Big Interview: Alive and kicking

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by Heike Dieckmann
With some of the mightiest competitors in our industry at their doorstep, independent dealers in the US have had their share of challenges over the years. Yet, Charlie Cleary of buying group TriMega remains positive about the state of play and the future opportunities out there…
In the great scheme of things, nearly 20 years in business is not a long time. But since its inception in 1988, TriMega Purchasing Association and its dealers have had a diverse history. It’s been different but no less interesting than that of the power players which, practically over the same period, have made the creation of such an organisation necessary in the first place.
The group as it stands today is the result of several buying groups merging – National Office Buyers, National Purchasing Association, Basicnet and OPNNA. All these culminate in 550 dealer members with a combined purchasing volume of $1.1 billion.
With the exception of Puerto Rico (which is subject to US jurisdiction and sovereignty), members are all US-based and range in size from $1 million in annual revenues to nearly $100 million. Such a discrepancy in size means that there’s perhaps no such thing as a ‘typical’ dealer. That said, president Charlie Cleary points out that about half of TriMega’s members have been in business for more than 35 years (second generation ownership) and employ about 20 to 35 staff, while 75 percent operate out of one location and inventory 100 to 1,500 products.
Members operate both stocking and stockless models and go to market in different ways. The majority focuses on sales representatives, while others use telemarketing, the internet and mail order to sell product to the small and mid-market customer. In total, 35 percent of sales are conducted online and that percentage continues to grow.
But while TriMega has grown into a group with diverse members of varying sizes, different operating models and marketing strategies, they all benefit from the single most important aspect of TriMega – its purchasing power. Combine that with strong wholesaler collaboration on topics ranging from technology over private label to marketing and product standardisation and it makes for a very healthy proposition indeed, says Cleary.
OPI: Let’s start with the state of the US economy and the predictions of a looming recession. Are you worried about this at TriMega?
Charlie Cleary: We certainly have concerns about the future of the overall US economy based on recent quarterly results from the big box retailers, industry manufacturers and the wholesalers. The slowdown in the housing market, huge losses in the financial sector and a resulting credit crunch for consumers could certainly impact consumer demand and retail performance.
So yes, we are definitely concerned about the economy over the next year. One big question is the impact of a presidential election year on the economy. Historically, the economy has performed very well in an election year.
OPI: Are your members feeling the pinch already?
CC: It doesn’t appear so. From where I’m standing the slowdown in the economy has not yet affected the independent dealer. In fact, TriMega’s dealer members are having a very strong financial year, with many of them showing double-digit growth.
For now it’s the retailers that are seeing the economic impact of a slowdown, but it has not yet affected the mid-market commercial business serviced by the independent dealer channel.
OPI: What are the main issues for the dealer community in the US at present?
CC: First up I would say that the independent community in the US now is as strong as it has been in the past 20 years. Dealers in business today have weathered the superstores, acquisition mania, loss of the national account market, internet ordering and the private label push and have become very good at serving the small and mid-market segment and large, local and regional companies. Most have turned out to be agile and resilient.
The best operators have embraced technology and driven internet transactions to over 50 percent of their business. They have continued to recruit young, enthusiastic sales and management talent into their organisations, with new ideas and innovation to drive top-line sales. Many have aggressively expanded into janitorial and breakroom product sales, coffee services, ad specialty products and furniture to improve profit margin. They also continue to reinvest in the business in other areas such as technology, distribution, feet on the street, CRM and marketing.
OPI: It almost sounds too good to be true… surely this can’t apply to everyone?
CC: Well, the dealer segment that is challenged the most today is the smallest dealer that doesn’t have the economies of scale to maximise profit margin, invest in marketing and continue to add salespeople to grow sales. It’s this segment that continues to feel margin pressure from the big retailers, struggles to grow the business in this competitive environment and finds it challenging to continually reinvest in the business.
Also, any size dealer that fails to embrace technology to drive efficiencies, target customers and add value will find profitability and survival difficult to say the least.
OPI: While the big boxes are no doubt snapping at their heels, independents still command the lion share of the small- and mid-market. With that in mind, are dealers getting enough positive attention from the manufacturers?
CC: Our manufacturer partners, and there are about 130 that we work with, have done a nice job of keeping independents competitive in the market. I have often said that the last thing manufacturers want is just a handful of very large customers. Our preferred suppliers have made sure that independents can compete on price to the small- and mid-market customer.
Getting new products to market quicker via independents as well as new product training are two areas where collaboration is vital. New products provide a window of opportunity to capture incremental profits and too frequently independents are missing out on this chance. Manufacturers in partnership with the wholesalers and the buying groups need to speed up product to market to benefit from these profit opportunities.
The solution is a combination of leveraging existing supply chain efficiencies along with product knowledge and sales training that will quicken new product to market via the IDC.
OPI: Let’s move on to the wholesalers. How’s your TriSupply private label initiative going?
CC: TriSupply essentially replaced TriMega’s Value Plus private label import programme. It’s a partnership with United Stationers, SP Richards (SPR) and ActionEmco and aims to leverage the significant volume of these wholesalers’ private label brands – Universal and Sparco most notably – and the capacity that exists in their distribution channel.
TriMega members are currently generating over $125 million in sales on these private label brands. In Q3 of this year, five percent of this volume came through the TriSupply programme with doubling growth every quarter. There is no question that TriSupply has allowed TriMega members to compete on the high-volume commodity products.
OPI: TriMega has seen a substantial increase in its members’ GSA volume. is.group has also won a large GSA contract. Have these achievements anything to do with the clampdown on the much talked about pass-through issue?
CC: TriMega’s GSA volume, through a programme called Governet, will finish the year at over 100 percent growth. This is a credit to Mike Tucker at George W Allen Company in the Washington DC area, who has spearheaded the GSA programme for TriMega and has been instrumental in orchestrating this growth. The increase was also made possible by other TriMega members that are part of our GSA programme.
I wouldn’t say that the growth has anything to do with the clampdown on pass-throughs, however. There has been much discussion, but to date I’m not aware of any meaningful changes that are resulting in new business for independents. In my opinion, there needs to be legislative change to eliminate abuses by the big box retailers before pass-through business starts flowing through the IDC.
OPI: What’s your view on NOPA’s OPIDS standardisation programme? Is it doing what it’s supposed to be doing?
CC: Attempting to create consistent product numbers, unit of measures, product descriptions and other standards across the IDC after decades of everyone doing their own thing, certainly is a huge challenge. At the outset of the OPIDS project nearly two years ago, it was identified that there were close to 10,000 product differences that needed to be rationalised. Today, across the three wholesalers and the four buying groups, there are fewer than 1,000 differences, which represents a tremendous accomplishment to a longstanding problem.

