Keywords: alternative, channels, back, to, school, technology, e-commerce

Alternative channels

Alternative remedies

The competition out there is enough to make your head spin if you’re a specialist OP reseller, and it must seem as if everyone is out to get a piece of your pie. It feels like a real war out there and this year the battle was at its most ferocious in the all-important back-to-school (BTS) season. 

On the face of it it’s a very easy sell for the mass market retailers to offer a hearty selection of BTS products; parents can make the often stressful task of preparing their offspring for a new school term so much easier by getting all they need in the one place. After all, in Walmart they buy new school shirts, school shoes and stationery all in the same place. Unless the likes of Office Depot and Staples start stocking shoes and cardigans there’s always going to be a convenience option for busy parents that the OP guys simply can’t match.

And during the past summer those non-OP specialists ramped up their attack on the BTS market like never before, with super early sales, discounts and hefty new marketing campaigns. Major retailers offering early deals included Kmart, Sears, Office Depot, Staples, Target, Toys ‘R’ Us, Walgreens and Walmart.

BTS season is the retail industry’s second biggest after Christmas and the winter holidays, accounting for $55 billion in spending last year, according to the National Retail Federation. And more and more statistics are showing that parents are looking to buy earlier and do all their shopping in one place.

Costs

One typical American mother, when asked why she favoured an early BTS shopping trip at a single location, told the Chicago Sun Times: “I’ve made the mistake of waiting until the last minute, and I ended up driving to four stores to find scissors with pointed ends. I spent twice as much, if not more, than I would have otherwise because of the gasoline prices, not to mention the aggravation.”

It’s worth taking another look at that quote to notice the role that the rising cost of fuel is having on the desire to shop in one place – its not just a convenience, it makes the whole process cheaper. And that’s before you account for having to balance up the rising cost of traditional BTS items with the cost of school clothes (due to the rising cost of cotton) and shoes estimated to have both risen 3.5% and books 1.5%, according to the International Council of Shopping Centers.

Kmart’s Chief Marketing Officer, Mark Snyder, remarked during the 2011 BTS summer season: “We are seeing Mum planning trips more carefully. She’s choosing one store and targeting that one trip to get her shopping done.”

Snyder added that “the high price of gas has compressed the frequency of trips” to shops, and that one of the key items parents are looking for are those super discount lines such as Kmart’s ‘Smart Sense’ where prices are 20-25% lower than national brands.

EBay

EBay was another company heavy in promotion in the 2011 BTS season and even teamed up with designer, TV personality and lifestyle expert Kelly Edwards in a BTS promotion aimed at college-bound students. Quite apart from just selling stationery to new students this promotion was aimed at kitting out their whole dorm room on eBay including chairs and desks. The promotion even included a ‘Gear up and show off your pad’ contest where the winner scooped $50,000 towards their college tuition.

The monster online shopping market also offered a prize of a $5,000 shopping spree for the best designer of a virtual dorm room in its ‘Build your college dream pad’ sweepstakes.

Richelle Parham, Chief Marketing Officer of eBay North America, says: “From laptops, flat screens and coffee machines to bedding, bikes and text books, we are working with top sellers to deliver deep discounts on the most popular BTS items, and delivering a one-stop shop for students to gear up for the school year on eBay.”

This summer also saw eBay put a ‘Shop for school’ image on the header of its website in a more prominent place than usual. 

Early sales

Newspaper circulars at the start of July saw Target and Toys ‘R’ Us joining Staples on advertising BTS offerings. Other chains such as Best Buy shortly joined them while the big bumper summer issues of popular US family magazines such as Family Circle and Martha Stewart Living featured BTS ads for Lands’ End Kids, Target and Walmart.

The big department stores were also on the bandwagon early on and using social media as their route to customers, with Macy’s particularly prominent on Twitter.

At Target, BTS merchandise was available at the same time this year as it was last year but there the company put a renewed emphasis on savings through coupon offers. One promotion, called ‘Text to get coupon’, enabled shoppers to receive an instant mobile coupon on specific items such as General Electric light bulbs.

A retailer that did buck the early BTS campaign trend was J. C. Penney, which actually went a week later than normal as it was still identifying a mid-August peak in BTS shopping patterns. The company also actioned a cause marketing campaign called ‘Pennies From Heaven’, where shoppers were invited to round up purchases to the nearest dollar, with the additional sums, up to $1 million, being donated to local after-school programmes such as the Boys and Girls Clubs of America.

Amazon

This year, the massive online retailer Amazon took the specialist OP retailers head on in its marketing speech, no matter what the season was.

A promotional statement on its office supplies webstore front said: “From small business owners and office managers to freelancers and consultants, everyone has a lot of work to do, and shopping multiple office supply sources for essential office products and office supplies isn’t the most productive use of time.” 

Ouch! It continues: “Without those essential office products and office supplies, though, conducting business becomes difficult. Instead of spending time running office supply errands or managing multiple sources for the best prices, let us do the work for you.” Double ouch!

