Focus

What kind of footing is the US independent dealer channel on and what are its main challenges and opportunities? OPI’s Andy Braithwaite asks some of the leading lights for their thoughts

In early November, the independent dealer channel (IDC) in the US and its numerous partners and stakeholders will descend on Las Vegas (NV) for Industry Week ’22, run by dealer cooperative Independent Suppliers Group (ISG).

The turnout should be even higher than in the event’s inaugural year in 2021, as COVID concerns continue to diminish and people feel more comfortable travelling and attending large gatherings.

ISG has around 800 members, which is a sizeable chunk of the OP dealer community in the country; although OP is now something of a misnomer given the wide range of products most independents sell these days. ISG itself has been welcoming resellers from other industries – including contract furniture, education and reprographics – as it, too, diversifies its membership.

As for the overall size of the IDC, it is difficult to put an exact number on it. Wholesalers such as Essendant and S.P. Richards are thought to have around 1,300 customers, which may be a useful ballpark figure.

So, as the pandemic disappears into the rearview mirror, how is the IDC faring in a market still getting to grips with trends such as hybrid working and the shift to online, not to mention the current macroeconomic and supply chain issues?

Few people, if any, have a better understanding of the IDC than David Guernsey, a visionary in the sector for over 50 years. Guernsey – the dealership – is part of the Pinnacle group of larger dealers, while Guernsey – the CEO – was recently instrumental in the creation of another entity. The Supply Chain Investment Group is a consortium which aims to improve the competitiveness of the independent channel in a post-pandemic world.

RETURN-TO-OFFICE CHALLENGES

From the perspective of larger dealers across the US, Guernsey points to the slow return to work in large metropolitan areas. In Washington (DC), for instance, which his dealership serves, return-to-office percentages are a measly 38%.

While figures vary around the country, the common denominator is that big cities are suffering the most when it comes to office occupancy, something he attributes to “high-rise buildings and politics”.

Guernsey has a wide panoply of customer types, from car dealerships to government and schools, and the CEO notes a strong correlation between consumption and the number of people in the workplace. And the ‘home’ workplace doesn’t weigh heavily.

“I don’t know a lot of dealers that are having real success with the at-home market,” he says. “You can sell to that home customer; the problem is the orders are very small, and the expenses associated with delivering to those locations are difficult. I’m not aware of a dealer able to do this profitably.”

David Guernsey

Guernsey has some interesting insight into what companies are doing to provide their employees with supplies for working at home. In many cases, not a lot. His team surveyed several dozen customers, and it turned out only a handful actually reimburse staff for supplies such as ink and stationery used when working from home.

“The way they look at it, employees are making savings on items such as clothes and by not commuting – they don’t need to spend money on gas, so can buy their own supplies,” he explains.

Guernsey believes more people will move back to the workplace again at some stage. Studies have shown that productivity drops off when staff are working from home, something which is going to be a concern to employers, he asserts. “I think they’re going to force workers back into the office on a more substantial basis than exists now.”

Another person with vast experience in the IDC is AOPD Executive Director Mark Leazer. His organisation represents a wide range of dealer sizes, from the $5-$10 million mark to over $100 million in revenue.

“Overall, I would say dealers that have come through the pandemic are doing pretty well,” he states. “There are pockets of struggle and some challenges we have to figure out, but the channel is on a pretty good footing.”

He adds: “It comes down to dealers doing what we consider the right things: investing in technology, staying on top of cost of goods, and finding creative and unique ways for their sales reps to get in front of customers. These are the dealers that are performing well; several are even ‘blowing the doors off’!”

He also points to diversification as one of the keys to success. Furniture, in particular, is an area which has had “tremendous growth” recently, linked not only to a return to the office, but also to customers reimagining their workplaces as a way of retaining staff. He further highlights one AOPD member that has got into the towel laundry business, serving athletics teams and school districts.

