by Stephen White
In the second part of OPI’s look at the US wholesale scene, United Stationers and SP Richards explain how the dealer has become their favourite customer
The economy may be shot, but there have been worse times to be an independent dealer in the US because even if inflation goes through the roof as your pension plans go through the floor, fear not, your wholesaler needs you!
Or at least that is the message currently coming out of both majors in the market, SP Richards and United Stationers. Of the total $350 billion OP market in the US, independent dealers account for $20.7 billion, just 6 percent. However, you only need to look as far as SP Richards’ latest quarterly results to realise just how important these ‘6 percenters’ have become to the major wholesalers.
Although the wholesaler said it was pleased with its results in some sectors such as jan/san and core office products, so-called tech products and furniture suffered mid-single digit falls.
Elsewhere, sales to the power channel are down 10 percent in the quarter and by 7 percent for the year. But in the independent dealer channel things appear healthier and up by 2 percent. Not outstanding but the ‘6 percenters’ are providing a useful and timely boost.
"It may not seem like much but it’s not in the negative," said SP Richards’ Chairman and CEO Wayne Beacham at its ABC event. He also stressed that among its elite group of top 150 independent dealers there is currently sales growth of 10-15 percent.
It was either happy coincidence, or more likely a clear indication of how important the independent dealer has become that Tom Gallagher, Chairman, President and CEO of Genuine Parts Company, chose to speak at ABC for the first time in five years in July.
"By working together we will collectively navigate our way through the challenges and issues of the industry as they present themselves and the dealer community will continue to grow and prosper in the years ahead," he told the delegation.
Part sales pitch and part goodwill gesture, but Gallagher’s sentiment underlines a serious point: in the OP industry of 2008, the relationship between dealer and wholesaler has reached a point of total mutual reliance.
The wholesaler has to walk a careful path, taking on the rising costs of many goods and services from its own suppliers and gauging how much of that cost can be passed on to its customers, the dealers – even if (post-ActionEmco) those customers now have very few other options in terms of one-stop supply. As Mike Gentile suggested the virtual duopoly of United and SP Richards is a situation which could be abused to fix prices.
During ABC, Beacham, was especially keen to stress the company’s commitment to assuring that prices are fair across the board. "SP Richards doesn’t just sit back and take price increases from the manufacturers," he said.
In Beacham’s view, SP Richards has a role to fight on behalf of the independent dealer with the manufacturers in keeping costs down. "We push back by making manufacturers first justify the price increase; utilising the same percentage and time line for increases across all their customers, and accepting no offsets in price."
The promise that "through the use of technology, better marketing and customised material and a broader product offering with less duplication, SP Richards will continue to drive independent dealer success", may not be enough if there is a prolonged downturn in the economy. If fuel prices stay high and inflation rises, being an independent dealer may become expensive.
"The economy is significant," adds Pat Collins, SVP of Sales and Marketing for United Stationers Supply. "Obviously changes in employment levels will affect the consumption of our industry’s products. And tight credit markets will make it tougher out there as dealers need working capital."
Specialist wholesalers and suppliers are offering his company stiff opposition and creating a choice for dealers.
"It may sound extreme but we have a healthy paranoia at United that somebody is going to come up with a better idea to serve some of our customer base," he says. "Obviously we like to be first to new markets, but in the wholesale space there is always someone that will come along armed with new models that focus on particular vertical niches. Look at the schools arena, there are some guys in there really opening up the space."
"You have to remember that dealers are not bashful and you get affirmation every day about the success or not of your delivery. If you are under-delivering in value you will hear the words and see it in actions. They will pick up their business and go.
In the last issue, Bob Scribner, the former Chairman of ActionEmco, claimed that United Stationers could do with getting some street knowledge when it came to understanding how the dealer channel works. Collins hints that after some introspection, United has undergone a change of mindset and realigned its priorities to achieve that.
"From our perspective, the dealer channel is clearly our lifeblood," he enthuses. "A few years back we restructured some of our sales and marketing to place business development into our field operation. This was purely to help serve dealers, and help them expand. We realised this business was less to do with competing with other wholesalers but more to do with helping our customers attack their markets. It is critical to our long-term success."
The expansion of one-time narrow and niche markets such as jan/san has opened wholesalers eyes to how dealers are able to open new markets for them, but is also testing their ability to maintain high levels of supply. A network of wholesalers that could fulfil the multiple demands of dealers would add flexibility on the supply chain but according to Collins is unlikely and would be detrimental to levels of service.
Furthmore, do dealers want to have multiple points of inventory coming in and then having to co-ordinate that? SP Richards and United are eager to show they are able to offer a unique opportunity to broaden their offering and satisfy a wider swathe of business products. "One of the recurring things we hear is that small and medium businesses want less complexity in purchasing," says Collins.