And Amazon wasn’t finished there, painting an almost Norman Rockwell-style utopian vision of shopping for office supplies at the world’s number one online retailer. It added: “When you buy office supplies online you get the convenience of having your office products and office supplies delivered to you. When you pair that convenience with the Office Supplies & Office Products Store here at Amazon.com, you get the added benefits of an enormous selection so you get the exact office products you want; competitive marketplace pricing so you can save on the office supplies you need; and the security of getting your office supplies online from a trusted leader in online sales.”

You know Amazon has become a serious threat to specialist OP channels when people start clamming up about them. That’s starting to happen quite a bit now, even though Amazon’s $34.2 billion annual revenue is a fraction of long-time Bogeyman Walmart’s $405 billion.

Opportunities

The threat of Amazon is clear, but so is the opportunity presented for smaller online OP retailers as shown in OPI’s Hot Topic entitled ‘Beauty or Beast’ (see OPI #207). As Amazon is a trading platform as well as a giant retailer in its own right there is an opportunity for its marketplace sellers, including independent dealers, to grab a portion of the Amazon sales traffic.

Dan Callies, Director of Amazon’s US Office Products store, says that the company is dedicated to increasing the percentage of products offered and fulfilled by Amazon but that the number of OP sellers on its marketplace has grown substantially since the launch of the store in 2008. 

He explains: “Marketplace sellers are, and always will be, an important part of the Amazon shopping experience. There are certain areas, high-end pens for example, where we rely heavily on these sellers. Also, a large percentage of our sellers are using ‘Fulfilment by Amazon’ which allows them to provide Prime benefits to their customers.” 

The ‘Prime’ referred to here is Amazon’s subscription-based VIP delivery service introduced in the US in 2005. While hardly universally welcomed by analysts at the time, who were sceptical of its upfront annual fee of $79, its guaranteed ‘free’ delivery of Amazon-fulfilled products within two days across the vast US has been credited with playing a significant role in the company’s dynamic share price and sales.

Brant Williams, Chief Marketing Officer of ReBinder, a Seattle, Washington-based manufacturer that has had much success with Amazon following the June 2010 launch of its zero waste office products, told OPI that Prime made all the difference. 

He says: “When we chose to have Amazon sell our products, it was imperative that we were fully inclusive in Amazon Prime. I know, as an end-user, when I’m shopping on Amazon I always favour the products that are shipped by Amazon and are included in Amazon Prime.

“It makes a huge difference to any purchaser, corporate or otherwise, to be able to wrap up a number of their purchases into one shopping cart and then get them very quickly. The usual shipping time by Amazon in the US is between 5-7 days, so two days guaranteed really makes a difference. I know in the world of a B2B end-user two days is a long time, but not for the B2C market.”

Despite the opportunities for dealers on Amazon the truth is that this is not the place for independent OP dealers to build up brand loyalty or stake a strong business case, as you don’t typically build up any customer loyalty on Amazon as a marketplace trader. A customer needs a product, finds it on the marketplace and instantly forgets who supplied it.

Interestingly though, Amazon does present a potentially tantalising opportunity for OP wholesalers that is much more of a defined article than the drip-drip revenue possibilities available to dealers.

Callies says: “We do procure office products and consumables from wholesalers. Our goal is to provide a wide selection of products to our customers and these wholesalers have products from manufacturers where we do not have direct relationships. There are also certain situations with large and/or heavy products where it makes sense to have the wholesaler ship directly to the customer. For these products it doesn’t make sense logistically to ship the product from the wholesaler to Amazon and then from Amazon to the customer.”

A good egg

While many of the names discussed so far are familiar household brands known the world over, private companies are also stealing a march and none more so than online computer hardware, software and accessories retailer Newegg. 

California-based Newegg.com has come a long way since Taiwanese immigrant Fred Chang founded it in 2001. It now boasts annual revenue that tips over the $2.5 billion mark and in 2009 it was listed as #234 on the Forbes America’s Largest Private Companies list. As its revenues have grown so has its product offering and it now boasts a comprehensive selection of traditional office products, not to mention some 16 million registered customers at last count. It also now has several web-storefronts including its primary US site Newegg.com: NeweggBusiness.com for corporations, resellers, schools and non-profit organisations; a Chinese site (Newegg.com.cn); and ChiefValue.com, a sister website of Newegg.com which contains mainly computer products.

There’s little question that in 2011 pressure from alternative retail channels on the OP industry grew. And while this appears to be a case of swimming against the tide there is still plenty of opportunities for specialist OP retailers to flourish, providing they keep themselves well versed in what these competitors are doing. The motto here really should be: know your enemy.

Big box bts performance

The BTS season is critical to the OP sector, so much so that it can shape the full-year results of both big boxes and manufacturers. This was evidenced when both Office Depot and Newell Rubbermaid admitted that their respective performances in the sector had to be strong if they were to meet their full-year forecasts. A strong BTS season is a great way for companies to restore investor confidence and surge ahead of the competition. However, this year provided a mixed bag of results due to both the volatile markets and their subsequent impact on consumer spending.

