Big Interview: Action-packed

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Action-packed

by Heike Dieckmann
With a keen eye on the independent channel and its particular needs, ActionEmco has become the OP wholesaler of choice for many dealers in its specific geographic area.

ActionEmco may be a distant third in the hierarchical order of office products wholesalers in the US, but with its almost singular focus on independent dealers, it has not just been playing catch-up, but competed very effectively with its mighty competitors SP Richards (SPR) and United Stationers.

Following the management buyout of ActionEmco – formerly Action Wholesale and Emco Sales and Service – in partnership with investment firm Centre Partners in 2003, the company was in desperate need of "right-sizing". The job was started by industry veteran Bob Scribner, and later on followed through and completed by current president/CEO Mike Maggio, and EVP Jack Reagan.

Although both Reagan and Maggio assert that ActionEmco today has enough scale to stand on its own, they both strongly believe in collaboration with other regional wholesalers as well as the country’s dealer groups.

Reagan specifically is heavily involved with Advantage Marketing Wholesalers (AMW) in his role as president. The purchasing and marketing alliance recently took a knock with one of its three members – O Henry – leaving as a result of it being acquired by SPR.

Upbeat and optimistic, Reagan and Maggio both prefer to speak of opportunities rather than problems, however, an attitude that will stand them in good stead in the challenging times ahead – brewing on and off the OP circuit.

OPI: Let’s start with the US economy. Much has been said about the housing market and the slowdown in consumer and small business spending. What is your perception?
Mike Maggio: I think we are headed for a very slow first half to 2008, with a recession taking hold late in the second quarter and probably running through the first quarter of 2009.

OPI: What impact is this having on ActionEmco and what’s your short and medium-term outlook?
MM: We are experiencing a slowdown in sales, as are most of the independent dealers we talk with. We expect to have modest overall sales growth in 2008, about 1-3 percent.

OPI: What about your customer base — the independent dealer community? How is that doing at the moment?
MM: Some dealers are finding ways to continue to grow, albeit more slowly, but most are experiencing flat to slightly down sales results. Overall I think the independent community is in the best shape it has been in a long time and well positioned to ride out the downturn, take advantage when an opportunity for growth comes its way, and ready to "explode out of the blocks" when the economy turns around!

OPI: Let’s talk about ActionEmco specifically. When the company was created in its current format in 2003, it wasn’t in a good state. What needed to be done to get it back on track?
MM: ActionEmco was the combination of two companies, Action Wholesale in the mid-west and Emco Sales and Service in the north-east. When Centre Partners bought the company, we had not fully integrated the two divisions and indeed still had two separate cultures.

In addition, we were sorely in need of right-sizing based on sales and profit trends. Under Bob Scribner’s leadership, the first thing we undertook was to create a single culture. We did it by clearly establishing our vision to be a customer-driven company, removing folks that didn’t buy into that vision and aggressively communicating to the entire organisation what it was that we were all about.

To right-size, we combined marketing services, procurement and the credit departments, so they were under one roof. We eliminated redundant customer service and warehousing in New England, got rid of selected senior executive positions to flatten the organisation and reduced headcount across all departments.
OPI: It’s been about five years since Centre Partners invested in ActionEmco. With investment firms’ relatively short to medium-term outlook in mind, what’s the next logical step for Centre Partners? And where would that leave ActionEmco?
MM: Centre Partners has been a terrific partner and great supporter. But, as you rightfully point out, the usual investment window is five to seven years and September this year marks the 5th anniversary of the acquisition.

While no one is in a hurry, strategically we think it is important that we look at alternative financing and perhaps a strategic partner to help us expand the business while providing Centre with an exit strategy.

OPI: OK. Moving on to your customers now, what’s your typical dealer profile?
MM: Our typical dealer is independent, of course, and generates annual revenues of $2-5 million.

OPI: How has consolidation in recent years affected your customer base?
MM: To some extent it has reduced the available customers and also put some businesses out of our reach. For instance, we are not a supplier to WB Mason, so every time Mason acquires a dealer that does business with us, we lose that volume. And Mason has certainly purchased its share of dealers in the past few years.

That said, I think the overall trend is positive. Businesses buying other businesses is normal and an independent dealer that grows through acquisition is healthy for the industry, the channel and ultimately for us.

OPI: As far as I’m aware ActionEmco does relatively little business with any of the power players. That said, how influenced are you by the overall performance of the big boys’ delivery businesses?
MM: The big boxes have significant influence over the independent channel. We monitor their consumer pricing and marketing efforts closely so we can help dealers compete successfully against them. As their retail businesses continue to slow, we expect that they will become even more aggressive on the B2B side. We are constantly working on new ways to help dealers differentiate themselves and stay ahead.

