Leading UK reseller office2office (o2o)
published its half-yearly results yesterday
, with the 14% top-line increase due entirely to the sales generated by its Truline supply and distribution business in partnership with dealer group Advantia.
While the programme achieved first-half revenue of around £14 million ($18 million), margins weren’t as strong as o2o had been anticipating. Truline’s gross margin of 12.7% was described as "disappointing" (o2o was anticipating 15%) due to an adverse product mix, and the business reported an H1 operating loss of £0.2 million as it ran into a number of implementation problems at the beginning of the year.
OPI has spoken to both the o2o senior management team and Advantia Chief Executive Bob Geens in the last 24 hours to get their assessment of the first eight months of the partnership, which has basically seen Advantia members outsource their product sourcing and distribution to o2o.
Both Geens and o2o CEO Simon Moate were pretty up-front about the teething problems that occurred when Truline ‘went live’ at the beginning of the year. There were a number of concurrent issues including multiple back-office systems, dealers in the process of switching from a stocking to non-stocking model, and a new product catalogue and coding system. Ironically, the implementation also coincided with a sharp spike in customer orders in January which exceeded all expected run-rate figures, adding a further layer of complication.
All this led to o2o moving swiftly to make a £1.8 million cash outlay for additional warehousing, trucks and staff in order to maintain customer service levels. "Initially, margin was lower than anticipated and costs were higher, but now we view it as one of the best strategic decisions we have ever met," Moate stated.
The margin issue was solved after o2o and Advantia met for a planned six-month review. Truline Managing Director Steve McKeever said these discussions were facilitated by o2o’s open book policy, which essentially means that the reseller takes an agreed ‘management fee’ for services once it has factored in its own costs to its purchasing prices.
Dealer margin improvement
As for dealer margins, Geens said that the positive impact to gross margin was about 5%, which is in line with prior expectations. This is on top of any fixed costs – notably with warehousing and delivery – that Advantia members have been able to take out of their businesses. Geens said he couldn’t put a figure on what these cost savings were as each case varied. Some dealers have sold premises, others have established showrooms or extra office space and others are still deciding what to do.
He also pointed to hidden cost savings that had been revealed when talking to members. With the typical dealer owner being heavily involved in all facets of the business, some members have begun to realise how much time they had spent on dealing with warehouse and driver-related issues, noted Geens.
There was a bit of a culture shock for members, he admitted, moving over to the new model. In order to try and offset this, Advantia has developed an online portal which gives improved overall visibility of the business.
In terms of Advantia membership, this has remained stable at 44 since 1 January. Six dealers left at the end of last year when the project was announced, but numbers have remained stable since then, although o2o-owned Accord is set to officially join the group next week. Both Geens and Moate said that there had been a conscious decision to suppress membership growth until the model had proved itself.
It appears that this time has now come.
"We believe that we have developed a profitable, scalable and sustainable model," said Moate, who said that an "aggressive" marketing plan in partnership with Advantia would now be put in place. It seems that the Truline ‘sweet spot’ is dealers in the £1-£3 million range and this would mean potential targets numbering between 400 and 500.
In fact, there has already been quite a bit of interest. Several enquiries, both from dealers and dealer groups, have been received. o2o is channelling all queries through Advantia and is quite clear on the fact that Advantia is the partner in this business and that it is not interested in dealing unilaterally with other groups or individual resellers.
This is certainly likely to boost Advantia’s membership in the coming months and o2o’s Steve McKeever said he would be "disappointed" if new members didn’t start to join in the near future.
To what extent Truline will act as a catalyst for industry consolidation in the UK isn’t clear. However, there was agreement that – with or without Truline – further consolidation in the UK independent dealer channel is inevitable.