Saligram was interviewed live. ★ HP's restructuring plan was given some direction when the company announced that it will be shedding 27,000 jobs – 8% of its workforce – by 31 October 2014. It was said that annualised savings of up to $3.5 billion would be made.

July 2012 June 2012 ★ Further details of Logitech’s restructuring strategy were revealed, with plans established to reduce the company’s workforce by 13%. The changes at the business resulted in 450 jobs being lost worldwide, contributing to about 60% of the $80 million in annual savings the company said it was aiming for earlier in the year. ★ The highly-respected EVP of Staples Advantage in North America, Jay Baitler, announced plans to retire. Having joined the Staples Contract division (now known as Staples Advantage) in 1995, Baitler helped Staples’ contract business grow from about $250 million in sales to around $7 billion. ★ Further question marks were raised over the North American future of purchasing consortium BPGI after founder member Independent Stationers (IS) announced that it will leave the group at the end of the year.

President and CEO of IS Mike Gentile commented: “Independent Stationers has done a lot of soul searching in reaching this decision. The changing conditions in the US and our intention to pursue a different business model for the benefit of IS’s dealers are the primary reasons for this decision. The current BPGI operating model hasn’t changed in 15 years and has not been adjusted to the changing US marketplace. The value proposition BPGI once afforded IS has therefore been diluted.”

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★ SP Richards (SPR) was in the news for much of July, with the company having to move swiftly to deny suggestions that it is selling direct to end-users via a Genuine Parts sister company. The wholesaler’s ABC 2012 conference in Washington DC in the same month gave the business an opportunity to field questions from inquisitive dealers. The show also provided a platform for the company to announce a raft of new initiatives for the year ahead, while a successful North American Office Products Awards 2012 ceremony also took place during the showpiece event in the US capital. ★ SPR also announced its first-half trading figures, with sales down around 1.3% to $839.5 million.

Operating margin for the first half of the year remained steady at 8.1%, prompting Jerry Nix, CFO of parent company Genuine Parts, to say the office products team was doing “a good job” in maintaining margin. ★ Rival wholesaler United Stationers reported that sales in H1 were $2.55 billion, up 2.1% year on year. This was led by a 17.1% increase in industrial supplies and an 8.8% increase in janitorial/ breakroom, while traditional OP remained flat.

August 2012

★ Troubled Australia-based Paper merchant PaperlinX announced the sale of its US businesses Spicers Paper and Kelly Paper. The operations were acquired for $76 million by Central National-Gottesman. Spicers Paper is a major western US paper distributor with 12 warehouse locations, while Kelly Paper operates a chain of paper stores with 48 locations in four western US states. Both companies are based in California and their combined annual sales are around $500 million.

★ Staples CEO Ron Sargent said Q2 results at the big box “fell short of expectations”, which prompted a number of strategic changes across its international businesses. North American sales were softer than it had expected too, as total sales for the quarter came in at just under $5.5 billion, compared to $5.82 billion one year before.

★ US manufacturer Selco Industries acquired the assets of fellow filing firm Gussco. The Gussco assets include all current Gussco products and brands, manufacturing equipment and custom manufacturing services. Selco – which makes the SJ Paper brand – said Gussco customers will continue to do business as normal while transition steps are being implemented.

★ Lexmark announced a major restructuring of its business, including the exit of its remaining inkjet operations. The imaging company has said it will exit the development and manufacturing of its remaining inkjet hardware business in a move that will see it cut around 1,700 jobs – about 13% of the total workforce – including 1,100 manufacturing positions.

★ US Office Products Industry ★ Annual Review 2012

www.opi.net /Annual Review 2012

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September 2012

October 2012

★ Staples filed a lawsuit against leading US online reseller Shoplet over alleged trademark infringement. Staples made the claim that Shoplet’s logo of white lettering on a red background is causing confusion in the marketplace with its own logo and has caused it a loss of sales. CEO of the e-tailer, Tony Ellison, told OPI that he would fight Staples’ “baseless” allegations in order to protect Shoplet’s own intellectual property.

★ 3M’s planned acquisition of Avery’s Office and Consumer Products business was officially called off after the US Department of Justice said it would take legal action if the transaction went ahead as had been planned earlier in the year. The official statement came after 3M said its Consumer and Office division is now to be known as simply Consumer following a realignment of its company structure. As OPI went to press, a new buyer had not been announced.

★ OfficeMax announced it had finalised an agreement to remove its Lehman Brothers-related liability from its balance sheet. CEO Ravi Saligram said: “We anticipate that extinguishment of the Lehman non-recourse liability will help to create greater clarity for our investors, as our efforts to simplify the balance sheet continue.” ★ Shares in Office Depot jumped significantly after activist investment firm Starboard Value took a 13% stake in the office supplier, giving it a 13.3% stake in the reseller and making it the largest holder of Office Depot’s common shares. ★ Leading supplies remanufacturer Clover completed construction of its new advanced technology centre in Ottawa, Illinois. The 15,000 sq ft (1,500 sq m) centre will be the base of operations for the design, development and deployment of robotics and machining equipment across all of Clover’s global manufacturing facilities.

November 2012 ★ Amazon’s fast-growing locker scheme has been extended to Staples stores across the US, allowing the e-tailer’s customers to pick up orders from the office supplies reseller’s retail locations.

★ Georgia-Pacific’s Scott Light collected the City of Hope’s 2012 Spirit of Life award at a gala dinner in Chicago, having led the OP industry’s $9.5 million fundraising efforts for this year’s City of Hope campaign. ★ Hurricane Sandy wreaked havoc on the east coast of America, leaving a trail of destruction in its wake.

Many homes and businesses were either damaged or found themselves without power for days. The US Stock Exchange was closed for two days while the storm raged, and Office Depot’s Q3 earnings announcement was put back a week as a result of the severe weather conditions. ★ OPI’s inaugural OP Business Confidence Survey indicated that leading industry figures in North America are more confident about sales growth in Q4 than their counterparts in Europe. Manufacturers were less confident than resellers about sales prospects in the latter stages of 2012.

★ United Stationers completed the acquisition of industrial products wholesaler OKI Supply, paying $90 million. CEO Cody Phipps hinted that a deal in this sector was set to be made earlier in the year, with industrial now the wholesaler’s fastest growing category. United also held a successful Vision conference in Las Vegas, Nevada. The message that dealers need to focus on their online capabilities and the strength of their brand was emphasised during general sessions and seminars. ★ HP revealed a shock $8.8 billion charge in its Q4 results announcement. The non-cash impairment charge is related to the 2011 acquisition of Autonomy, with more than $5 billion said to be linked to “serious accounting improprieties, misrepresentation and disclosure failures” uncovered by HP in a forensic review into Autonomy’s accounting practices prior to the takeover.

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Complete Office

The

Complete view

Dealer groups, wholesaler strategies, big boxes, independents; there’s little that Complete Office’s Ted Walter doesn’t have an opinion on

by Felicity Francis felicity.francis@opi.net

COMPLETE

Office is one of the shining independent dealer success stories.

Though a fairly new business, leadership from some very experienced OP executives has quickly established it as one the top independents in the western US, capable of fending off the big boxes to win some really substantial contracts.

Curious to find out exactly what is driving the business to such heights, OPI caught up with Ted Walter, President of the California arm of Complete, and found a very candid interviewee.

OPI: Let’s start at the beginning; tell us how Complete has evolved.

Ted Walter: We have three businesses with about 165 employees. My partners Ted Nark and Rick Israel co-founded the company in Washington in 2003, which Rick and Dave Patterson run today. The second one began in Wisconsin in 2006 with the acquisition of Bubrick’s, and co-owner Ron Beam runs that. In 2007 Rick and Ted made two platform acquisitions in the San Diego market that started the California company. I had spent 15 years with what was Boise Cascade Office Products, now OfficeMax, in a variety of roles, and resigned as VP of Sales.

I joined the Complete family the day after my resignation. Since 2007 we’ve done most of our acquisitions in California, some in Washington, and we’re almost always in discussions involving new opportunities.

partner in California. We employ so many people that came from these acquisitions, not just sales people who still enjoy the same customer relationships. In many cases our drivers, customer service people, management team members are former principals of dealers, employees of the acquired company, or the children of the father who decided to retire. Those voices are some of the best validating indicators when a business is looking to exit and asks: “Is this a culture I want to be a part of?”

OPI: Is it mainly quite small dealers that approach you?

TW: Not necessarily, we’ve looked at some very large ones. Strategically we want to continue to be the preferred exit partner for independents. We also look at geographies where we don’t have a flag in the ground today, opportunistic markets. We’re looking at businesses that complement what we do; furniture dealers, jan/san dealers, technology, breakroom, businesses that are part of our growth strategy. We recently made a furniture acquisition in Washington.

Since 2007 we’ve grown both through organic sales and add-on acquisitions in a geography where we didn’t have any customer base. We’re now the leading independent. Just this quarter we have opened new headquarters in Cerritos. We are in the process of migrating our inventory from San Diego so that will become our new distribution facility from a stocking standpoint, and we’re moving into a cross-dock facility in San Diego. We’re set up now from a throughput perspective for continued growth. Logistically, it’s very easily done now.