Earlier this year, an NRF survey predicted a flat BTS season. The research showed that families with children at school would spend an average of $603 on apparel, school supplies and electronics, within a few dollars of last year’s $606 average. Nearly half of the consumers who took part in the survey blamed the economy, which they claimed was forcing them to spend less in general. 

That immediately dampened the outlook of many OP companies, spelling out what they possibly knew all along; this was going to be a difficult year. Then towards the end of the BTS season both Office Depot and OfficeMax gave presentations at the annual Goldman Sachs retail conference. While the former outlined a positive performance in the category, stating that its BTS sales and gross margins were both up over 150 basis points, the latter painted an altogether different picture. OfficeMax CEO Ravi Saligram spoke of soft BTS sales and attributed the decline to price conscious consumers.

The quarter that counts

On the bright side there has been modest overall growth in the BTS sector for OP companies, with certain product segments such as technology witnessing a significant rise. Still, individually they point to an unpredictable market at best. 

Manufacturers had their ups and downs during the season. Writing instruments manufacturer BIC saw flat sales during the quarter due to competitive pricing, while 3M on the other hand noted that its BTS sales had met expectations and highlighted the strong performance of its Command brand of products. 

Both OfficeMax and Office Depot were proved to be right in their respective assessments of the category (see ‘Big box BTS performances’ above). The former didn’t meet Wall Street expectations and cited soft BTS sales as the main reason behind its decrease in revenue. Meanwhile, despite witnessing a dip in North American sales, Depot saw an increase in comparable sales of its BTS essentials.

The bad news, however, was mainly restricted to the commercial channel. According to NPD, during the July to September period all BTS retail channels grew apart from commercial. Within that channel contract stationers saw a 0.3% overall decline in sales and independent dealers fared even worse, witnessing a 4.7% drop. 

The market analyst claimed that this was due to a shift in purchasing habits and the growth in e-commerce retail (see ‘The e-commerce results’ below).

The e-commerce results

According to NPD, during this year’s BTS season, the e-commerce retail channel saw the most growth at 9%. And it wasn’t just the usual suspects dominating online market share. Although e-commerce and superstore retailers such as Walmart and Amazon fared well online, the big boxes also continued to make headway in the channel.

Research conducted by BIGresearch this year found that consumers were increasingly purchasing items on the web. Appropriately, it was the tech-savvy college-aged respondents that took to this platform in droves, with 33.4% claiming that they would shop online in 2011 up from 28.6% in 2010. However, older respondents also showed a liking of the medium citing its cost-efficient nature, alongside its convenience, as major draws. 

Taking these trends into account, the big boxes further focused on their online strategies. Staples recently implemented a new IBM e-commerce software implementation to improve page download times on its website. Office Depot, on the other hand, concentrated on mobile commerce (m-commerce). This year the retailer introduced a competition that offered shoppers the chance to win prizes, including BTS coupons, by using their phones to take photos of speciality tags located around Depot stores nationwide and then mailing the images to the retailer.

M-commerce shouldn’t be taken lightly, however, according to Deloite LLP. In a recent survey, the market researcher noted that 64% of respondents said that they planned on using their smartphones to shop for BTS products online. Recent findings by the Coalition for Innovative Media Measurement and Media Behavior Institute also found that the most precious of all BTS consumers, namely mothers, are increasingly consuming media through mobile phones. Mothers aged 18-33 were reported to consume more media through their mobiles than the medium of television, with the majority preferring interactive ads such as those found online.

Getting back to e-commerce, even some independent OP e-tailers fared well in the BTS season this year. One reseller in particular that witnessed significant growth is Wisconsin-based online OP reseller DiscountOfficeItems.com. The company reported that its sales increased by 30% during the BTS season. 

“This year our focus was more targeted marketing to those shopping for school supplies,” said Joe Schaefer, VP of Sales and Marketing. 

“We’re confident that new presentation methods helped customers find what they were looking for quickly and easily.” Consequently, DiscountOfficeItems.com was ranked number 369 on the latest Internet Retailer Top 500 Guide and its sales are projected to exceed $30 million this year.

Consumer websites

The recent explosion in consumer websites has been quite alarming. They are cropping up all over the Internet and in particular in the US and even more particularly around families searching for the best deals. 

Websites such as couponcouch.org, consumerqueen.com, forthemommas.com, pennypinchinmom.com and couponfairies.com are all providing an online community of bargain hunters and price comparers to beat any advertising or slick marketing to reach the hearts and minds of US consumers. 

In the vital BTS season these sites were being updated on the hour and the big winner appeared to be pharmacy giant Walgreens, affectionately known by the sites’ users as ‘Wags’, which was hailed as the winner of the BTS bun-fight by many US consumers. Despite annual revenues of $67 billion, Walgreens is hungry for more and seems to have captivated the BTS audience.