Three’s a crowd?
Some say that the UK office products industry is saturated with dealer groups, many of which have the same offering. Not so David Langdown, Managing Director and Co-owner of XPD. Having started his career as a graduate at RS Components, Langdown gained valuable experience of the mechanics of a small business at mail order computer supplies company Misco. After a stretch in marketing positions for Misco, as well as experience of working in Europe and North America, in 1992 he turned redundancy into opportunity and co-founded XPD.
Almost two decades later, Langdown believes that not only is the UK’s dealer group population at a reasonable level, but that those under the belt of XPD have what it takes to stand out from the crowd.
OPI: To begin with, who owns XPD?
David Langdown: We are privately owned, with David Whittaker and I each owning 50% of the company. We started XPD with George Olsen, who left after about a year, and James Wilson, who we bought out five years ago. For the last two years David has taken a back seat and I drive the business.
OPI: Your website seems to suggest nine companies in the XPD group.
DL: The group divides into three areas: office products dealer groups, technology development and an entertainment agency. There are three dealer groups – Officepoint, Officestar and Simply Office.
We had a management buyout of our technology company, Clic2, a few years ago, so what you see on the website are technology brands rather than companies. Technology remains key to us and we work very closely with CommerceXchange – the new company formed by the management buyout. In terms of where our groups are positioned, it’s one of the strongest strings to our bow. Clic2office is our webstore, Clic2mail is our e-marketing and Clic2epro is an e-procurement solution for bigger contract businesses. Then High Performance is a speaker bureau and entertainment agency.
OPI: Running three different dealer groups within the same company seems somewhat unusual.
DL: Integra was originally three or four groups, wasn’t it?
OPI: But they all merged. You are sole owners of three different groups that have retained three different identities. Help me understand the rationale.
DL: Officepoint was the first, created as a large group of small dealers. The logic was – and we’re going back to 1994 – there were dealer groups out there that were primarily small groups of big dealers that had been established really as buying groups.
Our approach was different. The concept was that when you were a small company you wanted to make yourself look big. The hardest thing for local dealers when competing against the big companies was not so much the buying as the marketing. We wanted to facilitate more professional marketing for them, beyond what was available from the wholesalers and, over time, this evolved to include back office support, systems and e-commerce.
Because it was more about positioning and those small dealers that we were recruiting were very much wholesale-focused, the buying arrangements we made were more based around what we could facilitate for them with Spicers (in the case of Officepoint) than around doing purchasing deals with manufacturers.
OPI: So is that still Officepoint’s raison d’être to this day?
DL: It is, albeit extended. The wholesale terms are still vitally important, but we do have direct trading arrangements for key categories and obviously the portfolio has changed a lot. The product portfolio that dealers marketed then is probably only about 40% of what they sell now, with EOS and FM and IT and everything else.
OPI: Officepoint’s wholesale deal is solus with Spicers?
DL: Yes. Officepoint was formed as a solus Spicers group, which was significant because most dealer groups were, and are, dual wholesale. Although that had certain restrictions and made us vulnerable to service issues and so on, we felt that by being very committed to one wholesaler we would get more support.
So Officepoint has no deal with VOW. There’s nothing to stop one of our members from buying from VOW; most dealers will have a VOW account, but they’ll only use it where Spicers are out of stock, for example.
OPI: Tell me about Officestar?
DL: Officestar was set up as the marketing module for the Synergy programme and its members are much larger. An Officepoint dealer will typically be turning over £400,000-500,000 ($646,000-807,000) whereas Officestar dealers are turning over £4-5 million. There are other differences in terms of the level of commitment that we expect from the members, and in return they are given areas of geographic exclusivity.
OPI: For the sake of our readers outside the UK, please explain Synergy.
DL: The Modular Dealer Programme was created by Spicers for their most loyal dealers and comprised various purchasing modules, IT modules and so on. There wasn’t an effective marketing module, so XPD worked with Spicers to develop one. We branded it as Officestar. Over time the Modular Dealer Programme became Synergy, and ultimately Spicers converted Synergy to become their own dealer group.
OPI: How does that sit with Officestar?
DL: Slightly awkwardly I guess, but Spicers recognise the dealer’s membership of Officestar and the dealers get the best of both propositions. To be in Officestar you have to be in Synergy. To be in Synergy you don’t have to be in Officestar.
OPI: So why do people sign up to be part of Officestar?