“We want to continue to be the preferred exit partner for dealers”

OPI: Do people approach you for acquisitions?

TW: Absolutely. We are, without question, the preferred exit

12 ★ US Office Products Industry ★ Annual Review 2012

OPI: How have you grown so quickly?

TW: Our three businesses are on an $80 million trajectory. We’re not immune at all from the same economic headwinds that everybody else faces, nor are we immune to some of the fundamentals that challenge the industry, such as contractions in the office products category. That being said, the headwinds have been very opportunistic for us because of our strategy and our capacity to execute. When we focus on the big box

players, the economic challenges prove more favourable for us because they drive an end-user who’s facing their own difficulties to actually say: “Is this an experience that’s worthwhile, either financially or from a service experience standpoint?” And in those scenarios, I would argue, more often than not we win.

OPI: Why do you win?

TW: Because the decision-maker is far more receptive. When people are in times of fat and happy economic growth, it’s hard to grab the mind share of someone over the price of their Post-it note; they don’t really care. But when strong headwinds persist and businesses are forced to look under every rock for a way to spend less, or to create a more enhanced service experience, we love that.

OPI: So can you compete favourably on price with the big boxes or do you mainly win on service proposition?

TW: I’m happy to compete all day long on price, but that’s not what sustains our customer relationships nor is it why we’ve taken market share. I spent a number of years at one of the power channel players and I know we don’t have the same overhead, the haemorrhaging retail presence and all that comes with that. I would actually argue that pricing is the easiest part of the game.

It establishes credibility so the customer let’s me continue talking, and once we get a few orders under our belt and the end-user interacts with a skilled sales professional, a local member of our customer service team, one of our drivers, they’re on board. With the exception of very large national account customers that still enjoy

a local rep, the big box players have all but destroyed their field service teams; they simply cannot afford to offer it anymore.

OPI: Are the big boxes still your main competitors?

TW: Yes absolutely. Staples is, without question, the most effective without a near second. That being said, there are commonalities between the three in terms of what plagues them. None have near-term fixes and it’s why you see stories about Staples receiving offers of being taken private, activist investors taking significant stakes in Depot, and ‘Max doing things to clean up its balance sheet. All have too many retail stores and would love to restructure their leases. That component alone is such a challenge that it drives ongoing implications to their contract businesses, whether that’s a muted investment or a continued drag on service deliverables. Their field sales organisations manage customer portfolios around $10 million per rep; that rep doesn’t have a clue who their customer that spends $10,000 a month is, and if they do they surely don’t see the customer regularly.

OPI: Are you worried that the big boxes might focus more on the SMB market?

TW: They’ve already focused there for two reasons: one, it’s a growth opportunity, but also, much more so, it offers them a profitability boost by rebalancing their customer portfolio in the contract businesses. But how many new customers are coming in versus how many are exiting?

I don’t know. It’s a tough business to sign them up with a hunter rep, throw them to a toll free number for customer service, change pricing strategies every quarter without any communication, and hope that you retain more than you lose. If that’s their recipe then I’m not really that worried.

OPI: Are you seeing any WB Mason activity in your markets?

TW: No. I’ve dealt with Leo [Meehan] on some national accounts before; he has executed beautifully to a strategy that has exploited the power channel in their own back yard, in Staples’ case. But my understanding is he’s focused on growing by contiguous markets to those markets where he currently exists.

We haven’t seen any movement in Washington, Wisconsin or California.

OPI: So last question about competitors: how about Amazon? www.opi.net

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Complete Office Complete Office

• Established in Seattle, Washington, in 2003 • Operating headquarters located in Seattle (Washington), Milwaukee (Wisconsin) and Orange County/Los Angeles (California) • The California business was founded in 2007 through the purchase of Grove Office Supply and DelMar Office Products • Ted Walter spent 15 years at Boise Office Products; partners Ted Nark, Rick Israel, Dave Patterson and Ron Beam all held senior roles at Corporate Express • Twice appeared in Inc Magazine’s annual list of America’s 500 Fastest-Growing Private Companies • Among other awards, Complete won the Best Workplace for Recycling Award in 2009

TW: Recently I heard an analyst describe Best Buy as the most compelling showroom for a consumer who’s evaluating a new 60 inch LED TV, only to go home and order the product online from someone like Amazon.

I think Amazon is and will continue to be a threat to OP for the home office and retail customers. But do I see a regional bank dropping an effective independent dealer in Chicago so that they can buy all this stuff from Amazon? Absolutely not.

OPI: They’re going after business that’s not yours essentially?

TW: Exactly. We don’t currently operate an open market e-commerce application for any random consumer to buy from; it’s not a part of the business that we want to get into.

OPI: You recently beat Staples to the Long Beach contract (see QR link to the article on page 15). Tell us about that.

TW: Yes, this was a bid north of $1 million so everybody bid on it and ultimately we won. In my opinion, customers are after a creative injection of procurement changes, new fulfilment solutions, product recommendations, maybe unique stocking items. This really challenges the power channel players because their models don’t allow for a lot of deviation. They don’t have anyone empowered to make a stocking strategy decision in Southern California; those decisions are made in Framingham or Naperville or Delray Beach.

OPI: There seems to be a rise in mega-independent dealers at the moment. Does this trend boil down to what you’ve said the big boxes can’t do?

TW: Yes, I do think that the rise is a result of the vulnerability of the power channel.

I also think it demonstrates the need for alternatives, to be sophisticated, to have scale underneath

the hood, whether that’s buying power or resources and I don’t think that trend will go away. If anything it’s going to accelerate.

OPI: So let’s talk about Pinnacle.

TW: Yes, one of my favourite subjects!

OPI: How long have you been a member?

TW: We were there when there were five of us sitting around a card table – I say that figuratively not literally. When I looked around a board meeting we recently held in Chicago it was a much larger room with over 20 members and other staff guests of these businesses; it looked like an entirely different entity, in a good way.

OPI: It’s grown quite quickly.

TW: It has and it’s an absolutely compelling consideration for any large dealer to make for financial and strategic reasons. It costs us virtually nothing to operate and there is no overhead. It’s lean with a capital L by design. There are people who like being part of other groups because they get invitations to go on golf trips and whatever. I don’t need to be part of a buying group to play golf.

OPI: Is that where other dealer groups are going wrong?

TW: Well for one, it’s challenging for them to have a member pool that ranges so broadly in size. How do you develop a programme that meets the needs of both a $2 million dealer and a $75 million dealer? It’s difficult to say the least.

We don’t produce central marketing programmes and catalogues because no one needs that. If there is a common desire to tackle a central objective then we make considerations for the benefit of all members. The quality and value of our peer exchange discussions are great. We are definitely looking to add members in geographies that make sense, but it’s not scale for the sake of scale. We don’t want to lose the vibe and the dynamic as we talk about strategies if three competitors from the same city are sitting in the room.

OPI: You saw the news recently about Garvey’s Office Products’ decision to leave TriMega and partner with United Stationers. What’s your view?

TW: Well first of all, am I surprised they decided to leave TriMega? Not at all. I, too, would struggle to rationalise why my rebate money was funding the overhead of that place, and some of the investments it’s made of late.

14 ★ US Office Products Industry ★ Annual Review 2012

TriMega has an identity crisis. It should focus on the core of what its existence has been, which is to buy direct from manufacturers and produce the most compelling buy-side programmes for members. Dealer groups have virtually no capacity to play in the national account business – and I’ve shared this with Mike Gentile as well, who I worked with at Boise.

If you want to be awarded a national hunting license to sell a GPO, or your local Children’s Hospital in Detroit or Tampa, through a dealer that has a physical presence, that makes sense. But why on earth an intermediary tries to bid on Wells Fargo’s business, for example, with the layers of the buying group, dealer and wholesaler, when Wells Fargo already has three power channel people tripping over themselves at almost no profit, and have been doing it really effectively for 20 years? Buying groups aren’t even going to get invited to participate in true national account bids, much less be a viable option.

Find a video clip of this interview at www.opi.net/ video

OPI: So do both those dealer groups face similar challenges?

TW: In my opinion there should be one.

There’s no reason for there to be two and the obstacles to prevent that are not industry driven or needs driven.

OPI: Do you think the joint EPIC event might be a step towards that?

TW: Yes, I do. And I think the industry is fed up of being on the road every week for months, going from national shows to regional shows. There’s not enough profit left in the industry to fund all of that. I would much rather work directly with a manufacturer on programmes that benefit what we’re trying to execute in the market, than see them at some table top with a fancy backdrop and a cattle call lunch menu.

OPI: Let’s talk about wholesalers; how do you work with the two?

TW: Part of our business is a direct stocking model, but United is our first call wholesaler.

We do business with SP as well, and I know both senior teams quite well. They’re facing challenges. United supports Staples and ‘Max, who both continue to shift their product mix towards private label SKUs, which threatens the volume through their wholesale partner.

United’s single largest customer, WB Mason, is continuing to build direct stocking strategies.

SP has their exposure with Depot chasing the same private label idea and HiTouch, their largest independent, evolving. So their largest customers are driving business away

To read more about Complete’s win of the Long Beach contract, visit www.opi.net/ TheComplete Deal

from the wholesale model, which compounds the industry contractions we’re all facing.

