Big Interview: Westcoast

OPI talks to Westcoast, an IT distributor that has ambitious plans for European expansion.

Most people bemoan the much talked about recession, blame their business difficulties and failures on it and often descend into a state of gloom. Joe Hemani, CEO and Owner of IT distributor Westcoast, embraces it. 

Joe Hemani is fiercely protective of his workforce, his vendor partners and his customers, and attributes much of the success of Westcoast to all these parties really understanding each other’s perennially changing and evolving demands. And the stats speak for themselves, with revenues jumping from £651 million ($1 billion) in 2009 to £970 million last year in some of the toughest trading conditions of the past 60 years. 

Having conquered the UK and Irish market over the past 28 years, Hemani and his team are now for the first time dipping their toes into the rather murky eurozone waters. Ever optimistic, Hemani is confident that a potential customer base of over 600 million is well worth taking the risk for. Steve Hilleard visited Westcoast at its HQ to find out what makes this charismatic entrepreneur tick. 

OPI: How did you come to be in the IT business? 

Joe Hemani: I was always pretty good at physics at school so that’s probably where it started. When I dropped out of university, I drifted into the music scene in the late 1970s. I then worked for US company Dataproducts, so my background was in electronics. They were taken over by Genicom many years ago and at the time I thought it would be a good idea to do my own thing, to start a business. So I established Westcoast in 1984.

OPI: Why the name Westcoast? 

JH: Well, I wanted the business to be easily identifiable by name and it wouldn’t sound good if I called it Joe Hemani Computer Services – that’s bland and too parochial – so having worked for Dataproducts in California I called it Westcoast.

OPI: What was your business plan to begin with? 

JH: I wasn’t entirely sure what I was going to do with the company – anything that paid the mortgage, quite frankly. Something in the computer marketplace, that was the vague idea. Luckily, I went to CeBIT in Germany around that time and I saw what looked like a photocopier printing paper and I thought ‘my God, that’s a good photocopier’. It wasn’t, it was a laser printer, quite revolutionary at the time, and I thought ‘this has got a future!’ 

OPI: Who did you sell to in those early days? 

JH: At the time there was no such thing as a reseller. In the 1980s, people worked in vertical lines, not horizontally. In other words if you wanted an ERP system you probably went to Honeywell or to Burroughs; if you wanted a financial institution-type system you went to IBM or Unisys. It was only when Microsoft and Digital Research came along that you were able to integrate various aspects of your business and didn’t have to follow those vertical lines. 

Today you can interface anything and everything, but back then it was a real opportunity because everything became more open and you were able to connect and transport software from device A to device B for the first time.

OPI: When did you decide to become a distributor? 

JH: As I said, the markets were becoming more open and HP was essentially the first company that gave an open interface and that’s where I saw an opportunity to, along with Microsoft and Intel, provide services that were not vertical. Once most devices could talk to each other, you had the ability to mix your software, businesses became more efficient, prices dropped and the industry took off quite frankly. I just rode that horse.

OPI: Let’s fast-forward and take a look at your current business model today. What’s your pitch if you were to summarise Westcoast?

JH: Let me come up with some motherhood statements: as far as the company is concerned, it’s the sum of its people and I must pay tribute to my people. More than 50% of them have been with me for ten years or more; last year we had an average staff turnover of less than 0.5%, which is remarkable for our industry, for any industry in fact. So today we have a diverse leadership of people that takes us into different markets.  

The smallest of these markets is the government sector, in our case that means education, VARs and SMBs, and finally our retail business. We are pretty well segmented in servicing various markets and have the skill sets to be able to service those markets. The idea is to have a cradle-to-grave service for anybody’s computational needs.

OPI: Can you tell me about the infrastructure of the company?

JH: We work from six locations in the UK and Ireland: we have an office and a warehouse in Dublin to service our Irish customers; an office in a small location in Wales and also in Scotland; and two huge warehouse facilities in England. All of these facilities service either the local community or carry out specific functions. Milton Keynes is where most of our consumables and small items get delivered from, for example, where we have the best automation, labelling services, and so on. Where we are now [in Theale, Reading] is our headquarter operation where most of us are based. Our primary inventory is in Milton Keynes and Nottingham, the rest is spread around.

OPI: You say your model is fairly automated; how do you compare to some of your peers?

JH: Well, I think automation has two drawbacks: the cost and the changing nature of the business. This means that if you’re completely automated, it is difficult and costly to offer flexibility to customers. So when I say automated, we’re automated in providing our customers the fullest, most flexible service that they require. 

OPI: How much gets sent directly to the end-customer?

JH: Direct to the end-customer would be about 65%, quite a large chunk. My philosophy is the more people who touch a box, the higher the cost. There’s no point in my customers holding boxes in their store
 or warehouse.

