In the first of a two-part look at the US wholesale scene, OPI looks at the fall-out of the sale of ActionEmco and how the independent dealer will be affected. Written by Stephen White
If you’re not careful it’s easy to get a little paranoid about consolidation. No matter how well run your company, unless you’re on top of the food chain, you’re prey. Even if you’re happy to swim in your own lake.
Without doubt consolidation has become a bit of a habit in the world of office products. Dealers disappear, groups form, brands are replaced, and companies submerge into larger organisations. Consolidation is the natural law of the OP universe.
Perhaps, then, it was inevitable that the leading national wholesalers in the US, United Stationers and SP Richards, would absorb their next largest competitor ActionEmco into their operations. Until recently ActionEmco had been part of the three-way strategic alliance Advantage Marketing Wholesale (AMW) with O Henry and PPI wholesale that had national coverage and supplied to the independent dealer channel. But according to one source close to the Genuine Parts-owned SP Richards, grew frustrated with efforts to tap into AMW’s 1,500 customers and committed itself to breaking the alliance up.
First O Henry then PPI Wholesale were sold (in March and July respectively), and last month it was ActionEmco’s announced that United and SP Richards were going divide the company up between them. The demise of the one remaining dedicated wholesaler on top of the independent dealer channel moved Mike Gentile, President, is.group, to write an open letter to OPI bemoaning its demise and the effective duopoly in US wholesale that was now created. "I wanted to go out on the edge to bring things into perspective and take us forward," he explains. "There are not many moments in an industry that can be called ‘defining’. We should not miss those opportunities to say or do something that needs to be done to prompt change and make folks think differently."
Gentile’s letter bought into relief the fact that independent dealers now had little choice to go with either United or SP Richards. They of course had that choice before but Gentile wanted to highlight that a specific set of services geared to the independent dealer community was now lost. He is quick to say that he did not intend to attack the two majors but to encourage them to realise that the 2,000-plus independent dealers in the US are more vulnerable than ever to losing out to the big boxes. However he is happy that it has encouraged debate. "Although I had people thanking me for speaking out, some people took it defensively – which they should not have done," he says. "However I am pleased that there are some that realised that things have changed and we need to look at things rather differently. Those that were defensive felt I was inferring that they hadn’t been supportive enough to the independent dealer channel…"
He feels that collaboration between all sides could shore up the industry and everyone, if they play fairly, will still be in the game. He also hints that the letter has opened doors for is.group to the majors that were previously closed ("discussions have taken place"). It may have been the major talking point on the is.group switchboard but Gentile is disappointed that he is yet to receive any feedback from manufacturers. "It’s curious that I did not get much of a response from them," he says. "I think they may still be very concerned with the big boxes and maintaining good favour with them," he teases. "But then if you lay down with dogs you get fleas."
Gentile feels that to appeal to the independent dealer: "they should focus on committing resources through marketing, training, product development."
"Too many of them have their heads in the sand, worried about the economy, and looking for a rise an inflation rise to get them out of trouble. They need to look at their market segments and where they are growing, and everything points to the independent dealer not the big boxes." Vitriolic? Perhaps. But then as David Guernsey, CEO of Guernsey Office Products (GOP) says, the manufacturers and independent dealer community have history.
"Ten years ago the manufacturers thought they could ride the power channel at the expense of the smaller guys. Ironically now they are in a position of weakness too." Like Gentile, Guernsey, rues the loss of a viable alternative to the United/SP Richards axis. GOP’s main wholesaler may be United but 20 percent of its lines had previously been originated from ActionEmco.
"It wasn’t the main part of our business but it was a very important one in terms of specialist products," he explains "I would always rather have a choice of three rather than two. Competition is absolutely crucial. Especially when they can increase your market share."
"We find dealers like having alternatives," agrees Jim Estill, CEO, of IT specialist wholesaler SYNNEX. Estill has a practical view on the demise of ActionEmco: "Markets naturally ebb and flow. ActionEmco is just one of those movements. Whenever this happens, there is opportunity for other wholesalers (like SYNNEX) to increase some share."