It’s a difficult time to be a wholesaler in this business, but there are new ventures for consideration.

I think this was evidenced when United announced their acquisition of OKI Supply.

They’re going to continue to pursue distribution businesses that complement their infrastructure, whether that’s new growth markets, leveraging their existing cost structure, or a higher profitability industry to pursue. I don’t personally believe they see a tremendous amount of growth coming out of their core OP business. That being said, it is the foundation of their company which I’m sure is concerning on some level.

The wholesalers need to get out of this one-size-fits-all customer model and, as a culture, understand customer segmentation and the needs that their diverse customer base has on an individual level. Generally, a large dealer has very different needs to the hundreds of $3 million dealers they support.

United just hired Harry Dochelli and he really gets it. I think he is going to be a great catalyst of change for their organisation.

OPI: Final question: what do you think the industry will look like in five years for independent dealers?

TW: I would expect there to be far fewer than today. I personally think that the traditional small dealers, unless they’re in a very remote geography, are going to struggle with what appears to be persistent headwinds, and ongoing contraction in the core OP category. It requires capital, strategy and the capacity to execute, but also to diversify into new product and service categories. If that navigation has never happened historically in a dealership, it’s going to be very difficult to learn under these conditions. ★ www.opi.net

15

National accounts

IS gaining

national accounts momentum

Independent Stationers’ Kevin France tells OPI that further growth is expected with its US Communities contract in 2013

by Andy Braithwaite andy.braithwaite@opi.net

THE

award to dealer group Independent Stationers (IS) of the US Communities (USC) cooperative purchasing contract in 2010 was seen as a watershed event for the independent dealer community. State and local government business had increasingly been seen as the domain of the big boxes as these types of contracts and moves towards strategic sourcing became more popular.

At the time, the USC award was viewed as something that would level the playing field and give the independents the chance to compete in this space. IS CEO Mike Gentile also warned that it was not a question of $500 million in incremental sales being handed to dealers on a plate, but that it did give them a ‘hunting license’ to go out and try to win public sector business.

Almost two years into the contract, the challenges of doing business with public sector agencies have been all too apparent,

16 ★ US Office Products Industry ★ Annual Review 2012

but Kevin France, VP of National Accounts at IS, told OPI that the USC contract has really gained traction in its second year and his expectations are for strong growth to continue in 2013.

“US Communities always told us that in these contracts – all product categories, not just office supplies – it was in years two and three when you start to see a lot more agency adoption, and that is proving to be the case,” he stated.

IS is not disclosing the amount of sales its members generate through USC, but France put the number of public sector agencies buying through the programme at around 4,000, and around two-thirds of IS group members are participating in some form or another on its National Accounts Programme.

Agency growth in 2012 is about 20% up on last year, France revealed, while dollar sales have grown “materially stronger” than that.

New model

IS’s partnership with United Stationers and the MBS Dev software platform was key in winning the USC award in the first place and the majority of sales still flow through this system. However, growth has been helped by the introduction of a new model earlier this year known as Conventional Service Model Enhanced, or CSME for short.

Whereas the MBS Dev model is an exclusive arrangement with United and 100% fulfilled by the wholesaler, IS says the new CSME model allows for greater flexibility. Key differences include wholesaler neutrality, the ability for dealers to use their own stock if they choose, and greater dealer contact with the end-user. Specifically, with the CSME model dealers are now responsible for a large number of contract aspects such as the sourcing of products, account set-up, pick/pack and labelling, invoicing and collections, customer service, reporting and margin management.

Underpinning CSME is a totally new technology platform that has been developed by ECi. This includes two separate CSME websites, one for United first-call dealers and one for SP Richards dealers. Each site uses the specific wholesaler’s content capabilities and features wholesaler-specific private label brands, including Universal for United and Business Source for SP Richards.

“We did get feedback from some agencies that thought there would be a more ‘local feel’ to the new USC contract,” explained France. “Combined with some dealers’ wishes for more control and more ownership

of accounts, CSME was a good solution for all stakeholders.”

Under CSME, dealers take greater responsibility for customer relationships.

This will now help them compete where public sector agencies need to work with local businesses to satisfy Tier 1 small, minority, veteran and women-owned business goals and requirements.

IS CEO Gentile added that he also hoped that this would discourage dealers from working with the big boxes for these types of contracts, stating that there were some independent resellers still acting as “shells” for the national players.

The dealer group has hired a person full-time for CSME account maintenance,

“At the end of the day, it’s about building relationships and these things take time” although France stressed that CSME was not designed to replace the MBS Dev model. “It’s just a question of which model makes the best sense for the customer and the dealer.”

Frustrating

In terms of local government spending trends, it is not a surprise that France points to some customers reducing their expenditures as budgets tighten. However, he also noted the “frustrating” habit of some government employees of spending an inordinate amount of time comparing catalogues in what they saw as efforts to reduce costs. “They spend hours trying to save a few cents on a box of pens, but don’t take into account the soft costs involved in actually doing this,” he said. “I applaud their efforts in thinking about cost savings, but they’re really costing their agencies far more in the long run.”

This is all wrapped up in efforts to educate public sector purchasers. “A lot of agencies on the Office Depot USC programme didn’t even realise they were on that programme!” exclaimed France. “Government is such a big thing and it can be difficult at times to change the status quo, especially where there was a stable relationship with an account rep.”

France says the competitive environment is “fierce” with OfficeMax and Staples www.opi.net

17

National accounts Texas contract rebid after complaint

Independent Stationers' particularly aggressive on pricing at the moment. He is also coming across WB Mason Kevin France (left) and Charles Forman more frequently in the northeast region, especially now as the State of New York has changed its purchasing regulations to allow cooperative contracts.

“At the end of the day, it’s all about building relationships, and these things take time,” he concluded.

“We took on a major initiative in this channel and we’re proud of what we have accomplished so far. Now we have a lot of momentum and are positioning ourselves for a strong 2013, both with USC and our other national accounts initiatives.” ★

Whistleblower complaint against Depot made public Details of a lawsuit against Office Depot by whistleblower and former employee David Sherwin were released at the end of October.

The ‘Qui Tam’ whistleblower complaint was filed with a Los Angeles court in March 2009, but was only unsealed recently as per the regulations involved in this type of lawsuit.

The complaint covers all California public agencies that purchased office supplies on Office Depot’s LA County US Communities contract between 1995 and 2010. More than 30 agencies are actively participating in the lawsuit, court filings indicate.

Participating agencies stand to get a better payout in the event of a favourable settlement.

Sherwin alleges that Office Depot “knowingly” made “false and fraudulent claims” against public agencies purchasing from the contract, overcharging them in a number of ways, including not offering best government pricing,

switching them to a different pricing plan without their knowledge and not basing end-user pricing on actual prices paid to suppliers.

The whistleblower’s complaint calls for treble damages to be awarded to agencies allegedly impacted by the pricing issues, and reports suggest that a settlement could run into hundreds of millions of dollars if the final decision goes Sherwin’s way.

Sherwin – who himself stands to be awarded up to 30% of the settlement amount if successful – has appointed an experienced whistleblower legal team, including Altomease Kennedy, an attorney who successfully represented clients a few years ago in a Qui Tam case against office products suppliers accused of selling non-compliant products to government agencies.

It is thought that a jury trial in this lawsuit could take place by July 2013.

Office Depot declined OPI’s request to comment on Sherwin’s lawsuit.

18 ★ US Office Products Industry ★ Annual Review 2012

The Texas statewide office supplies contract – or at least a portion of it – has been rebid after an independent reseller launched an official complaint following the 2010 award.

The 2010 contract was awarded to OfficeMax (partnering with two local dealers) and to an independent consortium AHI, which at the time comprised seven Texas dealers. However, an Austin-based independent dealer PDME – which has a strategic supply partnership with Office Depot – made an official complaint to the Texas Comptroller of Public Accounts (CPA), claiming that the original bid documents (RFP) hadn’t specified that bids would be accepted from consortia, nor had it suggested that there would be a dual award.

After a protracted legal process, the CPA finally agreed to issue a new RFP earlier this year that specifically invited bids from consortia of local Texas small businesses. This new bidding process did not affect the contract awarded to OfficeMax – which is due to run until at least August 2013 – but it did mean that AHI had to put in another bid.

OPI understands that at least six organisations submitted bids for this new RFP, but that only two were successful, the incumbent AHI and Tier One Partners Alliance (T1PA), a consortium put together

by PDME specially for this contract.

T1PA consists of five Texas dealers, three of which are certified as Tier One suppliers on Office Depot’s supplier diversity programme. As the main partner in the consortium, PDME will handle the customer service and invoicing components of the contract.

As this US Review supplement went to press, the official contract award had not been made by CPA following a complaint, OPI understands, from OfficeMax. According to OPI sources, ’Max was not happy about the presence on the contract of the Depot-backed T1PA consortium – which it sees as a greater competitive threat than AHI.

Small business boost in California Office supplies contract development and new legislation will help legitimate independent dealers

Two

important developments have occurred in California recently that will help keep business in the hands of the independent dealer community.