“Who would ever have thought of doing this? This whole pivot has extended deeper into some categories than we might have dreamed of a couple of years ago. I really am proud of dealers that do this type of thing, because it shows the creativity and entrepreneurial spirit independent, locally-owned operators have.”

It’s good news for vendors too, especially those which have diversified their own product mix or focused on specific sub-segments. Acme United is one such operator and has noticed wider adoption of its portfolio.

“Independent resellers have migrated into a whole lot of other product areas,” CEO Walter Johnsen notes. “Today, first aid and safety are the largest segments in our company. We have plenty of dealers selling first aid items that then benefit from the refill business, which is basically an annuity. It’s a built-in, repeat sale and something dealers have figured out.”

DOES SIZE MATTER?

But is there a big difference between larger and smaller dealers in terms of how they have been able to adapt and cope with financial pressures and market trends?

Mike Tucker is Executive Director of the Independent Office Products and Furniture Dealers Association (IOPFDA), which has around 600 members representing various channels in the IDC. He does not believe smaller resellers are struggling in relation to their bigger peers. “I’m not hearing that,” he states. “They’ve got a pretty solid customer base, and I think they’ve adapted the ways they need to service it.”

Scale, of course, can benefit bigger businesses which, Leazer argues, has helped larger independents in the US to better manage price increases. “They’ve got staff to stay on top of this,” he highlights. “Smaller dealers have people – often even the owners – who may wear multiple hats. When you have price increases coming at you monthly, as opposed to quarterly in the past, it’s harder to deal with. Some dealers have struggled to get cost increases implemented in a way which keeps their margins healthy.”

With the members of ISG in mind, CEO Mike Gentile admits that, in some cases, the healthier balance sheets of larger dealers stood them in better stead. “However, I don’t want to minimise or take away from the results of the small-to-mid-sized dealers,” he adds. “They have exhibited an impressive level of resourcefulness, and most of them were able to pivot very quickly, particularly by introducing new product categories, increasing their direct buy and utilising their sales force more effectively.” (For more views from Mike Gentile, see page 24).

Barry Lane, VP Sales of Commercial at Avery, also points to how dealers in the US have made strategic and structural changes

Mark Leazer

There are pockets of struggle and some challenges we have to figure out, but the [independent] channel is on a pretty good footing

For the purpose of this article, IOPFDA Executive Director Mike Tucker canvassed opinion from the organisation’s membership – dealers, distributors, suppliers and service providers – about the current status quo of the IDC. Here is a summary of their responses:

The positives

• Forward-thinking dealers are stronger – they have found new categories to offset OP declines, and better understand the ‘cost to do’ side of business. • Staying on top of price increases and recognising that customers now expect them. • Remaining nimble, adding ancillary products and expanding into new markets via acquisitions. • Rethinking sales roles and compensation plans. • More reliance on technology and data in decision making. • Continuing to provide great customer service. • Making processes more efficient and better communicating with customers. • Emphasising local sourcing and essential business status.

Room for improvement

• Many dealers are stretched thin because of challenges in hiring and retaining employees. • Keeping up in the digital world and stopping leakage to marketplaces. • Dealing with small orders; household deliveries are a struggle. • Resisting the urge to be everything to everybody.

to their business models. “I’m impressed with their willingness to shake up the decades-old ‘feet on the street’ sales model in favour of a more advanced combination of technology and inside sales, for example,” he says.

For Guernsey, keeping his eyes on the sales ball has been a key theme on a number of levels. It has included retiring a few salespeople who were no longer productive and hiring younger reps, for instance.

He explains: “In some cases, sales folks were on what I call a ‘glide path’ – riding their OP volumes and the income which comes with it until they retire. It’s a problem because they’re not selling new categories and supporting customers as well as they should.”

This ‘glide’ mentality can lead to a lack of new business, something which is potentially exacerbated by the generation gap between these experienced reps and younger buyers. “We need people who are prospecting and opening up accounts,” affirms Guernsey.

