Executive Briefing: Direct Line

 

Award-winning e-commerce entrepreneur Mitesh Soma has entered the UK office supplies sector. opi.net spoke to him this week to find out more about his new business.

 

It was the impression that he was paying a high price for basics like paper, pens and ink at his Chemist Direct business that first sparked Mitesh Soma’s interest in selling office supplies.

 

"As we were growing the Chemist Direct business, sending out thousands of invoices, I noticed that we were spending more and more on office supplies and consumables," the 33-year-old told opi.net.

 

"As I began to look at going direct to suppliers, I understood that there were extreme mark-ups available on stationery lines and that gave me the idea for Stationery Direct."

 

Soma says that it took him about six months to set up the Stationery Direct operations, recruiting around ten people in the process, before it went live at the beginning of January.

 

"I looked for people with a strong background in the office products industry who could bring experience and contacts with them," he said.

 

Soma has enjoyed success with the Chemist Direct e-commerce site that he set up with his wife, Krishna, in 2007. That has now grown into a £15 million ($24 million) business, an achievement that earned Chemist Direct the Young Company of the Year at the 2009 Growing Business Awards.

 

Ironically, Soma received that award from Theo Paphitis, the Chairman of stationery retail chain Ryman, one of the companies that Stationery Direct is targeting with its claim of being able to "slash costs off the same products found on the High Street".

 

Soma is quick to play down the rivalry.

 

"We have a different offering from Ryman – it’s a household name, after all. And I have a lot of respect for Theo and what he’s achieved."

 

Nevertheless, Soma is banking on his online model Stationery Direct to compete with larger rivals on the High Street.

 

"We operate a low cost model and just try to keep our cost base as low as possible. This means that we can pass savings onto customers."

 

Another important factor is that Soma isn’t building this new venture from scratch.

 

"We already have the infrastructure in place in terms of warehousing, IT and marketing," he explains.

 

"Stationery Direct is really an extension of Chemist Direct," he affirms. "Apart from the purchasing and operations hires, we have taken on a couple of extra staff for processing orders and added some dedicated stationery people to our call centre team."

 

The new website is using the same proprietary code that was developed for the Chemist Direct website and is operating out of the same warehouse near Birmingham.

 

"We’ve incorporated a few additional features that are tailored to the B2B stationery market as opposed to the predominantly B2C model of Chemist Direct," explains Soma. "Though we do get our fair share of general consumers, too."

 

Stock is held at a 1,000 square metre facility in the Birmingham area, originally chosen for its central location in the UK for the Chemist Direct business. It’s also handily located near a Spicers DDC, and the Sawston-based wholesaler is one of Stationery Direct’s main suppliers, with the website offering Spicers’ 5-Star private label products.

 

"Carrying stock allows us to take advantage of spot deals or special offers – that’s something we’re always interested in," notes Soma. "Inventory price in office products is not so fluid as, say, computer products where things like memory cards can depreciate very quickly."

 

Soma also says that he is able to use some of the same suppliers for both the pharmacy and stationery businesses, such as for electrical products, and that this also helps to reduce purchasing costs.

 

"We are not tied to a single supplier," points out Soma. "We do have a number of key suppliers, including several wholesalers and we are continuing to open more accounts."

 

Products are shipped to Stationery Direct’s warehouse, where orders are processed and then shipped using a third party carrier.

 

Unlike Superstat’s Supermarket e-commerce initiative, where dealers make their own deliveries, Soma believes that making contact with the customer is not important. "In fact, the less contact we have with the customer once the order is placed, the better," he says.

 

"The important thing is that they receive the product on time and it’s well packaged. Hopefully, we won’t hear back from the customer until they place their next order."

 

Repeat business is certainly something that has helped Chemist Direct grow quickly, and Soma hopes that this will also be the case for Stationery Direct. This will be important, because with only a limited marketing budget he’s relying on people coming back. "We are doing some online marketing and things like viral campaigns, but Chemistry Direct grew largely from word of mouth and we’re hoping Stationery Direct will do the same."

 

Soma says that he will be "happy" if first year sales are comparable to those of the first 12 months of Chemist Direct which took in £5 million and thinks the business could grow to £10 million in two years.

 

But Stationery Direct certainly doesn’t have the marketplace to itself. Apart from the power channel players like Viking Direct, pure online suppliers like Euroffice, and Netstationers are already well established and there are a host of other smaller online suppliers, including the similarly named UK Office Direct. Let’s not forget Amazon or mass retailers like Tesco either, which are formidable competitors.

 

Whether the Stationery Direct model is that different to be able to really undercut the competition on price will become clearer as it starts to ramp up volumes and presumably negotiate better deals with vendors and wholesalers.

 

Last year, Soma secured a £3 million investment from venture capitalists Atomico for a minority stake in the business. They could well be looking for a return on their investment in two to three years’ time, at which time one of the bigger players may be interested – if the business is successful.