Hot Topic: The poisoned apple?

Technology is just another adjacent category that helps resellers counteract the decline of OP. But is it as simple as that? OPI finds out...

You hear the stories and see the stats: about tablets having truly entered the mainstream in 2013, so much so that they’re already becoming commoditised; about the growth in 3D printing and the whole new set of consumables it brings with it; about the increase in the mobile workforce and changing working habits.

All this potentially means a huge change in the type of products companies need for their offices and staff as legal pads get replaced by tablets, pens by styluses, copy paper by digital storage solutions. (See also our two category analyses on desktop accessories and viscom products on page 45 and page 49 – both influenced by these changes).

But are these developments really resulting in a sea change among the OP community; is the technology category right up there, along with jan/san, breakroom and MRO/safety in the quest to offer it all?

Take a look at many resellers’ web shops and bricks-and-mortar stores and what you see from the outset is encouraging, with most having a comprehensive ‘technology’ section. Germany’s largest B2B mail order operator Printus has been offering the whole gamut of tech products – including the coveted Apple range – for years; new kid on the block Mobilegear.com in the US sells all imaginable products linked to the mobile working shift.

Staples has finally begun selling Apple iPads (and selectively iPhones) in its US stores as well as online (following on from its Canadian lead), while Office Depot is now one of the largest authorised Apple resellers in Germany (since May), having been successful with the range in France for a number of years.

But digging a little deeper, the reality still often looks somewhat different, with less-than-impressive financial results from the category. And the further you go down the chain, the more likely it is that a technology offering – and what you would define as such – is at best nascent, at worst misleading. Even a big operator like Printus says: “In the technology segment, we concentrate on office technology, ie shredders, printers and so on. In terms of media and entertainment electronics, we do offer Apple products, but merely to round off our overall offering; it’s not a focus area for us.”

Mobilegear, too, doesn’t actually offer any hardware as, says founder and President/CEO Doug Nash, “being a start-up, trying to compete with major device resellers is tough, so we are going after more of the tech accessories to begin with”.

All about margins

And that toughness relates to several areas. One of them – and perhaps the first big stumbling block – is margins, often quoted as notoriously low on technology products, particularly devices like tablets and laptops that would typically have margins in the low single digits. Accessories paint a somewhat rosier picture, averaging perhaps 15%, but that’s still only half of the 30%+ that some more traditional OP products still command.

To some extent, it’s a simple question of maths, of course, especially when factoring in higher ticket prices and higher volume.

Maths aside, however, Nash points to a number of other factors that make the category that bit more challenging for OP dealers. He says: “First of all, understanding technology isn’t easy if your focus is coffee (just as an example); secondly, product lifecycles in the technology segment are very fast and work in months rather than years compared to OP or jan/san. Thirdly, technology products are more ‘episodic’, ie the replacement cycle is much longer. Lastly, the competition that focuses only on tech is already out there and it lives off lower margins, higher product turnover and in-depth knowledge of products.”

But there is something else, adds Daniel Kelly, General Manager of Stuart and Dunn Office Choice in Australia. He says: “I believe there needs to be a change in mindset in the independent channel when it comes to the viability of tech products and the low margins in the category. With the right strategy in place there is a bigger picture. A sale of a laptop where you might make A$6 (approximately US$6) might sound unfeasible, but the lifetime value of that customer and the other products and services you can provide will put that A$6 into a very different context.”

The OP industry has already seen this crossover into a more service-oriented proposition when MPS started becoming an extra channel of revenue for many players. As Bill Erpelding, Marketing Manager at Supplies Network, a division of Distribution Management, says: “As a wholesale distributor in the print space, we’re in a high-volume, low-margin business. So for us the margins on tech accessories are actually quite high and we are seeing some growth in the category from our resellers. For OP dealers, the secret is to find that extra service proposition that singles them out as the go-to destination.”

In a category as broad as technology – from server and computer hardware/software and printers over toner and ink to networking solutions and cables – getting that service proposition right is no mean feat.

And indeed this broadness – on top of the margin issue – is something that is as scary as it is exciting for resellers that don’t sell these products as part of their mainstream range.

Focus on accessories

Nash believes OP resellers – like Mobilegear itself – should approach the category from an accessories angle first. “Dealers should have tech accessories represent at least 10% of their sales if they want to truly capture their customers’ purchases of these products. Today, I estimate that these accessories probably represent less than 5% of dealers’ sales and none of them sell the device. Spend more time being focused on becoming the source for tech accessories first and increase your business that way before jumping into selling the device.”

That is also broadly in line with what Spicers is seeing in the UK among its dealer customers. CEO Alan Ball talks about a cautious – and slow – approach, and one that doesn’t include the devices.

“We are seeing a small number of traditional dealers moving into the technology sales arena,” he says. “However, the consensus with items like tablets and smartphones is that they do not want to get tied down with complicated contracts on phones, and tablets are simply not competitive.”

Box-moving mentality

So far, it’s essentially the focus Nash is referring to that is often missing. Hedera’s Philip Becker knows from experience how important it is to embrace the technology category wholeheartedly and refers to dealers’ box-moving mentality and the fact that, just because you become an authorised reseller (see also box ‘Apple of the eye’, below), for example, it doesn’t mean it’s all plain sailing from there: “People selling office supplies are completely different from people selling Apple products. It’s a different ballgame and you have to hire the right people to make it work. If you stick to just box-moving and the box doesn’t move, it won’t work because margins are too low for that. And sooner or later your finance guy will tell you to stop it because it just doesn’t make any money.”