Tucker agrees it is a “tough transition” for reps who may be in their 60s to adopt new ways of working. “A lot of successful salespeople have built up large books of business and relationships that are almost like family,” he states. “When they are happily farming and mining what they’ve developed over the years, getting them to accept something like a new CRM system is not easy.”

Adapting to novel ways of communicating with customers and prospecting for business goes hand in hand with those transition challenges. As Leazer notes: “Several dealers are trying to figure out what to do about lead generation. Not a lot of people have been knocking on doors and making cold calls because of the pandemic.

“But how should they market online? What software should they use? What’s the best technology? There are obviously many different avenues to explore and some of them are quite expensive. Dealers are adapting to that.

Some have decided to go to more inside sales which has, in a few cases, meant outside reps are falling by the wayside. There’s still a fleshing-out period going on in terms of how dealers go to market with their sales forces, and this will evolve going forward. I’m not sure anyone has come up with the ‘secret sauce’ yet and peer sharing can play an important role here.”

OPPORTUNITY ABOUNDS

The ‘sweet spot’ for the IDC has traditionally been mid-market customers – a profitable segment that has increasingly attracted the interest of larger resellers over the years. As the likes of Office Depot and Staples deal with their own challenges, is there a renewed opportunity for independents to strike back? Guernsey certainly thinks so.

“In our market, there is a shrinking number of competitors and those left have changed dramatically,” he notes. “The sales forces at Staples, Office Depot and WB Mason are very different today than they were pre-pandemic. And, in many cases, they’re not out ‘touching’ the customer.

“[An inside model] is fine as long as you can be responsive to customers’ needs. We are finding this is not the case and there are customers which are not enamoured with the levels of service they are receiving. It’s definitely an opportunity, so we need to be out there hunting that business.”

Lane believes independent dealers are still the bedrock of the OP industry with “more opportunities than ever before”.

“More than at any other time in my career, I am impressed with the exceptional, cross-functional talent in executive and leadership roles. If we take the time to listen, learn what this new generation of leadership is thinking and saying, and apply the wisdom of their parents or grandparents, it’s a powerful combination – which positions these forward-thinking dealers favourably against all forms of competition.”

Mike Tucker

Having said that, complacency is not an option and there’s plenty of work to be done. “The benefits of reducing complexity, streamlining administrative processes, optimising resources and eliminating worn-out legacy practices should be taken more seriously. And it should start with us, the manufacturers, and our wholesaler friends,” Lane argues, issuing a strong call for action.

“I repeat what I referred to at the OPI Global Forum in Chicago earlier this year. Looking squarely in the mirror as I say this, many of us created the current pricing model which exists today. I believe structural change needs to be discussed, debated and implemented.

“Avery wants independents to be strong, profitable and competitive, and to remain an important segment of our customer portfolio. I suggest we take our legacy of strong and effective collaboration and have a forum where we discuss ‘what is right’ versus ‘who is right’. And dealers need to weigh in and voice their level of interest in exploring the options.”

STEPPING UP TO AFFECT CHANGE

He concludes: “My suggestion is grounded in one basic principle: to step up to our current multichannel reality and implement change. In the process, we allow dealers to compete and grow, while selling our brands in a highly competitive consumer environment.”

Challenges and opportunities have been part and parcel of the IDC for generations, and there will certainly be much for the current crop of leaders to wrap their arms around during Industry Week in November.

Barry Lane

A BRIGHT

future ahead

Independent Suppliers Group (ISG) CEO Mike Gentile discusses the current state of its membership and looks ahead to this year’s Industry Week.

OPI: Mike, what are your thoughts on the overall health of the independent dealer channel (IDC), especially with all that has happened over the past couple of years?