DL: Officestar basically offers dealers a one-to-one consultancy and is really a complete business development programme. We work with the dealers and their customers together. So there’s a very high level of involvement.
OPI: Tell me about Simply Office.
DL: Simply Office was created as a technology-centered group, based around our e-marketing and webstore technology rather than paper-based marketing, with a wholesale affiliation to VOW.
OPI: So it’s much more of an e-tailer group.
DL: Yes. And the wholesale arrangement with VOW
is carried out on the same basis as the Officepoint one
OPI: How do the three groups stack up in terms of member numbers and how are they trending?
DL: Officepoint is about 220 members and probably about £100 million in combined member sales. It’s pretty much static, maybe slightly down – and I mean slightly. Officestar is about 30 members and its turnover is about £82 million. That’s trending upwards, which is very encouraging.
Simply Office is about 100 members and around £35-40 million. It is in growth, partly because it’s earlier in its development and the membership is growing.
OPI: Is there any specific criteria for membership outside of being first call with Spicers or VOW?
DL: For Officepoint and Simply Office, dealers just need to demonstrate that they are interested in our solutions and we need to demonstrate we can add value to their business.
For Officestar you have to demonstrate that you are progressive. It’s not a buying group, it’s about business development and we need to be able to justify the time and effort that we invest in each member. There is also a restriction by virtue of the geographic exclusivity that we offer to members.
OPI: Presumably the fees will weed out those players that aren’t serious.
DL: Yes, you would hope that they would, although the fees are still pretty low. Even in Officestar where our fees are highest, you’re paying less than £2,500 a year, which is not a lot of money for what you get.
OPI: How do you differentiate yourself from what seems to be a fairly congested dealer group marketplace in the UK?
DL: It is congested, and differentiation is difficult. For one, I think we’re able to demonstrate exceptionally good wholesale trading terms for members.
I think our technology is the best in the market and our marketing is incredibly flexible. In Officestar the whole one-to-one consultancy, which represents a real partnership approach to developing the business, is probably the greatest strength.
OPI: Why are there so many dealer groups in the UK?
DL: There are only about 12 aren’t there? The wholesalers say there are too many, the trade press says there are too many, but the dealers aren’t saying there are too many.
Dealers value groups and the opportunity to network with like-minded businesses, but you do have to differentiate them in some way. If there were no dealer groups or there were just two then you’d be relying upon the wholesalers to provide differentiated marketing and solutions for 3,500 dealers. There are only two wholesalers. Is that too many or not enough?
OPI: I’m not saying two dealer groups is necessarily right, but I think 12 is somewhat overkill.
DL: There are a number of dealer groups, but I think they do operate in different ways. They have different product brands, marketing solutions and technology solutions, and I think the dealers want to be differentiated from each other. There may be some consolidation in the dealer group community.
OPI: Have you ever tried to act as a catalyst for that?
DL: I wouldn’t say we’ve acted as a catalyst for it. We’ve had conversations with people.
OPI: What will be the logical combinations?
DL:(Laughs) I don’t know. What do you think?
OPI: It seems there are an awful lot of alliances that have been made already. To some extent, those hypothetical combinations are probably already pre-determined.
DL: Well, if all the Spicers-aligned dealers want to join Officepoint and all the VOW-aligned dealers want to join Simply Office, we could try to accommodate them, but I don’t think you can honestly service 3,500 dealers with one or two dealer groups.
OPI: Are there 3,500 dealers?
DL: You’ve probably got better numbers than me. I think Spicers and VOW would probably say they’ve got something over 3,000, so I’m guessing that there must be around 3,500 dealers. I haven’t got a full database, but if you want to send me one…
OPI: Should there be more dealer consolidation?
DL: I think there is a lot of dealer consolidation. We’ve seen that within our groups. With our dealers, if we know that they are struggling or looking for an exit plan, we’ll try to facilitate merger and acquisition within the groups.
OPI: You mentioned a couple of times that one of your strengths is technology. What is it about the technology services that your various groups provide that make you better than the rest?
DL: We got into technology quite early on, relative to the market. Back in about 1998-99 we started looking for webstores and we found that you could buy off-the-shelf webstore solutions and populate the sites. But the problem was, as a dealer group, if you had 200 dealers you had to buy 200 webstores and populate each one individually, and every time a product was discontinued, you’d have to take it out of 200 stores individually.