 

There is still work to be done. We need a central clearing house for new product creation in the future, but enormous progress has been made in creating product standardisation for the IDC. The cost savings to dealers in system cross-reference data have also been significant.
OPI: Over half of all independent OP dealers in the US are still not aligned with a group. Why is that?
CC: It’s partly because the national wholesalers have done a nice job of providing buying group-like programmes and services to a segment of dealers. For dealers that are truly 100 percent stockless and want to use the marketing materials, training and networking offered by the wholesalers, a buying group might not always make sense.
OPI: Several dealers have changed their allegiances from is.group to TriMega over is.group’s RDC programme. Have things settled down now and do you believe the programme is sustainable?
CC: There have been about 200 dealers that have moved from is.group to TriMega in the past couple of years because the RDC programme did not work best for their business model. At the same time though, there are still many is.group dealers that have seen the benefits of the model in the form of higher margins, reduced operating expenses and return on working capital. If these dealers can continue to offset the benefits against the higher cost of membership, then the model should be sustainable.
I think the jury is still out on the RDC model but in fairness the rate of dealer transitions from is.group to TriMega has levelled off over the past six months as compared to the previous two-year period.
OPI: Another work in progress is the SAP solution for business products resellers. What’s your perception of how this is going two years down the line?
CC: Well, again, the jury is still out. In concept, the proposition is tremendously exciting. The problem has been execution, specifically dealer implementation.

 

There are a few large dealers slated to go live with SAP in the next few months. If it happens successfully, then we could see the solution really take off for independents. If it doesn’t happen, I believe the company will be done with independents for the foreseeable future.

 