Mike Gentile: I think in a very peculiar and unanticipated way, the pandemic served a purpose for the IDC and our entire industry. Everyone talks about the need to change and wants to see it, but with one major exception: most people do not want to change themselves; they would like everyone else to do it for their benefit. Life does not happen that way. If I want to improve my health, I have to do it myself; I cannot depend on someone else.

Dealers needed to find ways to become healthier – having a stronger balance sheet, reducing their direct operating expenses, creating added value to their end-user customers. All of those things were led by behavioural change.

For example, many dealers were forced to sell product categories they had never even shown an interest in before. They were also obliged to evaluate the effectiveness of their outside B2B sales model. Several concluded that the traditional outside sales rep model no longer made sense. No one was working in an office, so there wasn’t any need to see a sales rep. Additionally, most reps weren’t really prospecting or even servicing active customers. Many dealers looked closely at their operations to see what they could do to streamline processes.

Overall, the pandemic forced long overdue changes which were previously ignored but were suddenly required. Understandably, some ISG members were challenged in addressing all of the above, but most of them, with our help, were able to pivot and do what had to be done. COVID-19 essentially forced us to look at things differently. More of the same – MOTS –– just did not work anymore.

OPI: You said most dealers took action?

MG: They took significant action, and we see it in our numbers. We launched a campaign called Buy Direct Sell Brands, and we are seeing our direct buy purchases from key manufacturers increase.

Not that we do not believe there is a role for wholesale; of course, there is. The wholesalers in our industry provide tremendous value in terms of logistical support and product availability. However, for dealers to gain greater control over their margins and operating profit, they need to strike a healthy balance between buying direct versus wholesale.

Mike Gentile

We developed a number of programmes to assist them in achieving that. Many of our key suppliers that do not subscribe to the MOTS philosophy I’ve just referred to helped us.

They asked what they could do and we responded: “How about expanding your product offering to the IDC? Let us sell product you normally do not sell in this channel. You sell it to the mass market, so let our members buy it. What does it matter if the wholesalers do not stock the SKU? Our members know how to special order. Freight has gone up, we understand that, but let us look to develop more creative drop-ship programmes.”

Therefore, these suppliers now have a number of new initiatives within our Buy Direct Sell Brands campaign that have resulted in increased direct buy purchases.

OPI: That is a positive because one of the things we have been talking about for years is the narrow breadth of products dealers are able to sell. What about the online content for these growing ranges?

MG: You’re giving me a headache early in the morning! But seriously, it’s one of my biggest concerns. I have made a couple of promises in areas where I would like to try seriously improve – e-content is one of these.

I previously talked about ‘Dealers’ Digital Dilemma’, and we are making progress. There are technology providers in the industry now that weren’t around years ago when Mike Maggio (as President of TriMega) and I tried to implement a strategy. The objective was to provide our members with additional products and the respective e-content loads which are not in the wholesalers’ files.

There is clearly end-user demand for those products; the only reason they’re not in the current wholesalers’ load is something I call the ‘wholesalers’ paradigm’ – they will only build and disseminate content to dealers based on what they stock, not on end-user demand.

Our competitors do not go to market with that philosophy. They – Staples, Office Depot, Amazon, etc – build content based upon demand. However, we’re making progress with a number of new entrants into our channel, and are beginning to have renewed discussions with the wholesalers and third-party vendors. This can be a win-win-win.

OPI: Where do the wholesalers fit in here?

MG: The wholesalers are critical to our success and fit in by agreeing to load the content of product categories they do not currently stock and empowering their customers – our members – to be able to go to market with a much broader offering. That will make the dealer healthier. At the same time, if there’s demand, the wholesaler could then merchandise and stock and distribute the product. Everyone wins!

We are competing against behemoths out there, and our members are doing it with one hand tied behind their backs. But people are looking at the bigger picture now. I am confident that, with the collaborative discussions we have been having, we are getting there.

OPI: Would you say your membership is in a stronger position now than two years ago?