Firstly, in mid-September it was announced that the State of California had unexpectedly terminated its $24 million-a-year office supplies contract. This contract attracted a great deal of attention last year when it was awarded to independent dealer National Office Solutions (NOSI).

NOSI, backed by United Stationers, won the contract ahead of two other shortlisted suppliers, including Staples. The contract was not due to expire until October 2013.

According to the California Department of General Services (DGS) – which administers the state’s procurement – the contract was ended “by mutual consent”. OPI understands that there were issues on both sides.

NOSI’s award came after a roughly two-year period when the state had no contract following the end of the previous Office Depot contract in controversial circumstances in 2009.

Now, since 29 September, the state is once again without an award.

With the DGS recommending that agencies now purchase from its Certified Small Business (CSB) and Disabled Veteran Business Enterprise (DVBE) initiative, that means good news for the 450 certified California small businesses that sell in the OP space (of which NOSI is one).

There is some speculation that the DGS may not even seek to award a new statewide office supplies contract at all as it moves away from a strategic sourcing approach on commodity items in order to give more state business to local firms.

CUF rules tightened Shortly after the contract news, it was announced that California’s Governor Jerry Brown had approved

Senate Bill N° 1510 (SB 1510) putting legitimate small business which amended the definition of employers at a competitive the commercially useful function disadvantage,” she told OPI. (CUF) that a CSB or DVBE must Kammerer cited examples of DGS perform when contracted by the auditors visiting purported small state. OPI readers will remember business premises only to find a that Office Depot’s Small Business junkyard or an individual working Consortium in California raised CUF out of the trunk of a car. concerns a few years ago. Although SB 1510 now gives the DGS a a 2008 audit concluded that these mandate to stamp out these types of businesses were performing a CUF, practices. Kammerer revealed that there was the impression that their the DGS hadn’t wanted further CUF involvement was not in the spirit of legislation, believing that it could the state’s small business legislation. solve the problem through its own, Fast forward five years to SB 1510 internal regulations, but the passing which has added a key clause to the of the bill has sped the process up. definition of a CUF. Specifically, the The bill will become law on 1 bill expands the CUF requirements to January. In the meantime, Kammerer include demonstrating that the small and Bircher are part of a team which business, microbusiness or DVBE has is drawing up a set of regulations “responsibility for negotiating price, that will allow the DGS to apply determining quality and quantity, and control the new CUF rules. ordering, installing, if applicable, The DGS will then have to hold a and making payment for the public hearing on the matter, and products, inventories, materials and Kammerer said they were looking supplies required for the contract”. at a “best-case scenario” date for This is what Jerry Bircher, owner of implementation of 1 March 2013.

Express Office Products, Chairman As to the reaction of larger of the California Small Business businesses to this new legislation, Association and Kammerer feels someone who that it has largely has worked slipped under tirelessly to get their radar, but this legislation is preparing for pushed through, their reaction refers to as – and for their “having skin in attempts to try to the game”. find loopholes – Another person in the new year.

Jerry Bircher, pictured with his wife Gayle at the who has played Trade ABC show in Washington in July, has seen his a bit part in association NOPA efforts rewarded with the passing of SB 1510 ensuring the welcomed the smooth passage introduction of of SB 1510 through the state’s SB 1510, calling it a “major victory” legislature is Lori Kammerer, a for legitimate small businesses. lobbyist who represented a number The association is pressing the US of small and DVBE business groups Congress and the US Small Business in various industries.

Administration to follow suit and “Strengthening the CUF laws will conduct formal rulemaking to adopt reduce the emerging underground similar protections against “abusive economy of small and disabled small business pass-through veteran businesses who act as situations in federal government pass-through companies, thereby contracting”. ★ www.opi.net

19

Big boxes

Crisis or opportunity?

The office products industry is in a state of turmoil, and in need of revitalisation. Thomas Schinkel reviews the root causes of the industry’s present difficulties, and suggests a new way forward

In

the past few months, these headlines have dominated industry news: l Hewlett-Packard (HP) announces plans to lay off 15,000 employees l The agreement between Avery Dennison and 3M regarding the sale of Avery’s Office and Consumer Products business has been called off l All three global players in the OP reseller community report sluggish sales and announce layoffs; private equity firms are proposing to take at least one of these firms private; the largest shareholder of one invites the chairman to embark on a more aggressive programme of store closings and restructuring l Two of the world’s leading paper companies, Finland’s UPM Kummene and Stora Enso, are studying a merger of two equals to help the global paper industry overcome a worldwide structural decline in demand.

What is the root cause of these unsettling moves and is there a pattern that connects them?

segment that continued to grow was education and health. In short, the underlying driver that had fuelled economic growth and lifted all boats in the OP industry for over 30 years throttled back and, in many ways, reversed itself.

Another very important related issue is that the crisis of 2008 was a combined crisis of income statements AND balance sheets. The sharp increase in unemployment was accompanied by a serious asset deflation that impacted millions of American families. Initially, many business executives sized up the crisis as cyclical, fully expecting that consumers would start spending again within two or three quarters.

That did not happen, and the average household net worth went back to

Big box shares

levels not seen since the mid- to late-1990s.

To complicate the picture even more, due to a confluence of unstoppable technologies and innovations, where and how people work in white-collar jobs is in a total state of flux. The widespread adoption of mobile technologies, for example, means workers are no longer shackled to a cubicle.

In this new environment people find it very easy to migrate their work habits towards the complete and total integration of digital processes and away from paper.

Thomas Schinkel But still that’s not the whole picture. We also need to examine the structure and culture of the OP industry itself. What are some of the fundamentals that defined the

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White-collar job loss

For more than 30 years, the OP industry has ridden the crest of the wave that is the growth in services – the white-collar employment industry. But in 2007/2008 things began to change. While the financial crisis resulted in a dramatic drop in manufacturing jobs, it also triggered a decline in white-collar jobs. In the US services sector, the only

20 ★ US Office Products Industry ★ Annual Review 2012

Source: StockCharts.com

industry structure in years past that may help us discern a pattern for the future?

Foundations

The 1990s saw the influx of large sums of equity capital aimed at accomplishing two objectives: l Provide fuel for innovations in distribution, mostly the rapid expansion and rollout of the office supplies superstore l Provide fuel for the roll-up of more traditional dealer structures aimed at achieving economies of scale and improvements in logistics.

By 2000, both these developments had run their course. The next eight years saw overall economic growth that, while not exactly lacklustre, was certainly not stellar.

The newly created enterprises dominating the industry needed to show more aggressive growth than what the economy at large had on offer. To cope with the dilemma of insufficient top-line growth, they launched an aggressive drive to reduce the number of vendors.

While every year reality clashed with expectations vis-à-vis top line growth, companies could improve the bottom line in many ways. One was through further consolidation and elimination of costs. The other was through offshoring. Data from the US Department of Commerce shows how during the first seven years of this century, the OP industry went on a shopping spree overseas.

The statistics show that offshoring for office supplies far outstripped US exports of the same, and that the trade imbalance exponentially ballooned beyond anything the economy as a whole could sustain.

Add to this picture the relentless drive toward expansion of the retail store network, which from 2000 to 2007 saw a 30% increase, in an economic environment that could hardly sustain even the status quo.

To cope with the daily pressures, the retail environment became more uniform, with little room for OP chains to differentiate themselves.

The conversation among channel partners became dominated by issues of “pricing and programmes” at the expense of “innovation and

creativity”. All told, many people experienced this phase in the industry’s development as a “race to the bottom”. Stores began to look more and more alike as price levels, product quality and differentiation dropped, and the entire experience became more bland.

Reflecting this rapidly changing environment, market capitalisations crashed. For Office Depot and OfficeMax, the moment of truth came during and after the crisis of 2008. These companies’ shares tumbled between 40-80% in one year.

For the largest player, Staples, the decline came during the summer of 2011 (see graph on page 20).

For Staples, this is all the more extraordinary in view of rising dividend payments and a share buyback programme that extended over a multi-year period and amounted to hundreds of millions of dollars. Even more importantly, Staples is the second largest internet reseller in the world, after Amazon.

The chances that the market capitalisations of any of these firms will return to their pre-2008 levels are slim to non-existent.

A new world view

Looking at this witch’s brew of changing conditions, there is no sense relying on straight-line extrapolation of the past into the future. Now more than ever, it is mandatory to develop a forward-looking worldview instead of clinging to what you see in the rear view mirror. For all OP players, large and small, it’s time to ask two questions: “What business are we really in?” and “What business do we need to be in five years, not just to survive but to prosper?”

Many still define their business and professional positions in functional terms: “We are in the business of selling office products.” It is human nature to derive self-esteem and identity from product knowledge, contacts within the industry, and so on.

By contrast, another way of thinking could be: “We are in the business of creating value propositions for our end-users with whom we have had a lasting, good

and positive relationship as a result of building trust for many years, and for everyone who helps us create that value.”

For many, what may follow is a statement about how that value is created going forward and how that may differ from processes and procedures followed in the past.

Adopting this perspective means first and foremost having a deep understanding of end-users and their businesses, and what we can do to help them. For example, if end-users decide to move to iPad communication and the cloud, there is no sense trying to convince them to use more paper.