OPI: On the subject of money, your 2011 results have not been published yet…

JH: No, they should be out soon. 2011 will be pretty flat for us – about £970 million ($1.5 billion) in revenues. In terms of bottom line, we’ll be up by about 7%. So it’s flat top line, 7% up bottom line.

OPI: Are you disappointed not to hit the billion?

JH: Not really. I think given the economic circumstances and government cutbacks, we’re pretty happy. We’ve made some sizeable investments in the business last year, in terms of software, the way we work, websites and e-commerce.

OPI: Your revenue in 2009 was £651 million, now it’s up to £970 million. That’s a pretty formidable jump – how much was ordinary organic growth and how much due to, say, winning some exceptional and large government contracts?

JH: The government contracts are good, but they come and go. There is something to be said about wholesaling activity; I believe that if you’re between £300 million and £500 million you’re in the valley of death. It’s like getting into a scrum in rugby; you have to have scale and scale is what we wanted and what we’ve done.

OPI: What does that scale give you beyond improved purchasing power?

JH: It is important to have top-line growth. We don’t actually make anything and sometimes we have to match our vendors’ ambitions, which does give you a dichotomy in the business that you’re trying to run. It’s matching the vendors’ aspirations with the marketplace and the company philosophy while at the same time continuing to be profitable. You could run this business at £100 million and still make a profit, but you’d be at the mercy of a lot more people and the company would not be as secure as I believe our business is. 

OPI: Growing a business to this size, what would you attribute that to? You talked about the importance of people, but it takes more than that I suspect.

JH: It takes two or three things including some good fortune. The market was right for us when we started in 1984. Times were really tough and we were in a possibly even worse economic situation as a country than we are today. We’ve been through a lot of economic changes since then, but we were always able to take advantage because we’re not a PLC, we’re not beholden to any shareholders. We can invest our profits in growing our business, in giving a better quality and level of service to our customers and, importantly, in engaging with our vendors to take some of their wishes to the marketplace. We’ve never ever made a loss and we have good people in key positions who understand the difference between chasing market share and making a profit. 

OPI: As you said, you don’t make anything; you’re just a middleman. So what does the customer love about you as a company?

JH: Our flexibility.

OPI: You are up against some heavyweight multinational businesses, such as Ingram Micro and Tech Data; what is their disadvantage?

JH: I don’t think they’re disadvantaged, I respect their business model and they’re successful companies. But even Jesus had his 12 disciples, he couldn’t do it on his own! They have their business model, we have ours and there is no more to be said really.

OPI: How do you run a business this size that has net operating profits of below 1%? That’s a very slim margin for error.

JH: I just love it. Show me a business with 20 points of gross margin and I will come and play in your backyard. My cost base is just under 3%. That takes some doing – it shows our efficiencies. 

OPI: Have you ever been tempted to play in somebody else’s backyard?

JH: Part of the reason we’ve grown so much is because we have played in other people’s backyards.

OPI: Tell me about the evolution of your product range and channel penetration. 

JH: We’re always looking to service customers. Five years ago, for example, we weren’t in retail. Quite frankly, the vendors we used to deal with didn’t have retail-type products. That has changed and our flexibility has allowed us to become big operators. We probably service every major retailer in this country as a first, second or third-line supplier, plus about 3,000 Ma & Pa shops across the country. 

Also, 18 months ago we started Westcoast Mobile because we believe handheld devices is a market that needs servicing, and we’ve invested quite heavily in that. We provide the hardware, the connectivity and the consultancy advice that save corporates significant sums of money in their whole telecoms infrastructure. It’s all sold through resellers and it’s a big growth market. 

OPI: Are you a BlackBerry or an iPhone man?

JH: Well, currently the iPhone is the winner and product of choice for most people out there. It has some limitations in the corporate environment, but I think that Apple will soon be making great strides into the corporate arena. The jury is still out there. The issues with BlackBerry and Nokia are well documented, but I think HTC is a company that should be watched because they’ve got some really good sexy, workable, android-type devices.

OPI: How important is the traditional office supplies sector to the overall mix of Westcoast? What about some of the larger companies such as Viking and Staples? 

JH: It’s important to us. I hate talking about our customers, but since you mention Viking…if you look at their offering, it used to be just pencils but now it’s a nice mix and it’s our job to service that catalogue and to service that customer. That’s how markets evolve because their customers now want different things. Our job is to be flexible and service that demand.

OPI: Few companies have tried to make the jump from your environment of high-value, low-margin into the opposite camp with office supplies. Unipapel is now trying it – is that something that you’ve ever considered?

JH: All the time! There are opportunities for us and we’re looking at them right now. I can’t say any more than that for the time being. 

OPI: (laughs) You’ve said enough already, I won’t force it! What do you see happening in the wholesale distribution market vis-à-vis the competition? Spicers, Vasanta – there’s been a lot going on. You’ve picked up a couple of competitors along the way. How do you see the future of the IT and office supplies distribution markets?

JH: I think it looks very healthy indeed. It’s how you run your business that’s important. You can have 50% margin and still go under. 