MG: Definitely. I know this from the results of ISG’s key strategic objectives – we measure everything. Our membership has grown, and Direct Buy purchases have increased. We have added over 30 additional suppliers during the past two years. Our group membership is more diversified than ever, which tells me people are finding value in ISG.

For dealers to gain greater control over their margins and operating profit, they need to strike a healthy balance between buying direct versus wholesale

OPI: Hybrid working – what does it mean for independent resellers, in terms of serving their customers?

MG: I call it WFA – work from anywhere. People are working from their cars, tents, beach homes or wherever there are. It is here to stay. What percentage? Who knows. It is going to change constantly based on the economy and the operational needs of companies as well as their ability to recruit and retain talent.

Our industry has to continue to evaluate what the hybrid environment has done to product demand, in terms of packaging, price points and assortment.

OPI: How could your members reach this WFA customer more easily?

MG: Well, one of the benefits of them attending Industry Week is they that will be able to network with other dealers and share ideas and best practices. Something the pandemic did for us as a group was get us closer to our members actually. It forced us to interact more frequently, albeit virtually, with them through programmes like ‘Discover Your Next Move’ and our SMART (sell, market, attract, retain, train) supplier series.

OPI: We are living in an inflationary environment, and there is talk of a recession. Is that a concern?

MG: It is. We are not seeing it as dramatically as perhaps some people are projecting, particularly in the contract furniture business. We continue to experience supply chain issues, especially with technology products.

As interest rates go up, will that force downward pressure which could increase unemployment rates, decrease discretionary spending, and put more emphasis on cost controls? Possibly, but we’ve managed through many of these cycles.

OPI: What about buy local? Supporting local businesses was in the spotlight during COVID. Is it an opportunity going forward?

MG: Yes. We have a session called ‘Buy Local, Support Local’ during Industry Week to help members implement innovative strategies in their region. Their local presence is one of the most important assets dealers have.

If people are complaining about manufacturers selling direct, then it is because they are not delivering creative solutions [...] themselves

OPI: What is happening with M&A? I am not aware of a lot of acquisitions within the independent channel.

MG: We do see ISG members acquiring other ISG members. There has not been much M&A activity from Staples and Depot. Discussions are taking place, but the industry is in a recovery phase, with very specific challenges.

OPI: Is this good news for you, especially in areas like national accounts?

MG: Absolutely. Our members are able to recruit talent where it makes sense. We have seen it in our EPIC Business Essentials national accounts programme, particularly with our public sector contract with OMNIA Partners, our healthcare contracts with

OPI: Something that was discussed at the OPI Global Forum in May was the issue of pricing and vendor programmes. Is it a thorny issue?

MG: This is where the Buy Direct Sell Brands strategy makes sense. If a dealer wants to have greater control over its cost of goods and margins, the best strategy is to buy from manufacturers and support their brands.

Vendors would like to have more direct relationships with dealers, and we try to encourage that. Here again, it is a question of finding a healthy balance between the manufacturer, the wholesaler and the dealer.

OPI: We are also seeing more manufacturers selling direct to end consumers. What is your view on that?

MG: This question sums up many issues I have referred to. If manufacturers can’t reach the consumer that they design and make products for because of ‘channel obstacles’, such as dealers not having easy access to content or product, then what choice are they left with?

If people are complaining about manufacturers selling direct, then it is because they are not delivering creative solutions to reach the end user themselves. Dealers must find ways to demonstrate their value, so a customer isn’t left with a ‘choice’ to just point, click and buy direct from a manufacturer versus everything a local dealership offers.

OPI: Finally, what’s on your to-do list for the next 12 months, Industry Week aside?

MG: As I said, trying to bridge the technology issues we have in the IDC is right up there. I sincerely would like to create more synergistic and collaborative relationships with our wholesalers and with AOPD. We have done that with Industry Week by combining our one-on-ones with AOPD.

We hope to continue to do this in 2023, and to further broaden the membership base of ISG through acquisitions and alliances.