Needless to say perhaps, in order to succeed in this area, your supply chain has to be ultra-efficient. Says OfficeTeam’s CEO Jeff Whiteway: “There is not the margin to allow for high levels of stock. Also, the high ticket-priced items are working capital-hungry, especially as today’s latest model is next month’s redundant one. Getting the ‘package’ right is the key to success, but the OP dealer is in a great place to maximise such potential.”

But while he adds that the increase in plug-and-play technology to some extent ‘de-skills’ the sales process and also make this category particularly suited to online sales, the very fact that not all technology requires a service aspect works to dealers’ advantage.

Gilly Blackburn, Head of Technology Products at Vasanta Group, agrees: “One of the key requirements of selling a product is being able to talk about it in an educated manner and understanding what the customer needs. In that sense FM products are perhaps an easier sell. In the technology segment, it depends on what level of technology the reseller starts to look at. What we’re trying to do is encourage our resellers to just focus on simple plug-and-play technology. We’re also trying to help them sell items that are not a million miles away from the things that they’re selling already. Many, for example, already sell EOS, so it’s only one little step further away to sell a printer or a projector. It doesn’t have to be about cloud-based services and solutions – just think about the simple things that are nearer and easier to touch.”

That leap in the customer’s mind as to who ‘should’ be selling this category is precisely what Stuart and Dunn’s Kelly struggles with. And ironically, it is the big boxes with their all-round exposure that can do independents a real favour here.

He explains: “Convincing the consumer that an office supplies provider knows what they are talking about when it comes to technology isn’t easy. I think the independent channel has a real chance here to piggyback on what the big box players are doing because those big guys are already pushing the statement to the consumer that we can compete.”

Specifically referring to the Australian market, Kelly adds: “There is no question that Wesfarmers has done and continues to do well with both brands, ie Officeworks and Harris Technology, as has a big player like Staples. They are helping to bring that perception to consumers that the entire industry is here to talk tech.”

Australia aside, where the OP wholesale channel is virtually non-existent, for most independent dealers, selling technology product means a heavy reliance on their wholesale partner, from a product, knowledge, service as well as supply chain efficiency point of view.

Whether the OP wholesalers – sometimes in partnership with the more tech-orientated distributors (cue Spicers’ deal with Westcoast, for example) – always have the necessary expertise, range and connections to provide that heady combination, is perhaps debatable at times. But what they do offer is a much needed intermediary voice between the dealer and the manufacturing community.

Thomas Apelrath, Managing Director of ADVEO in Germany, comments: “All players are looking for lean and inexpensive ways to market and the wholesale channel plays a vital role as it can take over functions that manufacturers no longer want to provide, especially in service and support.”

He adds: “We see ourselves as the interface between manufacturers and dealers. For manufacturers we can comprehensively cover the small and mid-sized dealer market segment and thus give them access to these resellers. The challenge is to find and partner with the dealers that are willing to transform their business and which are capable to develop their organisation.”

Work in progress

That transformation often goes hand in hand with the snapping out of preconceived ideas on the part of dealers, as Kelly has already alluded to. And that too is a continuous process, explains United Stationers’ Director of Category Management (Technology) Janelle Rampersad: “The largest barrier to success for dealers is breaking away from legacy paradigms of the OP business, such as quarterly pricing, print vehicles and next-day service. These are not elements required to be successful in selling technology products.”

She adds that ‘transactional products’ that do not require a consultative sell are the easiest products to sell for the time being. They also have the most transparent cross-channel pricing. 

But she points out: “The more dealers can align with specific manufacturers, get involved in vendor channel incentive programmes, and provide a consultative approach to selling, the less pricing pressure they face in the market.”

To sum up, Rampersad is keen to emphasise that “dealers have a good likelihood of competing well in technology products, and must recognise that their high-touch service adds value and should be a source of confidence”. 

Coming to a store near you…

Retail remains a good place to be for the technology segment as customers like to touch and feel the products before they buy (even if they ultimately do so online). The service component is at least as compelling, with immediate and specialist advice a big draw.

As part of the whole retail experience, the store-within-a-store has long been a popular concept, especially if the ‘product’ sold is somewhat outside the core remit of the retail host or indeed if it’s operated as a standalone franchise to attract customer traffic (like a McDonald’s in Walmart!).

Apple and Windows are arguably the undisputed kings in the technology area as far as their retail exposure is concerned, with the likes of Samsung very much playing catch-up.

But the South Korean electronics giant has now gone right to the heart of its customer base. In the spring of 2013, it announced that it was going to launch 1,400 mini Experience Shops in Best Buy and Best Buy Mobile specialty stores in the US.

It’s the first time Samsung created a retail offering like this in the US – unlike Apple which even has a store-within-a-store at Walmart.

On top these 1,400 US locations, Samsung is also pushing ahead with plans for a greater presence in Canada and in Europe.

For Best Buy, this has been an inspired move too and tallies with its “sales floor optimisation” that sees Apple, Windows and Samsung all occupying their own brand areas within many stores, leading some customers to feel as if they’re in a mini exhibition hall.

With online being the real growth driver for the company (sales were up 26% in its latest Q4 results and 20% for the full year), but profitability back in the stores, linking the two channels more appears a sensible thing to do. In its results announcement in February, Best Buy revealed that around half of its online customers picked up their goods in store – giving the electronics retailer another incentive to make both experiences as compelling as possible.