OPI: The big boxes are creating a lot of stir in the US at the moment, first up Office Depot with its lacklustre performance and also its leadership issues. What’s your view on Depot?
MM: To paraphrase, "beware of injured businesses"! Depot is still a very large company with significant resources, run by some very smart people. And while I know it has had some difficult times, we still consider the company to be a formidable competitor.

OPI: The state of Georgia has recently taken away its GSA contract from Depot and the company is also under scrutiny in a number of other states. Good news for independents?
MM: Absolutely. The biggest challenge independent dealers have today is fighting the perception that bigger is better. Independents are more than capable of providing good service, large product breadth and competitive pricing to any customer – large or small. The issues with these GSA contracts will only help the channel illustrate that effectively.
OPI: The biggest story of all at the moment is Staples’ planned takeover of Corporate Express. If Staples were to succeed, what would that mean for the independent community in the US and also for the country’s wholesalers?
MM: Either of my competitors would be better suited to answer the question about the impact on the wholesalers, as we are not doing significant business with either one of those two big boxes. As far as the impact on the independent community is concerned, I think the short and long-term impact would be positive.

Short-term there will be sales representatives that will jump, or be pushed, from either company. They will either strike out on their own or will end up at an independent dealer. Also, both companies will be pre-occupied with this situation for the foreseeable future, which will allow savvy independents to take some market share.

Long-term and if the acquisition succeeds, you will have a very large player that could make it easier for a more nimble competitor to take market share. If it doesn’t succeed, it will still take months for things to return to normal again within each company, opening up a window for independent dealers.

OPI: Would a deal be beneficial or detrimental to the industry as a whole?
MM: The OP industry is very resilient. While I don’t believe creating a huge competitor is ever healthy for anyone – vendors, competitors or customers – as long as businesses need office products, I am sure the industry, and the independent channel, will continue to thrive.

OPI: Lastly, OfficeMax – what’s your view?
MM: I just don’t know them well enough to comment.

OPI: Let’s move on to the wholesale channel. SPR has just closed its deal with O Henry. What’s your opinion – is it a good fit?
MM: SP Richards is a fine company with a long history and a very strong management team. As far as its reasoning for this acquisition and the strategy behind it is concerned, you will have to ask SPR directly.

OPI: Fair point. A combined ActionEmco/O Henry might have been another possibility, of course… Was that ever on the cards?
MM: We worked very closely with Barry and Ronnie Frahm for many years. They are excellent business people, ran a great company and are good friends.

We were very close to coming to terms, but could never quite get there. We are disappointed that we couldn’t close the deal, but I am sure Barry and Ronnie did what they thought was best for their company, their employees and customers.

OPI: I guess there’s a good chance that ActionEmco may capture some of O Henry’s former business in the inevitable integration process that will follow.
MM: We have begun a daily truck service into the south-east and have been extremely gratified with the reaction from independents there.

OPI: With O Henry acquired, that’s another small regional wholesaler gone from the US market. Good or bad news for the US wholesale sector and for independent dealers?
MM: I never think of these things in terms of good or bad. It is just part of business. We consider the O Henry closing as an opportunity both for ourselves to expand geographically and for our marketing organisation AMW to look at opportunities to find new partners.

We hope that enough independent dealers, when given the choice, will consider ActionEmco as a viable partner to help them grow their business, in turn allowing us to continue to grow.

OPI: You mention AMW. With one out of three partners gone in this alliance, how do you view the future of AMW? Are you seeking further partners and/or is the group as it stands at the moment viable going forward?
Jack Reagan: It’s a bit of both. While O Henry was a founding member and a good partner at AMW, it represented the smallest part of the alliance in terms of purchases. We are looking at a number of options going forward and are open to strategic discussions with any industry wholesaler, based either in the United States or even abroad.

At the end of the day, ActionEmco has the scale to stand on its own but we feel that much more can be accomplished when you have a regular forum to exchange ideas and best practices.

OPI: Your remaining partner at AMW now is PPI Wholesale, a smaller operator than ActionEmco. What does each party bring to the table?
JR: PPI is a quiet but amazing story. It has sustained growth each year for the eight years that I have been involved with AMW and from what I have heard every year before that. It has recently completed a change in day-to-day control from Harvey Greenberg to Barry Greenberg and did this without missing a beat.

Barry is a close ally and friend, we talk regularly and I very much value his keen business sense. I recently visited him in Los Angeles and we discussed the many different paths AMW could go.

OPI: You said earlier you’re not opposed to talking to organisations outside the US. What about interACTION – do you have any links with this European wholesaling alliance?
JR: When Bob Scribner was here, he had a relationship with Alan Barclay from Kingfield Heath and Michel Timmermans [Timmermans is now part of Spicers] and we had some general discussions with both their teams when they were part of interACTION.

There were many similarities between our organisations and we learned a great deal about each other. At the time, we all had too many internal initiatives to give the relationship the time and effort it needed to see if it really made sense.