Instead, an OP company might ask: “What other products and services can we think of that zero in on the

www.opi.net

21

Big boxes changes our end-users are making in their personal and work lives?”

If – as a reseller – you see that your customers are buying memory sticks by the boatload, there is a pretty good chance that sending them discount coupons for manila file folders is not going to be too effective as a follow-up.

Trying to be on the forefront of this way of thinking will make it a bit easier to visualise and formulate the opportunities that present themselves in the new age of digital communication.

Restructuring

One trend reversal that will be with us for years to come is related to the total square footage of OP retail space. Reducing store sizes has implications for all players and aspects of the vendors’ distribution

model may be dated. The cultural complexities and associated costs of competing in some of the most developed countries – especially in Europe – may in some cases outweigh the synergies that can be derived from the global business model. The world has moved on from the 1990s, and in a big way! For at least some of the global players, the component parts may be worth (a lot) more than the whole.

Disruptive innovation If some of the largest companies were to be broken up, new owners of the component parts may find ways to reinvigorate the industry by creating new combinations of products and services. They may even unleash a new wave of innovations that help reinvigorate the dynamism and store ambiance

“Today the industry is at an impasse; it is time for another wave of disruption” channel strategy. If during the next five years there is a repeat of the 2008 financial crisis, the decline in store footprints will be more severe.

Regardless of the state of the overall economy, the implications are more severe for some players than for others. Competition, margins, obsolescence and promotional questions all play a role.

Restructuring means more than store closings. Is the present structure of the global players as public companies to their advantage or does it stand in the way of the flexibility and creative response they need to adapt to the changing environment? To make the necessary adaptations, is it not much better for them to be privately held, away from the public scrutiny of Wall Street and the pressure for quarterly performance?

In many countries, local players can be found with performance characteristics that meet or beat those of the globals. To me, this suggests that the global business

that gave rise to the OP superstore’s original claim to fame. More than 30 years ago, the industry was shaken to its core by a disruptive innovation called the superstore, a self-service warehouse dedicated to office supplies.

Today the industry is at an impasse and it is time for another wave of disruptive innovations. Such innovation knows no boundaries and no one has a monopoly on ideas that work in the market. Now is a good time for manufacturers and resellers of all stripes to embrace the innovative spirit that builds a new emotional bond with former, present and future customers.

If you look inside your business model, it’s likely there’s already a mix of the old and the new; the kernels of rejuvenation are frequently right inside the business you already operate. Major beneficiaries of this line of thinking may very well be the medium-sized companies that have gone beyond the global model and created smart

models to compete in a rapidly changing business environment.

Imagine: l If Amazon had defined the boundaries of its business model as ‘we are just an e-book reseller’! l If Intuit, known for its Turbo-Tax software, had stopped there; today it provides mortgage-lending services to a wide swath of customers l Being a writing instruments manufacturer, and limiting yourself to that narrowly defined slice of the market; immediately following the bursting of the dot-com bubble in 2002, AT Cross embarked on a diversification scheme and entered sunglasses manufacturing, a profitable segment of the eyewear industry.

Incredibly exciting innovations can take place when international teams work together in an environment of trust and respect. A Japanese customer can make a suggestion to a European manufacturer who in turn rapidly mobilises his or her Chinese factory designers and engineers, and the end result is a marvellous new product line ready for launch in North America. Innovations of this kind only happen when you are willing to step outside your comfort zone, build trust and respect among all your stakeholders, and are committed to seeing it through to the end.

Innovation is not a function of maths or science. It is a function of the creative and unpredictable nature of the human spirit. It is that spirit of innovation, along with redefinition and restructuring, that will help put a smile back on customers’ faces and bring prosperity back to the office products industry. ★

Thomas Schinkel is an international business advisor based in Boston, Massachusetts, and has significant experience of working with the office products industry. www.thomas schinkel.com

www.opi.net

23

BSA standards

Standard bearer The first four BSA standards have been approved and are out. Are they for the greater good of the industry? That’s certainly the plan…

by Heike Dieckmann heike.dieckmann@opi.net

IT’S

been two years since the Business Solutions Association (BSA) first formed a taskforce to examine industry practices for the electronic communication of content throughout the supply chain. Now the US industry is getting close to having its first standardised set of product, merchandising and end-user data.

On 1 October, as part of the BSA’s Annual Forum which took place in Dallas, Texas, the first BSA standards were announced, following a feedback and approval period over the summer. Upon completion of the appeals process, which is happening right now, the standards will be ready for implementation from 1 January 2013.

As BSA’s President Mike Wilbur points out, getting to this point in the standards creation “has been a long road to travel but worth every mile”. He adds: “BSA has taken a gigantic step forward and what we have done will save hours and hours of work – as well as countless dollars – for people and companies in the business products industry. From now on, we’ll all be able to use the same format for video, photographs and even the descriptions of products.”

Mark Evans

The published standards are currently in four categories: mobile code, photography, video and field naming (explained in more detail on page 27). And while none are more important than the other, they all fill a very specific niche and would be more/ less relevant depending on the supply chain partner using them.

The field naming standard may seem the most obvious to get right – everybody uses some kind of copy – and also the most used. That said, Mark Evans from United Stationers, BSA Content Management Standards Task Group Chair, refers to the video format as the most “current” as video content has become a hugely relevant part of a company’s overall marketing message, particularly on the manufacturer side.

At the same time, this medium represents a steep learning curve as it’s still relatively new. The same could be said for mobile codes as m-commerce is only just beginning to take off.

Standards, or the lack thereof, have been a much talked about and bemoaned subject,

“What we have done will save hours and hours of work for people and companies”

24 ★ US Office Products Industry ★ Annual Review 2012

3 Save the date 3-5 Nov 2013 Chicago, USA An invitation-only forum for CEOs and senior executives from the business supplies and associated sectors.

The Global Forum offers a unique opportunity to spend quality networking time with fellow industry leaders.

If you would like to be considered for an invitation please email steve.hilleard@opi.net or visit for www.opi.net/gf2013 for more information.

Organised by Office Products International

BSA standards not just in the US but in the global OP sector.

But are all parties in the supply chain really going to embrace them?

Think back to 2003 when Walmart told its top 100 suppliers that they had to tag pallets and cases of goods with radio-frequency identification (RFID) tags by 2005. It was hailed as the promise of a more efficient supply chain, fast-tracking pretty much every product on its shelves. RFID is now used almost everywhere, but not how Walmart had first envisaged it. And it was very costly for its suppliers. It’s one thing to spend your own money – in this case Walmart’s – on an unproven technology with an unproven return on investment, but quite another to force other companies to do so.

Not rocket science

The BSA standards are different, argues Evans, as the proposals are very simple, commonsense even. It just needed someone (the Task Group) to agree on the best formats to be used and pull them together in a concise set of documents. He says: “Good content drives persuasion which drives sales and in turn drives market share. People process so many words and brand impressions each day that it is extremely important to break through with useful content and information.”

Evans is hoping that even the OP big boxes and the likes of Amazon and Costco will jump on board, but even if they don’t, having the standards in place will make life easier for suppliers. He says: “Even if some companies choose not to adopt the standards, we’re hoping that it will be a simple automatable process to convert from the master standard into the derivative needed.”

The BSA standards will be updated and revised on a regular basis, even following implementation next year. The Task Group also plans to revisit the old BSA Packaging Guidelines and make them a part of the new standards effort. ★

★★

★★★

How to appeal Anybody wishing to appeal against any of the adopted standards can do so. The process is public and any company appealing should do so by writing to BSA and outlining the standard (or part thereof) in question along with the reason or rationale behind the appeal. The deadline is 31 December 2012.

Appeals for the already adopted standards will be presented to the Task Group on 9 January 2013.

What standards?

The standards approved on 1 October by the BSA’s Board of Directors fall within four categories: mobile code, photography, video and field naming.

Here’s a short summary of what the standards in each category mean and set out to do:

Mobile code The term mobile code includes QR Code, Microsoft Tag, JagTag and Snap Tags. All are used with smartphone applications to support mobile commerce.

In essence, they enable users to scan a code with their phone and be linked directly to a specific URL that provides further information or special marketing programmes.

The primary benefit of a mobile code project is to take advantage of having actual two-way customer-to-business communications, while the overall objective is to provide superior customer service by getting the right products and information to the right place at the right time, at the least cost to members of the supply chain.

Photography The photography standard aims to create a common platform for all product images. In a nutshell, it aims to move all new image creation to the .tif or .eps format with a minimum size of 1800 x 1800 at 300dpi. The .jpeg format for existing images will continue to be accepted until deemed unacceptable by the BSA Content Management Taskforce (with the understanding that all new images must be created as .tif or .eps formats).

The overall goal – and benefit – is to increase the overall quality of product imagery. The standard aims to provide reference for technical standards and guidelines to facilitate the best quality photography of each item to drive efficient cross-media publishing. It also offers best practices to ensure consistent execution of product photography that will result in better imagery and decreased image processing timeframes.

Video The term video refers to online video advertising and includes commercials, product demonstrations and anything else that aids in the purchase decision and awareness for end-consumers. The proposed standard is to move all new video creation to mp4 format. As with the photography standard, the two current formats of existing videos will continue to be accepted until deemed unacceptable by the BSA Content Management Standards Taskforce.

