Rank and file
OPI takes a special look at the desk accessories and filing sector, a category where some of its major players have undergone considerable changes in the past 12 months
So the story goes. In 1888, Thomas W Holley, a 24-year-old paper mill worker in Holyoke, had an idea for how to use the paper scraps, known as sortings, discarded by the mill. Sortings were anything trimmed away as scrap or considered of lesser quality than the writing paper eventually packaged and sold. Holley’s notion was to bind the scraps into pads that could be sold at a cut rate.
Convinced he had a winning idea, he founded his own company to collect the sortings from local mills (Holyoke was then the papermaking capital of the world) and the firm began churning out bargain-price pads, and creating the legal pad along the way – for the next 122 years.
Although Holyoke remains its spiritual home, Ampad, which today develops, manufactures and markets writing and filing products, envelopes and designer paper, moved its location to Brownsville, Texas, years ago. Since 2003 it has been owned by private equity firm Arcapita when it emerged from a turbulent period and Chapter 11 bankruptcy proceedings.
Or that’s how the story went, until a new chapter opened for the company in June when Esselte took on Ampad, sweeping it away with the latest round of what is turning into a period of major consolidation and acquisition within the desktop and filing accessories sector that is unprecedented in recent years. Many of the sector’s most venerable brands are being collected together by acquisition-hungry players making their moves to share the category between them.
As it was going through the process of acquiring Isaberg Rapid earlier this year, Esselte did not hide the fact that it intended to continue to strengthen its core categories but also expand its market and global reach. With this new North American acquisition, it is continuing a trend for manufacturers to look outside their traditional sectors for acquisitions to expand their businesses.
For instance, Pelikan, a name associated with writing instruments, grabbed a majority stake in Herlitz, and its multi-category range, for E45 million ($58 million) late last year, thus combining two of the leading brands in the stationery industry. It was also a move Pelikan views as a strategic necessity to enhance its brand name, cross-sell and gain market share in Europe, especially Germany.
It further meant that the Malaysia-based (and Germany originating) company would take on Herlitz’ German logistics operation, thereby saving costs and (in corporate spiel) driving efficiencies.
Similarly, when German manufacturer Durable snapped up Finnish desktop accessories and storage bins manufacturer Idealplast at the turn of the year, it emphasised the strengthening of its Scandinavian presence while giving Idealplast’s products a European-wide distribution and presence.
Soon after in March, Esselte finalised its agreement to acquire Isaberg Rapid, a move that, it said, gave it a reach not only into new product ranges but also new markets, such as the tool sector and professional retail.
Now, just a few months later, comes the Ampad acquisition. Esselte explains it is a strategic addition that can be blended into its branded office products business. Furthermore, it opens up the possibility of expansion into the writing and envelope product categories.
"This is an exciting opportunity for our company, as we continue our global expansion in office products," says Gary Brooks, Esselte’s CEO. "We look forward to working with the Ampad team and our customers in order to ensure a seamless transition into one progressive business."
As Brooks suggests, and taking the company’s integration of Curtis’ business a decade ago as just one example, Esselte certainly built up experience of integrating and consolidating its E1.2 billion business.
Esselte’s North American OP business has undergone a radical transformation in the past ten years, as the company shifted its focus onto specific product lines while relying on strong market shares to create successful and profitable economies of scale.
We can expect Ampad’s products to be quickly integrated into Esselte North America, a market where, the company claims, its range of suspension files, file folders, index cards, report covers, indexes/dividers and portfolios are already sustaining a 40 percent share.
Two years ago there were rumours that Esselte was preparing to shed its Leitz range of products, but given its recent surge it is unlikely that it will now cash in on the brand. Certainly not while Leitz is enjoying a solid performance in Eastern Europe and especially now that one of its potential suitors, Pelikan, has gone elsewhere.
When Esselte bought Leitz in 1998, it was buying one of Germany’s biggest manufacturers, and filing remains its largest product category in Europe. The division also contains its range of workspace products including desk accessories such as staplers and perforators for preparing paper for filing and archiving, letter trays, drawer cabinets, magazine files, file boxes, waste bins and computer accessories.