We found a guy working as a CAD dealer who had written a webstore for his own business. He said: “I reckon I could write something for you that would work with a central database and central engine, but with the flexibility for each individual dealer to personalise it and put in their own pricing structures and so on.”
We persuaded him to give up being a dealer to be our Chief Technical Officer and the software has evolved over the last 12 years.
OPI: What is it called?
DL: Within our dealer groups we have a webstore called Clic2office. In Officestar it’s called Clic2officestar and in Simply Office it’s just called Simply Office. That’s a basic shop, which is very easy for the dealer to set up, select and de-select products, set pricing and so on. The pricing management is critical, and it enables the dealer to set individual price plans for each customer. The functionality in Clic2office, which typically costs about £120 a month, is equivalent to other packages that would cost at least double that. The follow-on from that was to develop an e-procurement solution called Clic2epro, which is a very sophisticated solution for corporate customers.
OPI: How does a dealer with a relatively sophisticated webstore compete with Staples, for example, which is constantly tweaking prices by the minute?
DL: If our dealers want to change their prices every minute, they can. It’s easy to do and with dynamic prices, the system will do it for them. All dealers administer their own webstores.
OPI: How do they get visibility to start with?
DL: That’s a good question because in terms of having a webstore, it doesn’t matter how good it is if no one comes to it. Obviously they have to promote their webstores on every piece of marketing that they send out and you expect them to be talking to their customers about the benefits of buying online in terms of 24/7 access. In terms of helping to drive traffic to dealers’ online stores, we have a solution called Clic2mail which is…
OPI: …apparently responsible for half the spam in the UK office products industry?
DL: Absolutely not true. Clic2mail is operated on best practice, all email addresses have to be opted-in and we categorically don’t spam!
With Clic2mail, you can create your own bulletins as a dealer, but many dealers don’t have the skillset or the time. We developed a product called Through Marketing whereby we put offers together with the manufacturers that are then mailed out to individual dealers. It embodies their branding and links to their specific webstores within the email. Then, if dealers are happy with that bulletin, they press the button and it’s broadcast out to their customers. Any leads then come back to them.
OPI: Flip back to online sales and the Supermarket Online initiative launched by Superstat last year. What is your impression?
DL: It was good that Superstat wanted to take the initiative and do something that no one else had tried. Obviously there would have been a fair element of self-interest on the basis that 30% of the profit was going to go back to them to reinvest in Supermarket, but obviously they own Supermarket so they’re building their own value.
Personally I wasn’t convinced it was going to work and I’m still not. If I was an individual dealer preparing to spend £15,000 on pay-per-click or optimisation, I think I could do a better job of building my brand for myself, than building Supermarket Online’s brand. Why pay £15,000 a year to promote Supermarket Online and give up 30% of the margin? So I didn’t quite get it.
OPI: Is there a competing model that would work well for your group?
DL: Our dealers are already promoting their own bus
nesses using the technology that we have. I’m not sure that a centrally-based model is the way to go.
OPI: Let’s talk about the two primary wholesalers. Spicers was the partner of your original group. There have been some changes in the last few years from a management perspective.
DL: A huge number of changes and that’s been very challenging. Every time you get a new management team you don’t know what the strategy is going to be, how it’s changing. A lot of our business with Spicers is relationship based and every time there is a new relationship, you’re going back over the history. It takes people time to get up to speed and by the time they do and start having an impact, they seem to move on.
OPI: Where do you think the rot started?
DL: Rot? Did I use that word? (Laughs.) You’re not going to hang me, I promise you.
It started to change when Eric [Smith] and later Bill [Armstrong] went. They had been at Spicers forever and there was great stability. Since then there has been a procession of UK directors and it’s become a sort of 18-month position. I don’t know whether that’s because DS Smith has a set of targets that the Managing Directors are not achieving, or maybe it’s just the challenge presented by the recession and competitive pressure, but nobody seems to be able to hold the job down and carry through a long-term strategy.
OPI: Have you ever re-thought your allegiance with Spicers?
DL: Yes, there have been times when we’ve thought about it, but there’s an argument that says that when your partner is going through a period of turmoil, that’s not the time to jump ship, that’s the time to stand shoulder to shoulder until things improve. Whether that will happen or not, time will tell, and it might be people will say: “They were mugs, they should have jumped when they had the chance.”