The video standard is most relevant for those that wish to create and/or use videos on their websites and/or other applications. The basic goal is to provide one common standard for this. It will provide symmetry not only for manufacturers, wholesalers and dealers that are creating the videos, but also for the end-user who is viewing them and making purchasing decisions based on them.

Field naming The purpose of the naming standard is to establish a common set of field names and guidelines used in the creation of copy content. It will help to: ★ Reduce the variability in copy formats and the resulting rework required to format for multiple resellers ★ Establish clearer names for critical content elements, reducing confusion among supply chain partners ★ Improve efficiencies in the content pipeline that ensure persuasive content is viewed by the end-user to ultimately stimulate sales.

This standard is relevant for anybody who creates and/or uses copy in print, on websites and/or other applications.

For more info on each standard, visit www.businesssolutionsassociation.com www.opi.net

27

Software providers

A business that can successfully use end-user data is a business on a winning streak. But in the US OP arena there is a difference of opinion about who has the power to provide such information…

by Felicity Francis felicity.francis@opi.net

BACK

in June, OPI published a news piece that got much of the industry talking: that a software alliance was being formed. On a first read the news didn’t seem that earth shaking, but once outspoken Red Cheetah CEO Andrew Morgan explained the concept, quite a few people pricked up their ears – anything to do with where vendor marketing dollars go is bound to be controversial.

The spark behind the formation appears to be a renewal of concern on the software providers’ side about United Stationers’ ownership of MBS Dev – a provider that has not been invited to the alliance table.

United’s acquisition of MBS Dev did not sit well with certain quarters of the software industry when it was announced and those quarters are now acting together.

All bar one

Morgan’s announcement in June detailed that his firm was in talks with ECi and a number of other unnamed service providers about the establishment of a “game-changing” alliance between companies whose systems handle billions of dollars of transactions throughout the independent dealer community.

Six months on plans for the alliance are moving forward, and it looks set to kick off in the beginning of 2013, according to Morgan. Its purpose can be summed up in one word: data.

28 ★ US Office Products Industry ★ Annual Review 2012

“We, the service providers, are sitting on top of all this data from dealers, but until now the industry has not been able to use it effectively for the benefit of both the resellers and the manufacturers,” said Morgan, who believes it is the suppliers that are driving this new initiative. “They are frustrated that they don’t have the data, better access to analytics or better access to end-users. There are several barriers preventing this in the distribution channel.”

Morgan was no doubt alluding to wholesalers’ vendor marketing and merchandising programmes which he describes as “hit or miss” in terms of the depth and accuracy of the data that they provide back to the suppliers.

“How do suppliers really know how successful a programme has been?” he questioned. “There is no real point-of-sale data available about things such as what percentage of a sales lift was new business, what the click-through and transition rates are, and so on. Yet we are sitting on top of all that.”

Morgan’s argument is that the wholesalers have tended to circumnavigate the software providers on programmes instead of trying to work with them. Now the software firms look as though they could soon be in a position to take things into their own hands and work directly with the vendors.

That, of course, could have a major impact on where vendor marketing dollars – which are so crucial to margins – end up.

“Our initiative would allow manufacturers access to data and Andrew Morgan qualitative analytics which would

may not be as well aligned. Unfortunately, over the last few years the independent dealer fell behind e-tailers and national chains in e-commerce and sales optimisation capabilities. MBS will continue to raise the bar for other technology providers for the betterment of the independent dealer.”

allow them to achieve more with less and get real results,” Morgan said.

Speaking to OPI in November, ECi President and CEO Ron Books expressed his opinion that the subject is complex.

He confirmed that talks were taking place between providers, and continued: “I also believe it is fair to say a lot of this is being fuelled by the fact that United Stationers once again elected to become a competitor to ECi and other third-party providers as opposed to a partner. It is all but impossible to be both and is creating some pretty significant barriers that will benefit no one, especially the independent dealer. I have been candid about this position with United senior leadership and we continue to explore ways for us to try and work together for the good of the industry.”

Whose data is it anyway?

The provider’s place

Following Morgan’s initial announcement, MBS Dev was quick to come back with a counter argument. While applauding technology providers’ aspirations to provide digital marketing and merchandising capabilities, Paul Hesser, COO of MBS Dev and Interim VP E-business at United Stationers, questioned the “natural role” that they play in sourcing the content.

“A technology provider is typically ill-equipped to have broad enough supplier relationships to make merchandising effective,” he argued. “Why would a dealer believe its technology partner would better select its categories and products?”

MBS’s model, he outlined, is to provide tools for dealers to construct their own marketing and merchandising programmes, or align with manufacturers and wholesalers. He said: “Technology providers should offer product features to enable merchandising, but selecting what and when to market should be performed by the dealer or through a wholesaler.”

In November, OPI asked Hesser for his reaction to those who question MBS Dev’s impartiality.

“I could point to our dealer customers who are not first call United or to those purchasing a large share direct as examples of impartiality,” he said, “but more relevant is that United’s goal for MBS is to enable strong successful independent dealers. Period. I would argue our pursuits are more pure and altruistic than other technology partners whose ownerships’ priorities

ECi’s Books doesn’t agree. “As far as MBS Dev’s opinion that software providers should stay out of merchandising and focus on technology, I am sure many have the same opinion about a distribution company trying to be a software provider,” he says.

Morgan also believes technology providers’ place in e-commerce should involve sell-side merchandising.

“The channel is diversifying to save margin and that’s what’s driving the software provider alliance,” he says. “The wholesalers continue to get closer to the end-user and this is creating an amount of down channel change with the service providers.

Everyone is saying, at a corporate level, that they don’t want to be in the software business – but their actions continue to show otherwise. Many are sacrificing the criticality of total system integration requirements in order to say they have an e-commerce platform and can reach the end-user.

“Everybody desperately wants end-user data. Until the industry gets a level of custom search using end-user analytics, we’re never going to catch up. The channel is realising that it is the software providers that control brands online through the user interface and merchandising.”

Morgan asks why shouldn't the software providers have the right to provide merchandising services since they have the end-user data. Along with MBS Dev’s counter argument, an outsider is faced with more questions than answers. Should software providers stick to software? Should wholesalers stick to wholesaling? Bringing in the dealer groups, perhaps it’s their job to provide merchandising support – or perhaps the dealers should do it themselves. This whole area becomes very blurred, as traditional relationships and functions are inevitably changing as technology moves forward. ★

“The channel is diversifying to save margin”

Paul Hesser

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29

Category reviews

Counting categories It proved to be a mixed bag for the main product categories in 2012 with mobile working exerting quite an influence ★★

Coffee comeback

by Bruce Ackland bruce.ackland@opi.net

FOR

some time the $25 billion cleaning and breakroom category has been a live opportunity for dealers, and their enthusiasm for growing the category has had the predictable positive knock-on effect for wholesalers and manufacturers.

Of course, the larger B2B firms have been on this bandwagon for some time, particularly online, but as even the most strident small business supporter will admit the dealer mindset can be a big ship to turn around.

Nevertheless, turn around it has over the last few years, and in the last 12 months the market broadly reflected this, helped by initiatives such as dealer group TriMega’s The Orange Project which was launched in June this year. Phase one (of three) of this scheme has already made a full line of cleaning, sanitary and breakroom products available, as well as a wealth of training and marketing programmes. The project also crucially has the support of wholesalers United Stationers and SP Richards.

And this latest move to boost dealers’ power in the category comes as the competitive landscape for cleaning and breakroom has continued to get more crowded over the last 12 months, with big boxes, wholesalers and dealers making significant investments in the scrap for market share. This isn’t surprising as the category continues to outpace other major categories, especially when benchmarked

★★★

The office coffee service (OCS) continued to rebound in 2012 after a disappointing period between 2008-2010 and an improved 2011. By the end of 2012 the category is predicted to have grown 3.5% in the US and that same percentage again in 2013.

A Packaged Facts consumer survey in 2012 revealed that among full-time employed daily coffee drinkers who drink coffee at work, 50% used an office coffee pot brew while almost a quarter (22%) drunk individually brewed coffee from coffee pods/k-cups, among whom 70% use coffee pods/k-cups supplied by their employer.

Interestingly, the survey also showed that 71% of the 66 million full-time employed adults who drink coffee do so before they get to the office – that’s more people than drink it while at work.

This effectively means that OCS providers are battling drive-through and stop-in services as well as the big brand coffee and doughnut houses before they even come face to face with their customers.

Starbucks and Dunkin Donuts have also entered the single brew coffee space raising another concern for OCS providers.

One company tackling the pinch from the coffee mass merchants, however, is OfficeSnax, which has created its own ‘9-5’ coffee brand exclusive to the OP industry that is the only brand with an office connotation.

Dealers have realised that they cannot make a profit on national brands because mass merchandisers can sell at well below the required selling price of a dealer, but this office-only coffee could present an advantage as it is not available at the mass merchants.