OPI: What are your views on big box stores such as Best Buy and their pull-out from Europe? And the unrelenting rise of Amazon?

JH: There’s no question that Best Buy have a model that’s successful in terms of the quality of service, the attention to detail that they provide to their customers, particularly in the US. A couple of things in the UK are just so prohibitively expensive, such as retail estate and utility costs, which is what I believe made Best Buy unsuccessful here.

OPI: Staples CEO Ron Sargent once said if he died he wanted to be reincarnated as a British real estate agent.

JH: Absolutely. Enormous costs prohibit you from opening big-box stores. It’s difficult. If GDP is growing at 3-3.5% and we’ve all got lots of money in our pockets, you can survive those costs, but not in difficult economic circumstances. This is particularly the case – and this is answering your second question – given that you can go online and buy from Amazon and other e-tailers 5% or even 10% cheaper. So customers go to a big box, touch and feel the product and then go online to buy. 

OPI: Everybody talks about the importance of providing additional services above and beyond the traditional product offering; what’s your view on that?

JH: I think the words services and value-added are hugely prostituted. When I deliver a box to my customer in some corner of the country at 10am tomorrow morning, that’s not a service, it’s what they expect, it’s how our market works. If I put a pink spot on every box, tie a ribbon around it and give it to my customer, that’s not value. 

Value is in the eyes of the recipient, so the question should be: ‘What are they willing to pay for?’ On the face of it, we’re providing in excess of £200 million in credit facilities to our customers. Is that value? No, it’s expected. Nobody pays us cash on delivery, that’s not the business model.  

What we do, for example, is send 100,000 blister packages a week to various customers. Within that blister packaging we put things like little bags so you can return your cartridge to be recycled. We provide tape identification services so they are security tagged. There’s a plethora of services that we provide but we don’t hoist them on our customers, it is something that they need, want, require. We just project-manage them.

OPI: Where, if anywhere, does managed print services (MPS) sit in your model?

JH: We’ve got a joint venture MPS company that runs out of our Nottingham facility. It’s still embryonic, but showing good growth. MPS has been around forever in some shape or form, it’s just that the new monitoring software packages that are available now make it easier for people to use.

OPI: Advocates say that in five to ten years’ time, resellers that haven’t embraced MPS will have lost a significant chunk of their business irretrievably. Would you agree?

JH: These are the same guys who said word processing is going to kill printers and paper. 

OPI: What’s the Westcoast model for growth going forward? 

JH: We’ve just acquired a business in Belgium called Europea, but we’ve branded it Westcoast. It’s a small company, about d120 million ($160 million) in revenues, but it gives us a footprint in the eurozone. I believe in the euro and I think that there’s an opportunity there.

OPI: Why Belgium?

JH: (laughs) Because I think from Belgium we have very easy access to at least 200 million people in Germany, Benelux and France.

OPI: That’s putting you head-to-head with some pretty substantial competition. 

JH: Definitely, but we’re solid enough to deal with that.

OPI: Quite risky though, isn’t it? It couldn’t be a more concerning time for the European Union (EU) and you’re stepping right out of your comfort zone.

JH: I don’t ever want to be comfortable in business. You’re always looking over your shoulder, doing what you believe to be the right thing for the company and its people, for your customers and vendors. I think it’s a great opportunity for us, and I forecast that by the end of next year we’ll be in the 200 million plus range – and that’s organic.

OPI: Do you foresee further bolt-on acquisitions, or is that your continental European base you hope to grow from?

JH: Both. We are looking to acquire at least two more companies this year, possibly in Benelux again.

OPI: You mentioned you’re a fan of the euro; what’s your take on the current situation? 

JH: Well, just take Greece. Its GDP is less than 0.25% of the EU’s entirety. Of course, the financial press and some pundits make a big deal out of the various issues there. 

I, as a business person, want an opportunity to deal with 600 million people, that’s roughly the eurozone population. If we can deal with that amount of people with just one currency, and no restrictive import/export duties, it makes for good business. I believe in the single currency because it gives people who understand how to run a business a great opportunity.

OPI: It must frustrate you then that Britain has never been keen to join?

JH: Immensely. We continue to snipe from the sidelines rather than be at the heart of it, as somebody said, and making sure British business gets its fair slice of opportunities in the eurozone.

OPI: I saw in the press recently that you were asked ‘who would you like to be stuck in an elevator with’, and you replied ‘Gordon Brown, so I could give him a kicking’. What prompted that?

JH: He was an excellent Chancellor of the Exchequer, but I think his indulgence and hubris has got the country into some difficulties and that’s why I’d like to give him a kicking. 

OPI: So what’s the next chapter for you and Westcoast? 

JH: I don’t know. There is always a danger as a single shareholder; I own this company lock, stock and barrel so there’s always a concern, but ultimately this company will find itself in the hands of its long-serving managers. That’s where I think it’ll go.