The success of the SAP initiative may also depend on the system improvements by SAP’s competitors and the improved eContent available from SPR and United. SPR’s new product search content is now available through several system providers, is a huge improvement over past content and every bit as good as the big box websites.
Many of the improvements that have been made by the wholesalers and also industry technology providers were to a great extent the result of the announcement that SAP is coming. All told, I believe independents are benefiting from the initiative.
OPI: So in technology terms, how are independent dealers coping at present – is there such a thing as a level playing field with the big boxes?
CC: Technology will continue to be the number one challenge for independents. They simply don’t have the financial resources to continue to invest the tens of millions of dollars invested by the big boxes every year.
That said, the system providers, with the support of the wholesalers and some of the manufacturers have done a good job of providing solutions to meet the needs of the small to mid-market customer. And clearly, it is essential that dealers continue to reinvest in technology improvements to remain competitive.
OPI: You’ve had a partnership with Intec since 2001. That must help…
CC: Yes, our partnership with Intec has benefited TriMega members with cost improvements on technology supplies, while giving Intec members competitive access to the office supplies sector.
OPI: What’s your verdict on further consolidation in the industry? Guernsey, Phillips Group or even the mighty WB Mason – who could be next?
CC: There will be consolidation of the big boxes in the US on the commercial side of the business. Corporate Express and OfficeMax are the most frequently mentioned targets. Limited and selective acquisitions of $25+ million independents by the big boxes will also occur in the future but only where there is a good strategic fit.
You won’t see the feeding frenzy of independent acquisitions again that took place back in the 1990s. Also, an acquisition of WB Mason would need to be a very good strategic fit for the big box that is buying it. I also believe that the integration challenges realised by the big boxes with the Allied and Prime acquisitions would cause some pause of tackling a Mason.
OPI: Let’s stick with the big boxes. Office Depot has recently announced below par results and is also battling with a number of other issues. Good news for independents?
CC: Definitely. Independents are focused on the mid-market customer, provide flexibility and personal service and capitalise on the inflexibility of the big boxes to gain market share. Fiercely independent and entrepreneurial business people know how to seize the opportunities that sprout up when there are these times of uncertainty with select national players.
OPI: Corporate Express is another example with its recent ‘restructuring’. What do you envisage for the future for this particular operator?
CC: Despite the restructuring, Corporate Express continues to be mentioned as the most likely takeover target. It will be interesting to see if the reorganisation results in improved performance. Part of its new strategic direction is to grow share of the mid-market customer, of course, which continues to be the strength of independents.
OPI: Among the big four in the US, Staples remains the darling of the OP industry. What can independent dealers learn from this OP giant?
CC: What independents can learn from Staples is the importance of technology, the benefits of more feet on the street and the importance of balanced, matrix pricing contributing to overall profitability.
We’ve seen Staples take internet transactions to greater than 90 percent of its delivery business and recognised the labour cost savings, reduced errors and increased order size efficiencies that this brings. We’ve seen that more salespeople result in top line growth and responded in kind by hiring more salespeople charged with developing new business. And we have realised that it’s not all about the lowest price but instead about balanced pricing that leads to profitability.
Staples is the leader in the industry today but dealers have learned a lot and are stronger than ever before.
OPI: One area where the big boxes frequently get plenty of press, and perhaps Office Depot stands out as a positive example here, is their environmental focus. What’s TriMega’s stance?
CC: The green agenda has certainly expanded in the past few years, taking on a very positive and progressive look as compared to years past. TriMega has been developing recycling programmes in partnership with manufacturers for the recycling of toner and inkjet cartridges. For over ten years, our programmes have helped dealer members recover millions of toner cartridges for recycling in partnership with their consumer customers.
We have also aggressively marketed the issue in catalogues and flyers with more than 20 percent of the current catalogue offering accounting for recycled products. There’s plenty more to be done though. Reducing carbon emissions, maximising energy efficiency and the collection and recycling of packaging have also become key initiatives for TriMega members.
As you know, one of TriMega’s members, Guernsey Office Products, recently announced that it would reclaim, reuse and recycle cartons, bags and packing material used for the delivery of orders to customers. The benefit of this packaging recycling effort will result in better use of over one million pieces of packaging material annually. This green initiative and others in place by TriMega members will be shared as part of our environmental best practice.
OPI: TriMega is about to celebrate its 20th anniversary. What’s there to come?
CC: I believe the outlook for independents is very bright. Dealers have differentiated themselves from the big boxes in ways that appeal to the needs of the mid-market customer. TriMega will be there for its members leveraging a growing volume to keep them competitive and meeting their future needs.
Beyond buying, TriMega will play a bigger role in sales training and developing eTools for account acquisition and retention. It will assist members with succession planning to assure financial stability and attempt to retain the volume within the IDC. We will further our partnership with manufacturers in developing product knowledge education tools and electronic resources. In addition, we will continue to help our dealers market smarter – producing marketing vehicles and solutions that drive sales, improve retention and add customers. And, of course, there will be more emphasis on technology solutions that will help members remain competitive.
OPI: Finally, here’s the question on everyone’s lips: what are the chances of TriMega and is.group merging at some stage to form a truly magnificent independent dealer force in the US?
CC: I actually believe that the chances are very good. The question is when. One other thing that Staples has shown us is that volume is key to getting the best deal from manufacturers. For independents to continue to successfully compete, they all need to be working together. The possible merger of TriMega, is.group and the other two US groups is a logical step in the long-term survival and prosperity of independent dealers.