30 ★ US Office Products Industry ★ Annual Review 2012

against the office supplies category. The Highland Group’s Director of Field Sales Vic Hodges says: “It is particularly interesting Ted Walter, President, Complete Office of California that two major channel customers (the OPI: How would you describe the last 12 months in the categories of largest big box and largest independent) cleaning and breakroom, office furniture, traditional OP and technology recently commented that a major plank in for your dealership? their 2013 strategy to offset the continuing TW: In cleaning and breakroom we enjoyed growth in both jan/san and decline in their supplies business was breakroom product categories over the last 12 months, and we expect further investment to grow the cleaning and growth in those sectors in the coming quarters. This has been driven by our own breakroom category due to experiencing effectiveness in positioning awareness of these products to existing and new double digit growth in the past few years.” customers, and the ongoing convergence of those industries into the traditional The group sees overall category sales procurement model (users, decision-makers, ordering platforms, and so on) of growth in the low- to mid-teens versus the the OP industry. Office furniture also grew nicely for us, partly driven by pent up prior year, but several channel customers demand in traditional customers and strategic opportunities we’ve pursued in are reporting year-on-year sales growth in southern California. GSA furniture was disappointing, but we’re looking for some high teens with one independent reporting improvement with the release of funding for federal government projects. more than 20% growth over the prior year.

Traditional OP was near flat in our captive customers as the buying behaviour No question then that when benchmarking continues to focus on contract items and quantities that are purely for today’s jan/san and breakroom against other office consumption. But we enjoyed very healthy growth in this category because of channel categories it continues to be a good our market share expansion. Technology was OK, with consumables continuing bet for future investment. to lead that sector (moderate volume in peripherals).

Certainly dealers across the board have had a largely positive last 12 months OPI: Have you seen much innovation in these categories? Is there with the category where the appropriate room for innovation? commitment has been made.

TW: Not a lot of innovation in these categories, but I do believe there’s room Encapsulating the mood among dealers for it from a supply chain perspective as it relates to cleaning and breakroom regarding this category, Warehouse Direct in particular. Both of those industries have historically been hampered with CEO Kevin Johnson says: “We, and I believe service experiences that lag the OP industry. It’s because of this that I believe much of the OP industry, continue to the convergence is occurring: transaction intensive, easy to integrate on a single experience substantial gains in jan/san and order, and supported next day on a private fleet delivery model. strong gains in breakroom. Our distribution and e-commerce advantages are driving OPI: How do you see these categories performing and developing growth in these categories.” throughout 2013?

Certainly the manufacturers in this TW: I expect jan/san and breakroom to continue their growth trajectory because segment are seeing a notable increase in of the ongoing opportunistic landscape. Office furniture we expect to be up interest and orders from office products as well, but capital expenditure might slow due to underlying weakness in dealers, with many suppliers enjoying a the broader economy. We believe that some of the strategic initiatives we’re robust uptake in the office channel. pursuing would still yield growth in the furniture category almost regardless of Mark Jackmore, VP of Marketing, North the economic headwinds. Traditional OP and technology will likely continue to be America, for Rubbermaid Commercial plagued by underlying challenges as the expected economic headwinds persist Products (RCP), says: “Over the last 12 in 2013, as well as laptops and desktops being replaced by tablets, the ongoing months we have seen a significant increase contraction in traditional laser printer units due to networked multifunctional in focus within the office channel on printers and so on. facilities/breakroom supplies. The category is up this year for RCP and we believe the category is outpacing the general office channel significantly in 2012 and we expect The category also has pleasing room for innovation as it seeks this trend to continue in 2013.” to move to less caustic and more Solo Cup continues to experience worker and environmentally double-digit growth and is pleased friendly product offerings. The to see the dealer commitment being cost of workers’ compensation boosted year-on-year. Channel insurance and health/wellness Manager, Office Supply, Jim Prestage implications ensure that says: “The level of interest in the manufacturers have a good breakroom category continues story to tell with worker/ to grow among dealers and its environmentally friendly encouraging to see many have products. embraced the opportunity by Hand care and cleaning/ adding specialists to their sales CoolTouch from Kleenex disinfectant categories team for sales support and training.”

Dealer Q&A

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31

Category reviews the times are changing in this part of the office products industry.

Quite apart from the dominance of awards on the night – including Plantronics’ Savi W740 winning Product Innovation of the Year for its ability to stream all telephone devices to a single headset – it was the pacing of previous peripheral products as core OP products that reflected the changing landscape.

3M’s Privacy Screen Protector for tablets and smartphones won Best Product in the Core Office Products category as the

have been leading the way here recently, with examples including CoolTouch, a new innovation in the Kleenex brand from Kimberly-Clark, Dial’s Duo touchless soap dispenser, and the addition of hydrogen peroxide to Lysol branded cleaners and disinfectants.

Of course, there have been some negatives to the year in cleaning and breakroom, not least the unavoidable pressure on margin from increased competition and the very direct impact of high unemployment across the US, but by and large this has been another year of cheer for the category.

Tradition

“Surging tablet sales have driven wireless technology”

There has, however, been less cheer around the increasingly maligned area of traditional office products. It appears that ‘flat’ seems to describe both the year-on-year financial performance for 2012 and the general feeling around the category. Of course much of that feeling has been driven by the fact it is so closely aligned again to the US employment rate, and you don’t have to be Mitt Romney to know it has been pretty poor for the whole year.

David Fasbender, SVP Marketing at Smead, says: “Right now we are seeing the total category flat to slightly down. This is because the category is tied to employment and consumer confidence. Many companies are holding on to cash with the uncertainty in the marketplace. Companies will start hiring and spending when consumer confidence picks up and they are more sure of the economic policies of the government.”

This is essentially the story across traditional OP whether you are making or selling the products. A canvassing of dealer comments for the category over the last 12 months range from an underwhelming “this seems to be a mature or declining product category” to an uninspiring “sluggish is the only term for traditional OP over the last 12 months”.

Going mobile

When it comes to technology products over the last 12 months, the North American Office Products Awards (NAOPA) provided a fascinating microcosm into how

Plantronics’ Savi W740

32 ★ US Office Products Industry ★ Annual Review 2012

NAOPA sought to take something of a lead in demonstrating how the industry must adjust exactly what it perceives to be ‘core’ given the growth of tablets and the overall desire to work on the move are impacting sales of paper and toner.

In terms of printing technology, 2012 was a year of low growth for the mature category, but there were pockets of growth such as in commercial printing while consumer print applications such as home photo declined. This market also saw a major shift to digital workflows as customers moved to scanning to digitise document workflows.

David Laing, Director of Future Products for HP Laserjet Enterprise Solutions, says: “We responded to this need, launching a new category of multifunctional printers that are scan-optimised for businesses. This enables our customers to focus on the information, and not the management of a document.”

HP has also been at the forefront of another significant movement in 2012 – cloud printing. The company has seen the number of printers connected to its cloud service double in the last year and the number of pages coming through its cloud service has tripled.

Understandably, then, one of the most prodigious strides made in the category this year has been with wireless and bluetooth-enabled products. Surging tablet sales and the continually robust laptop market allied to the desire for work on the move have driven the necessity for wireless technology. And if 2012 can truly be seen to be the year that these tablet and smartphone peripherals took off then it

Safco Zenergy Ball Chairs will be a well-timed surge; tablet sales are expected to hit 250 million units by 2017 and virtually all with bluetooth technology.

Flexible seating

The issue of mobile working has also made itself felt in the furniture category over the last 12 months with flexibility becoming the new buzzword in the category. Nowadays a workforce can be on the move often on a daily basis, and the market scope is expanding as an increasing number of modern companies allow their employees to work remotely, either from home or from satellite offices.

No longer is office furniture assigned to a given space for eternity. Products

increasingly have to perform multiple tasks while fitting into carefully designed office visuals with the ability to convert into the smallest working spaces. Like technology, furniture is at the mercy of the mobile worker with the end-user’s actions defining product creation like never before. The agility of today’s workspace continues to demand products that are more flexible, mobile and meet multiple needs across a space.

Manufacturers such as ES Robbins have also witnessed this year how changes in the flooring market are leading new areas of profitability for office furniture suppliers.

For instance, the rise of hard floor surfaces such as wood and tile has increased the need for suitable matting.

The concepts of the healthy workspace and teamwork also drove innovation in 2012. Safco General Manager Nat Porter explains: “The healthy workspace is evolving with products that support a balance between sitting, standing and movement in the workspace. Products such as our Zenergy Ball Chairs and standing workstations are getting a lot of attention as workplaces focus more on the complete wellbeing of their workers.”

The furniture market also entered into acquisition mode this year as market consolidation became forthright amid sluggish sales in Europe and an increasing reliance on emerging markets. In the words of MooreCo CEO Greg Moore: “With worldwide furniture revenue over $400 billion and added financial crises and associated turmoil in the capital markets, it has created extraordinary opportunities for mergers and acquisitions.” ★

2013 and the fiscal cliff Usually when you look to the year ahead you’ll get a host of comments on how each category will be affected by this or that aspect particular to its own segment. However, this year is very different because there’s only one phrase on everyone’s lips – “the fiscal cliff”.