The filing market in Europe is similarly sized to that of the US (about E1.4 billion says Esselte). Esselte’s market share is about 25 percent, comparable to rival Herlitz. Although there is ground to be made up, most notably in Germany, where Herlitz dominates with 35 percent market share, in contrast to Esselte’s 30 percent. It’s a difference of only N11 million in sales terms, but still gives its rival an edge in brand recognition. Germany is also a useful staging point for Eastern Europe and OPI sources in the US suggest that Esselte could now turn its attention to the other side of the Atlantic again as it looks to expand.
After last year’s move for Rapid, it would appear that Esselte is now targeting a major EU supplier of paper-based stationery products as it looks to strengthen its core product categories.
One possible target could be France-based Groupe Hamelin, which has sales of around N700 million. Hamelin has a strong presence in many European markets with brands such as Bantex, Oxford, Elba and the former John Dickinson operations in the UK, now known as Hamelin Paperbrands. Hamelin’s product range is similar to that of Ampad with its books and pads, filing and envelopes divisions each accounting for around a third of total sales.
Hamelin’s French rival, Exacompta Clairefontaine, could be another potential target, but its strength in the office paper segment does not tie in so well with Esselte’s current product range. Esselte’s private equity owners might also prefer dealing with the family-owned Hamelin rather than the publicly-listed Exacompta.
And there’s more. With Hamelin maintaining a 12 percent share of the German market it would also bolster the US manufacturer’s standing way ahead of a Pelikan-run Herlitz for the near future.
Whether or not it happens, it is a certainty that we have not seen the last of consolidation in this sector. The question is how much further will it go?
A few years ago, OPI predicted that private label growth made consolidation inevitable. Since then, this threat to brand manufacturers has speeded up as the market has jerked through the economic downturn.
The recession has also shaped the types of acquisitions we’ve seen. When money gets tight, it’s not just the end-user that is looking for value. Furthermore, if you’re cash-rich when others are struggling, then why not take the opportunity to cross over to other sectors while the cost is low and if you know the risk is at a minimum?
It is cautious opportunism that has driven Pelikan to buy Herlitz or Esselte buying Ampad. These movers have looked to other sectors with synergies to use or brands to leverage.
An acquisition like Ampad, a company that has an established range of products in a well-defined and familiar market with some potential for growth, represents a better prospect than a rapidly growing start-up or diversification into unknown territory in 2010.
Making a difference
Talk to representatives of the manufacturers and they’ll tell you that they believe in innovation.
Unfortunately, product development has been curtailed in the past two years with 2009 being a particularly barren year for new designs. However, there are signs that this could be changing.
Private label products may be the number one threat to brand manufacturers, but the filing and desktop accessories sector has a raft of companies that are arriving on the scene, ambitious and fighting hard for market share. They may swim lower down the food chain but they are by no means bottom feeders.
Prior to Idealplast’s takeover by Durable, Michael Mattson served as its Business Manager. The Swede has subsequently resurfaced at Swedish newcomer OnSide-Sweden as International Sales Manager.
Compared to the giants in the sector, the company is a relatively small player. Owned by furniture manufacturer Plastunion, Matsson says the company is looking to introduce products with an "edge".
Explaining the company’s range, he says it offers 17 SKUs including letter trays, magazine file boxes, pen trays, inserts, brochure holders, etc. Its ambitions are modest. Its target customers are medium-sized wholesalers that it will deliver to directly within a 1,500 km range. "We offer flexible production facilities, direct distribution and small administrative costs," says Matsson.
The company has set its vision for 2012 as becoming recognised as one of the top five brands in desktop products for the Nordic region. In a crowded market, the manufacturer is focusing on eco-friendly and ergonomically-designed products. It’s something many of its competitors are also promising to deliver, but Matsson is sure that using its Swedish heritage properly – think Ikea – it can bring innovation to the market.
"We offer complete concepts for the mid-price range, supported by logistics and marketing," he emphasises.
"We’re offering new thinking to the consumer. Personal products with an edge and green thinking that combine Swedish design and local manufacturing."
You don’t have to be Thomas W Holley to understand that innovation can give you an edge in the marketplace. Those who bemoan the stagnant designs available in private label lines, should be heartened at the plethora of original, non-patent infringing products looking to be picked up by distributors at trade shows.