The fall of ActionEmco
ActionEmco was always run to encourage a symbiotic relationship between dealer and wholesaler, explains, Bob Scribner former Chairman at ActionEmco and a past President of SP Richards.
"Good dealers always support their wholesaler, where the big box boys will wax and wane with the economy," he says. "I also believe that we were from the beginning far more responsive to the independent dealer than United and SP Richards. They grew
because they were looking for bigger volumes in the big box channel."
"We saw an opportunity with ActionEmco to build a third national retailer. We looked at the independent dealers which were bottoming out at the time and thought we could help them," says Scribner.
The ActionEmco model to compete with its competitors on price and to get inside, support and be a consultant to the independent, ensured that alongside its AMW partners it managed to attract attention from the majority of the independent community. "Right up to the end we were profitable, We were growing, adding $25-35 million in growth per year, but we were losing $10-15 million as dealers disappeared."
Ultimately AMW failed to achieve the critical mass that would have enabled it to keep pace with its competitors.
"The big issues were of scale. We purchased well (as the former President of SP Richards I knew that) however the bigger guys bought better We thought we could deal with it," he laments. ActionEmco was negotiating to buy O Henry but once that went to SP Richards, the strength in numbers and ability to scale were gone. "We lost volume in the group in terms of negotiating power," he laments. PPI followed shortly afterwards and Scribner is frustrated that: "Both would have been a good fit but the timing was not good. We thought the buyer would be someone like SYNNEX. If we had known it was SP Richards then we would have had to go for it."
It wasn’t to be and facing up to having to sell, the company approached IT supply specialist and manufacturer SYNNEX as "they were considering doing more general office products". While they shared a common relationship with is.group, "they were simply not interested". Knocking ActionEmco and other competitors out of the business and tapping into the independent dealer community will help United and SP Richards to grow but dealing with the big boxes is another matter. There are efficiencies to improve and product lines to add.
"The very large customers such as Staples, are looking at every single item and soon as it gets to a certain level, they move them into their own distribution centres," observes Scribner.
The ActionEmco split, a strategic move to reach the independent dealers, could also protect the major wholesaler’s from each other. "They need to work on them because that’s where profit will come from. I know SP Richards certainly sees that relationship in a clearer light," says Scribner. He feels United conversely have some way to go to understand the needs of the independent dealer. "They are very systematic, and not close to them."
He believes United could do with some ‘street’ knowledge. "Interestingly when United purchased Emco they realised how close to the street they were and I’m sure they’ll end up hiring our sales team."
Scribner echoes Gentile’s sentiment for the manufacturers to speak out. "Where are they? They’re getting kicked up and down the streets by impacts but as yet they do not have a voice. But then it’s difficult when your major customers [the big boxes] are your biggest competitors at the same time."
OPWA/OPRA move closer
Finding a way to connect the manufacturers to the remaining wholesalers will be the task of the soon to merge Office Products Wholesalers Association and Office Products Representatives Association.
OPWA’s EVP, Cal Clemons explains that tying the two together will be crucial if there is to be a future for independent wholesalers but equally he feels that the days of third national wholesaler are over. "Currently the barrier to entry is huge if you want to become a wholesaler. How many millions of dollars would you have to invest to have just a start-up operation? You are not simply going to have anyone new coming into the market."
"My feeling is that United and SP Richards grew so large because a lot of the independent retailers went to them before the regional wholesalers," says Clemons.
Fair enough in a free market but one cannot escape the sense that it has precipitated the demise of those regional wholesalers.
"I think that the independent dealer, on the other hand, is having a rebirth, they are increasing in size and able to go stockless."
Although going stockless typically means going with United or SP. "The traditional regional wholesaler cannot do those rack and pack features but they remain valuable to the manufacturer. They have the advantage of having a variety
of new product that someone like SP Richards cannot carry. It is just unfortunate that there is now so few of them!"
There are 12 in fact. At the moment.