Fiscal cliff

has become the popular name for the issue that faces the US government at the end of 2012 when the terms of the Budget Control Act of 2011 comes into effect. Laws set to change on 31 December 2012 are the end of last year’s temporary payroll tax cuts and other certain tax breaks for businesses, a shift in the alternative minimum tax and the end of tax cuts from 2001-2003. Spending cuts agreed as part of the debt ceiling deal of 2011 will also come into effect.

US lawmakers are currently debating how best to deal with this scenario but the impact on the OP industry would be significant if it is not handled correctly. The fiscal cliff involves sequestration and tax

hikes that could have an alarming effect on US jobs.

Dealers have already reported that employers in DC, Maryland and Virginia have been preparing for the worst for some time and are holding off on buying office furniture or any other larger office investments.

According to Dave Guernsey of Guernsey OP, whose primary base is Northern Virginia, sequestration could cost upwards of 200,000 jobs in Virginia alone. On a more positive note, the flipside is that an avoidance of the fiscal cliff could provide the spark for a business resurgence in 2013 sooner rather than later.

www.opi.net

33

Wholesaler marketing

Wholesalers being social Wholesalers continue to provide new initiatives to help dealers, but things may get increasingly social next year – in more ways than one

by Ben Sillitoe ben.sillitoe@opi.net

THE

leading US OP wholesalers have posted steady results over the course of 2012, and the number of programmes and support services they offer has grown to cater for the fast-changing marketplace.

In difficult times for business, the wholesalers’ capacity to continue producing fresh and relevant solutions for the independent dealer channel has to be admired – and as the world changes the methods by which it communicates, the focus is switching to e-commerce and social media.

Cited as one of its key initiatives of the year, SP Richards’ (SPR) automated email and social media programme CampaignAdvantage is one such option available to the dealer community.

Participating dealers need only manage their opt-in email lists and give the wholesaler the go-ahead to post to their Facebook accounts and send tweets on their behalf, allowing for a coordinated and integrated weekly campaign (see picture below).

Cole’s Office Products' Facebook page

For small dealers unable to commit resources to untangling the complicated web that is social media, such services could be ideal, but resellers should proceed with the understanding that it’s important to maintain their own voice when it comes to these marketing channels.

SPR SVP Jim O’Brien says it’s crucial OP firms keep abreast of how workplaces are changing. “While the long-predicted paperless office has yet to arrive, key drivers such as mobile devices and tablets are leading us further down that road – the industry needs to be assessing the ramifications of these changes and finding new areas of opportunity.

“Other societal factors are making an impact – social media for one – so how do we best leverage this huge shift taking place in the way we communicate, shop and play?

And the inevitable impact of these changes as they migrate from our private lives to our work environment?”

At United Stationers, all the signs suggest that the focus on e-commerce is only going to grow for the independent dealer channel and the wider OP world.

The introduction of new email marketing capabilities, such as its eDeals Advanced programme, links the consumer from the reseller’s email to a hosted web landing page shopping cart, then orders are emailed directly to the dealer. Other more tailored web services are also offered.

United Stationers Supply President Todd Shelton advises: “We already know that independent resellers tend to have strong end-user business relationships. Bridging

“How do we leverage this huge shift taking place ?”

www.opi.net

35

Wholesaler marketing those relationships with online and e-business competencies tied to an expanded product portfolio represents a formidable market position. Dealers who invest in technology, focus on their brands, employ the right resources, and have a solid plan will continue to do well.”

The next big thing

IT sales across the industry may have been relatively flat this year, but EOS distributor Supplies Network says that 2012 is shaping up to be another “outstanding” year in the managed print services (MPS) space. The company’s Cost Per Image (CPI) programme, where it provides a wholesale cost per page by device model to the reseller incorporating all software, services and supplies has doubled in the last 12 months.

Greg Welchans, President of Supplies Network, comments: “Through the end of Q3, we have nearly doubled the number of devices under contract this year and have again doubled revenue on both our á la carte services and CPI revenue in the past 12 months. Our customers continue to migrate to our device-based CPI programme for its all-inclusive pricing and predictable margins.”

As has been the case for the last few years, the jan/ san category has been a key driver of growth, while other traditional categories have struggled. It represented around 25% of United’s business in Q3 and the company has recently developed or amended a number of initiatives to Greg Welchans help dealers sell

these items, such as its Reseller Supplier Access Program which provides links to key manufacturers.

Despite success with these emerging categories and services, wholesalers are urging dealer partners to consider what the next big growth categories will be.

Categories related to electronic communications – tablets, smartphones, and so on – are expected to have become increasingly important to the industry by this time next year.

Supplies Network’s SVP Doug Johnson is confident that tablet devices are in the process of being made much more business-oriented, thus growing in usefulness as office equipment.

“The iPad is extremely popular right now, but it isn’t a tool for a business to grow,” he explains. “We have heard from our meetings at HP and other announcements from Microsoft that the business tablet is the next best thing in computing.”

Another burgeoning category for OP resellers is industrial, and United recently announced the acquisition of OKI Supply, the largest independently-owned welding, safety and industrial products wholesaler in the US. The takeover proves the firm’s future commitment to what has become its fastest-growing category in 2012.

Social etiquette

Wholesalers tout social media as a key dealer tool but the industry is getting social in other ways too, with leading dealer groups TriMega and Independent Stationers announcing plans to hold a joint convention next year.

Such unexpected collaboration has fuelled rumours that a national industry week could soon be on the cards, combining events from all the major players. OPI noted conversations of this sort at 2012’s City of Hope Spirit of Life dinner, but the main stumbling block to such a move in the past has typically been wholesaler reluctance. Is the path now clearing?

SPR’s O’Brien states: “I foresee a greater level of participation among the different stakeholders in the

industry – dealers, wholesalers, buying groups, system providers and manufacturers will need to find ways to collaborate with each other and eliminate redundancies that add cost to the distribution chain.

“Will the industry continue to be challenged for growth? Absolutely – but that’s the state of the world we live in. There are tremendous opportunities for those willing to get after them and I’m encouraged and optimistic as I look forward to the coming year.”

While the level of industry collaboration in the future is a matter of speculation, one thing for sure is that dealers will continue to look to wholesalers for support.

With change the buzzword, the relationship is as essential as ever.

Rob Nizielski, President/CEO of Connecticut-based dealer Universal Business Equipment, hugely values the relationship between his company and first-call wholesaler SP Richards.

“We feel that we could not achieve our goals without our vendor support and that is why we choose to work closely with our wholesaler,” he says. “It is a relationship where if they win we win, and vice versa.”

Amid the uncertainty surrounding the direction of the industry and the best categories for growth, it must be said that one constant in a business world that barely looks the same from one week to the next is the uplifting positivity of the OP community. Supplies Network’s Welchans remains upbeat and confident that uncertainty felt in the US prior to November’s election will start to fade in the coming months.

“Hopefully, we will experience a more stable environment over the next couple of years that will allow businesses to expand,” he says. “We feel that this time next year we will be in a better position than we are in right now.” ★ www.opi.net

37

A look ahead

And next year?

This year has seen the growth of some mega independents, worrying results for the power channel, and a generally tough economy.

What can we expect for 2013?

3 1 0 2

by Felicity Francis

felicity.francis@opi.net

AT

almost all of the events and meetings that I attended in the US in October and November, at least one person mentioned the idea of a combined industry trade show. While this won’t happen next year, an event for 2014 does seem to be on the cards, so one of my predictions for 2013 is that a lot of planning will take place.

Though OPI understands that talks about a combined event were initiated more than a year ago, it’s fair to say that the decision from TriMega and Independent Stationers to hold a joint ‘EPIC’ show in 2013 oiled the wheels. Speaking to OPI, Business Solutions Association’s (BSA’s) President, Mike Wilbur of Cosco, called the EPIC event a “foundational change” within the industry, saying that it could begin “consolidating the energy level within the industry”. He also revealed that BSA is actively looking at where this could lead to.

“It is important to note that BSA has been discussing this issue for several months, and we’ve identified a point team to explore options and alternatives, and how BSA can assist in finding better results,” he stated.

“I am happy to report that Joe Templet [of United Stationers] will be leading this effort.

Joe and his team will work closely with key persons and groups in the coming months.”

Templet is a highly-respected and experienced member of the US OP industry and a good choice to lead this BSA initiative.

Events aside, it seems that the next year will see some other types of new relationships. The new alliance between the software providers could provide some interesting developments within the channel, and we could see some movement from dealers inspired by Garvey’s Office Products’ decision to partner directly with United Stationers. The industry is changing rapidly, and pressure – both economic and from end-users that want a new, more modern service and product offering – is causing businesses to seek out new partnerships and relationships.

I’ve heard many people predict that there will be more mergers and acquisitions in the next year or so. Independents that don’t get to grips with their online presence may be swallowed up by their competitors, and various analysts have reignited talks of a big box merger of some kind – though as this rears its head every few months it’s hard to say whether the time really has come.

Financial results from the power channel do suggest that something has to be done.

The industry’s future rests upon a wider concern, however: the fiscal cliff. President Barack Obama has a challenge on his hands, and many in the OP industry are nervous for 2013. I sincerely hope I’m commenting on a stronger economy next year. ★

“Pressure is causing businesses to seek out new partnerships”

38 ★ US Office Products Industry ★ Annual Review 2012

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