United feels its scale is its strength and is constantly looking to expand its SKU offering into other categories: "whether that’s by traditional expansion or through acquisitions of other business products and distribution companies. How we integrate them remains to be seen, but those opportunities are there."
Mike Maggio, the former CEO of ActionEmco, feels that while wholesalers and dealers have made considerable progress in understanding how they can work together, the manufacturers are still some way behind.
"You know we have this great three-stage model (manufacturers to wholesalers to dealers/resellers), but the manufacturers don’t know how to make the most of it," he says. "They do not have a line of communication with the dealers. And they’re the ones that are in contact with their customers."
Collins believes it is the role of the wholesaler "to make markets and bring a diverse group of suppliers together with a diverse group of resellers. It is only wholesalers that make that happen and tell their story and market their product to the dealer on their behalf."
The manufacturer has to recognise it needs the wholesaler in tandem with the dealer. And realise that while wholesalers may boast that they are able to help market product in, within and around the supply chain and provide sales data, it is the dealer that first knows the success (or not) of a product.
"The wholesaler/dealer relationship is so important but it’s time to open up the lines of communication between everyone," says Maggio. "It just needs someone with the vision to do it."
On the horizon
In their enthusiasm to follow their dealers into new markets both United and SP Richards suggest that they may begin to look further afield in terms of offering wholesale services to other industries. Maggio feels that is inevitable if they are "to expand and grow".
Or perhaps they will away obey the natural law of the OP industry and consolidate in the future? Collins is quick to dismiss the idea. "We will continue to see consolidation among dealers. However, a merger between SP Richards and United? No," he laughs. "That is not on the horizon!"
United Stationers: Raising money for the ‘Cabbage’ building
In September of this year, the US office products industry turned out in support of the most successful fundraising campaign in its history.
More than 800 OP executives were at Chicago’s Field Museum to attend the annual Spirit of Life gala dinner, marking the end of a year’s fundraising efforts in aid of the City of Hope (CoH) cancer research and medical centre.
There was extra reason to celebrate this year after the industry managed to raise $7.3 million for the vital Californian facility. United Stationers’ President and CEO Dick Gochnauer received the Spirit of Life award after United’s Associates pulled together to raise $807,000 towards the total – bursting through their $500,000 target.
The record result added to a long history of support over the past 26 years, which has seen the office products industry raise over $70 million for the cancer charity.
"I am proud of our industry and of United Stationers for stepping up in a really difficult year to set a new record in giving," says Gochnauer.
"It shows the dedication our industry has to reaching out and doing something for others."
In particular, the office products industry has firmly got behind the so-called ‘Cabbage’ building, a centre for bio-medicine where scientists grow genetic material in trial quantities – a key area of medical research that continues to be a bottleneck, holding back the design and testing of new medicines.
The OP support for the Cabbage building has been a key reason why the CoH has been able to cut down significantly the time it takes to bring new ideas, solutions and cures to the market.
Gochnauer believes CoH has helped the OP industry in a number of ways, pointing to the various events that occur throughout the year where people put competition aside and get to know their fellow industry members in a different way, a way they would not otherwise see in a straight business relationship.
"In many respects CoH makes it a more solid and more pleasurable industry to be a part of. Companies and the people who work within them can take pride in the fact that there is another dimension to what they do every day. That dimension gives people a sense of purpose and job satisfaction that wouldn’t exist otherwise."
Jamie Ruggles (who was singled out by Matt Dodd, Senior Director of Development at CoH for special praise), the Associate Fundraiser’s ‘campaign manager’ since 1999, says: "We find that we are only limited by our imaginations and our creativity – and we have proven to be a very creative, dedicated, resourceful and passionate group of people."
This year, the field locations were given a special incentive to get their associates involved: the top three winning facilities (determined by the percentage of associates contributing through payroll plus the actual dollars raised) received cash prizes to be used at their locations.
Independent dealers are an important part of the fundraising effort, raising more than $200,000 this year and probably much more, once the various ways in which money is given has been totalled. Gochnauer was "impressed" with dealer responses. They "stepped up" this year, he said.
Gochnauer says the difficult economic problems that are afflicting the industry make supporting CoH even more important. The veteran campaigner says people need to steel themselves against reducing their support, especially as of other contributors may give less this year.
"When we are in times like these it is tougher," he says.
"This country is the most generous, raising hundreds of billions of dollars from private individuals and companies. This effort is making a huge difference in our country and the rest of the world, so as bad as it may seem here, it is worse elsewhere and unfortunately cancer doesn’t rest.
"There are tremendous advancements coming and we are making exponential leaps in the fight – we have to keep that pipeline flowing. This is the time when those who can, dig a little deeper."
Next year’s dinner will take place on the 24 September, 2009 in Chicago.