My understanding is that interACTION has continued to prosper and perhaps the timing is better now for both of us to revisit.

OPI: Please tell me about the licensing agreement between is.group and AMW and the creation of the independent-only private label brand Legacy.
JR: The idea for Legacy was one Mike and I tossed around for a long time. Although we were happy with our private label brand Directors Select, we needed more scale and felt strongly that the independent dealer needed help in this area. We spoke to every major buying group in the US about participating.

is.group was very interested and we quickly became partners in the brand. is.group owns the trademark and we now basically have an open-ended licensing agreement. is.group and AMW combined their volumes to get the scale we needed to kick off the brand.

The concept is unique to our industry. We sat down in an open-book relationship with one of our largest customers and negotiated with the manufacturers. We were told it could not be done. We then took those prices and made them available to any independent dealer that can buy at the manufacturer-recommended quantities.

It’s still in its early stages, but it has been wildly successful so far and I think Mike (Gentile) and Mike (Foster) would agree.

OPI: Does ActionEmco still have its own brand?
JR: No, we gave up our own brand to focus on Legacy.

OPI: The relationship between wholesalers and dealer groups occasionally borders on the competitive, all in the interest of a healthy dealer community. What’s your view?
JR & MM: We consider both is.group and TriMega significant partners and important allies. We do not, nor will we ever, consider them competitors. Their goals are exactly aligned with ours – to keep the independent channel alive and healthy.

OPI: In terms of product, what are your dealer customers looking for? What are the slow, medium or exceptional growth categories for you right now and where do the opportunities lie?
JR: We are in the same primary categories as our competitors. That said, we differentiate ourselves by capitalising on the less-is-more philosophy. We don’t load our books up with multiple pages of the same product by different manufacturers.

Instead, we focus on the categories driven by consumer demand and make sure our offering can fulfil the demand and most importantly make the shopping experience a more pleasurable one.

OPI: Your customers now have access to Educators Resource’s school market product mix. Has that deal been beneficial for both parties?
JR: Great question! We realised that we were no experts in the school supply business, so went out and found a partner that was. Educators Resource is the largest school supply wholesaler in the US.

Its management team fits nicely with ours and the company was looking for entry into the independent dealer channel. We think we provide a very unique school supply solution to our dealers with a product selection that is second to none.

OPI: Are you competitive with the likes of Tech Data, Ingram Micro or even Supplies Network as far as EOS and other IT products are concerned?
JR: Hardware is a very small part of our offering, but IT supplies is a large and growing sector. In 2007, AMW contracted Michael Scannell, former president of Daisytek, to lead our efforts in this category. He added a significant amount of expertise to Ken Edward’s merchandising team here at ActionEmco, and under his leadership along with Ken’s we have made significant changes.

With over 4,000 SKUs ready for next-day delivery we now compete very nicely in this category. We have a huge advantage in that we wrap and label every order for our dealers and deliver the same day to our customers along with over 20,000 additional SKUs.

In 2009 we will be adding five new key vendors in this category, including a few surprises.

OPI: What other logical category extensions are there that dealers, and companies such as ActionEmco, should be looking to exploit to stay competitive?
JR: We believe we have the cores more than covered. As we’ve just discussed, last year we made major changes in our IT supplies and added school supplies. This year we will be taking jan/san and breakroom to another level.

We will be doing more fine-tuning in all these categories in 2009. In addition, we have a team that is looking for anything that can be distributed and sold into the office effectively. Merchandising is always in motion and our advantage has been our ability to react quickly to market conditions.

OPI: Can you tell me about your gross and net margin trends?
JR: We are challenged every day on margin, as is our entire industry.

OPI: In a nutshell, who have been the smartest operators in our industry over the past few years?
JR: Certainly we are competing with two very successful companies in SPR and United. Although we have little contact with them, Staples seems to be the benchmark everyone cites when talking about well-run companies.

MM: We have the utmost respect and admiration for all of the entrepreneurs that we work with daily. Singling out specific independent dealers for their accomplishments is not our style. We think they all do a remarkable job in the face of some very formidable competition and our goal is to support them in those efforts.

OPI: What is it about this industry and working at ActionEmco specifically that you two enjoy the most?
JR: That’s an easy one. We have a great team of senior managers at ActionEmco. We have been able to mix together talent that was previously at ActionEmco as well as bringing in other industry veterans. They have all blended together nicely and that really makes this a very unique and fun place to work.

MM: I completely agree. The best thing about ActionEmco is the great group of folks we work with. From the warehouse floor to all of the departments in this company we have a group of people who work hard every day for the independent dealer. They care about the company and about our customers – you can’t ask for more than that.

OPI: Lastly, it’s already been a long election campaign in the US – what would be the more beneficial election outcome for independents?
JR: Well it’s going to be interesting, but I think Mike and I would totally disagree on who would be more beneficial to the independent community, so maybe we can leave it at that!