Furthermore, the inaugural North American Office Products Awards attracted a healthy 250+ nominations (see NAOPA 2010 Review on page 40), showing that innovation is alive and kicking. That may not seem a lot against a catalogue with 20,000 SKUs, but it is indication that under the tip of the iceberg there are interesting and edge-giving products out there if you look hard enough.
Or as an inventor told OPI recently, it can find you. She has invented filing products that combine a ring binder and an art folder. A product that has plenty of potential to be picked up but, as she says, "we think we have a great product but the frustration is trying to get noticed sometimes".
Moira Gleason, of stapler manufacturer Accentra and maker of the vaunted PaperPro stapler, explains that innovative design remains one of the best ways to expand market share. However, it is the opportunity that shapes the technology, not the other way around.
"Our development process is very unique. We identify gaps in the market and develop new mechanisms that deliver the easiest to use stapling tools on the market," she says. "Once a gap and product is identified, we work with our inventors, product designers, engineers and production facilities to develop the product quickly and efficiently. By including all the stakeholders in the development process, we ensure that we have a design that can be made to meet our unique specifications and cost requirements."
Typically, product development can take up to two years but it took only a year to get the PaperPro Desktop Stapler ready, the first stapler to bring staple-gun power to the desktop category, the company claims.
Gleason says: "Our focus for the Desktop Stapler was to revolutionise the entire stapling industry by designing the most innovative stapler in the market."
Market research importance
Jean Francois Rioux of Canadian company Le Sextant has been instrumental in the development of the company’s new classification folder that he describes as "genuine pressboard duplex". He explains that the product is in the early stages of going to market.
"At my last visit to the Fibermark Brattleboro plant, I noticed that there was a possibility to make a genuine pressboard with different colours on each side. Fibermark has supported us and given us 100 sheets so we can see if it is feasible," he says.
The next stage has been demonstrating the classification folder to customers. Early feedback has been positive and there has been some interest, but the company is yet to properly market the product. However, Rioux is sure it has potential. "Having two colours on the same folder gives it a very nice finish and would be very good for branding. Having black inside [gives it a] very professional look. It could be good for lawyers, banks, engineers, etc."
Jaime Nascimento of Brazilian company Acrimet is charged with marketing its newly developed letter tray for its Facility range that he describes as "side loaded-stackable". Like Accentra, the emphasis has been on allowing the market to determine the design.
According to the company’s research, desks are getting shorter with space-saving a must to organise the working area, "thus we developed this side-loaded system to optimise the space on desks".
Nascimento adds: "Acrimet carries out market research in order to check growth expectancies of our product lines, customer needs, wishes, new ideas and product preferences – and all that goes with it."
Similarly, Meryl Altuch of Esselte says that product development for the new Pendaflex SureHook Reinforced Hanging Folders was "100 percent needs-based".
"We went out to our end-users, visited offices small and large, private and government and documented how they work. We observed and took photographs of their environments," she explains. "The observation team then came up with a list of twenty user needs that we put through quantitative research, with 500 end-users to prioritise and focus our development."
Those needs were then put into the company’s ‘House of Quality’ which worked on how it can meet the needs, and benchmark technical and competitive specifications. Altuch adds: "Concepts were generated and ranked based on the top five needs and then quantitative testing was conducted. Prototypes of the winning concept were made and put into use in offices to gain feedback."
Critically, throughout the process, end-users were asked how important each identified need was to them when using hanging folders.
As we enter economic recovery [fingers crossed], manufacturers are going to have to work closer than ever with resellers, dealers and retailers to ensure all that hard work in development does not go to waste. It’s something that Citizen calculators’ Marketing and Sales Manager for Europe, Ludwig Bunse, cannot stress enough.
In fact, it is an approach that has seen the company outperform the market throughout the downturn, placing it in a strong position whatever the economy may throw at it now.
"Citizen’s strategy will undoubtedly continue to benefit the retail trade thanks to optimum bundling and coordination of its sales, distribution, advertising and marketing activities," he comments. "Despite the difficult economic climate, Citizen has achieved growth in Europe. In 2009, growth was actually slightly up year-on-year. In the printing desktop calculator segment, we are ideally placed to become number one in Europe."
An ambitious claim perhaps. But a sentiment shared by many in the sector which will carry them all forward in the coming years.