Looking forward, I just think strategically, if Spicers’ strapline is ‘everything for the office’, they need to be encouraging dealers to buy everything from them. I’m not sure that their merchandising strategy is actually reflecting what they’re saying about themselves, because they de-select brands that the dealers like, and you question whether this is on the basis of no demand, or on the basis of actually not having warehousing space, or who has written the biggest cheque.
Even with the group deals where we’re being told “we want you to sell everything”, half the product range is excluded from any kind of rebate or incentive agreements. So yes, we want your members to promote our EOS ranges, but no, we’re not going to include EOS in any of their rebates. It’s a slightly mixed message.
OPI: Presumably you make protestations to Spicers about these issues.
DL: We have been known to!
OPI: What response do you get?
DL: It’s a negotiation, isn’t it? You have to end up at the best point you can end up at.
OPI: What would you say if it was Peter Damman sitting here in front of you now?
DL: From our perspective I would say that not all dealer groups are the same. You made the assertion that there are too many dealer groups and Peter Damman may look at his financials and put a big red ring around the amount of money that’s paid out to dealer groups and question what he gets for it. Any good manager would do that. But what he needs to understand is the difference between what one dealer group offers over another group.
We don’t have a private label, we promote 5 Star. We don’t have a dual wholesale agreement, our purchasing strategy is clear. So I would argue that we’re promoting Spicers and we deserve recognition for that. You might take a different view on other groups, but don’t lump us all in together.
OPI: Let’s look at VOW, which of course is now being run by another former Spicers executive, Robert Baldrey.
DL: I do now have occasional conversations with VOW but I wouldn’t profess to know the management to the same level that I do at Spicers. I got to know Alan Barclay well through our work together at the BOSS Federation and he introduced me to Robert. Robert is an interesting character and good company, but I haven’t really seen him operating. Adrian Butler I know and like.
What comes across at VOW is that it’s more of a people business than Spicers. Spicers seems very much driven by numbers and decisions are sometimes made that I feel certain levels of the management team might not agree with.
You get the feeling that there’s a bit more flexibility with VOW. They take a broader look at things and the people give the impression that it’s their business. They’ll make the decisions that they believe are right for that business in their eyes.
OPI: Spicers plays its “we’re a trade-only wholesaler” card…
DL: To death, yes!
OPI: But seemingly the industry is not quite as apoplectic about Vasanta’s reselling divisions as it might be. What’s your view?
DL: There are two sides to it. Ian Doherty presented at our conference one year and used the term “exclusively wholesale” about 20 times in an eight-minute presentation. At the end of it, I had to explain to him how they may be exclusively wholesale, but Synergy is now openly marketed as Spicers’ own dealer group. So it’s still competing with its other customers.
Likewise with the new plans for Spicers Express: “We’ll negotiate contracts and select which dealers we work with and it’s not open to everybody.” They are still advantaging different people within their own customer database. So I think they’ve overplayed the exclusively wholesale line.
VOW or Vasanta are not going to shut down Caboodle or Supplies Team because that’s supporting their margin. The bottom line is that these dealers are going to come up against contract stationers. Whether it’s Corporate Express or Lyreco or Depot, or whether it’s Supplies Team, they’re still going to have to fight them off.
I think that so long as VOW maintain a proper approach to the business whereby they’re not misusing information – which I would never accuse them of, by the way – then it’s a necessary evil. It supports the margin of the business overall, and thereby the dealers get a better deal than they’d get if they didn’t have that volume. It’s a fairly pragmatic view.
OPI: You mentioned the big three – Staples, Lyreco and Depot. Any thoughts or observations on how they’re performing in the UK market?
DL: Lyreco is the one we come up against the most. We seem to be making progress against them with our contracts division. The key thing for these guys is that the consumers are getting a bit savvier, particularly in the public sector. They’re becoming aware of inflated retail price strategies, of being quoted a price for a product and then getting a different pack size, or of being quoted for one product and being sold another.
That’s to the advantage of the dealers that are in that market because once you take away the smoke and mirrors, they are a lot more competitive than they appear to be at first glance, and I think relationships still count for an awful lot.
OPI: Last question. I understand you share my passion for Manchester United. Time for a prediction because we go to press right before the Champions League Final. Will we win?
DL: I was at the final in Rome when we lost to Barcelona in 2009. I think Fergie will have learned from the mistakes of that night and I have a feeling we will sneak it, four nil!
OPI: Thank you very much for your time David.