Sector analysis: Office machines



The business of machines


by Alison Bowie


There are still plenty of opportunities for those willing to get to grips with the EOS and business machines sector
Every day we are bombarded with more negative headlines about the worsening global economy. You can almost hear the grim reaper sharpening his scythe ready to take down yet another major company facing financial meltdown.


Even the more optimistic among us may be struggling to remain positive given the severity of the warnings coming from some of the world’s top financial experts.


And with no immediate end in sight, it’s hardly surprising that many companies are looking to curb spending and rein in capital expenditure, wherever possible.


One of the areas that may potentially be in the firing line, given the current financial crisis, is the machines and EOS (Electronic Office Supplies) sector.


Machines are classed as capital expenditure, and as such, may be seen as an unnecessary purchase in present conditions, leading to end-users holding onto machines for longer to save on costs. This could potentially lead to a logjam of outdated machines in homes and offices across the globe – bad news for machines manufacturers, distributors and resellers – arguably costing end-users more money in the long term to maintain and run.


However, before we all decide to stick our head in the photocopier, it’s not all bad news, reassures Jane Rowe, Marketing and Merchandising Director for UK-based European wholesaler, Spicers.
"The machines market is still in growth, but the pace of growth is declining slightly due to the economic downturn," she says.
"We believe people are holding onto older machines for longer to reduce capital expenditure commitment in uncertain times.


"We are all in a tough economic climate which therefore demands stronger focus than ever, but the businesses with the right concepts and principles will be the ones that succeed," adds Julie Abbot, European PR and Corporate Communications Manager at Fellowes.
"The shredder, binding, laminating and cutting machine markets have always been competitive, and rising manufacturing costs are making it even more so. That said, demand for these products remains strong and we are seeing good trends in many markets. The binding and laminating consumables market is fluctuating due to the varying raw material costs in the far east, so it is a challenging segment for sure."


Conversely, Rowe feels the outlook for multifunctional machines is even brighter. "They are weathering the storm. People are buying into multifunction products as opposed to single use machines as from an environmental perspective it saves energy to have all units in one. The ability to scan to email all saves time and the cost of transmitting images in other ways."


Jim Estill, CEO of distributor SYNNEX Canada – part of SYNNEX Corporation – agrees that MFP sales will continue to grow, as will ergonomic products, but he believes there may be longer term implications if the recession continues to deepen.


He explains: "It’s no secret that the world economy is weak in almost all areas. Capital spending is reduced. Supplies are not yet down, but if employment drops, they will also decline."
Estill, who runs the supplies business in the US, also believes that more and more of the bigger market players will aim to get products to market through the distributor channel.
"Large players will cut staff and need distributors now more than ever," he says.
"Cash is king so having good distributor relationships are key. It’s the same with watching assets – inventory and AR – keep them low," he advises.


Terry Betts, Managing Director of UK-based CCS Media, a reseller of EOS, stationery and IT product, is also very aware of the impact current economic conditions are having on the machines sector.
"The market will contract," he states. "The only way to grow will be to take greater market share. The market will be affected by the economic climate. The effect will be worse for machines as these items tend to be delayed in this climate. The outlook for EOS is better, however I would expect a decrease in average order value/spend."


In turn, Betts believes struggling traditional stationery dealers will have to move into the machines arena if they want to survive the tough times.


And with this comes a whole new area of responsibility for resellers who may be unfamiliar with the unique demands of the machines sector, explains Betts.


One of the most common mistakes a dealer new to selling machines can make, is to misunderstand the pricing structure.


"They need to understand that the way to sell these products is different and the prices are subject to daily change," stresses Betts.


"There are lots of myths about the profit margins for these products being in single digit margins (less than 10 per cent) and this is not true. Margins around 18 percent should be achieved," he adds.
Price squeezes


"The entire sector is being hit. We have seen unprecedented price increases from our manufacturers because of currency fluctuations across the globe and from a general rise in the cost of production," says Greg Welchans, President, Supplies Network, the largest privately held, national independent wholesaler of IT consumables and printers in the US.


"The traditional office products dealer needs to realise that the IT consumables spend within an office place is minimally 50 percent of the entire consumables spend. This means that if the dealer’s mix of product within that customer is say 20 percent IT Consumables to 80 percent office products, there is someone else in their account selling.


"OP dealers need to not only pursue this business but also lock it down any way they can into a contractual relationship. Honestly, as managed print services become more and more mainstream, I think the independent OP dealer will be challenged to maintain this business much less grow it until they adopt some sort of strategy to compete in this space," he says.


"There is a convergence of channels about us right now like we haven’t seen since the retail superstore channel started to acquire the independent B2B dealer. The BTA channel (copier dealers) is not walking past the printer any more. They have designed ways to incorporate cost per page programmes for printers into their business models."


"For many years the copier dealer was very happy to co-exist with the office products or independent IT dealer in a printing environment. No more. These channels are now fighting it out day to day. Office products dealers who are willing to adapt their model of doing business to contractual relationships will win…those who don’t won’t," he warns.


"I believe that because of this convergence of channels MFPs will continue to be hot going into 2009. HP, Lexmark and other manufacturers are ramping up their companies to try to take share from the copier players. MFPs replace copiers…this is a good thing for the independent dealer."


More dealer choice


In the UK, Spicers’ Jane Rowe believes the wholesaler’s role in the machines sector has developed considerably in recent years, leading to more product choice for dealers.


She explains: "Wholesalers are taking a growing share in the machines market. Almost exclusively the specialists previously handled this area, but wholesalers such as Spicers are able to offer a single source solution to office supplies.


"Spicers has certainly taken the opportunity to support their dealers by broadening their offering."
The company works closely with its manufacturer partners to deliver end-user promotions to support dealers in driving sales, and it encourages them to offer product training to dealers.


As for the future, the company sees machines as a major growth area. "We have made and are continuing to make a big investment into this area of the market, offering dealers a greater range of products," explains Rowe.


"Between 2007 and 2009, Spicers has increased its range of business machines by 50 percent. In addition to this, it is also carrying a lot of machines for 2009 that are not in the catalogue but that will be shared through increased marketing activity, ensuring dealers are aware of the latest machines and any promotions that accompany them."


Spicers believes it is essential that dealers fully understand the machines sector and how to select the right machines for a customer’s business.


"Spicers has a specialist team giving product support," explains Rowe. "We also have a clear comparison chart in the catalogue to make selection easier for the dealer and end-user.
And the wholesaler now offers a delivery service for dealers enabling machines to be sent direct to the customer.


"While Spicers is the only office products wholesaler which does not sell direct to the end-user, it does deliver machines direct on behalf of the dealer, cutting out the dealer’s handling costs and delivery charges," continues Rowe, who is keen to point out that there are positives for dealers selling machines.
"Though percent margins are tight, the EOS and machines market do deliver high cash margin," she adds.


Alastair Adams, director of commercial and IT services for UK dealership Commercial, based in Cheltenham, also recognises that today’s financial crisis will impact on margin, but believes there are still plenty of opportunities for resellers to achieve respectable sales.


He explains: "The overall market in terms of units is pretty static and a recession will typically slow down decision making, but there are some really exciting new products coming onto the market and plenty of new technological developments to interest clients.


He adds: "An MFP is required by business and therefore there will always be opportunities, particularly as customers are now able to get more for less or more for the same investment.
"Clearly, very few customers are happy to see costs going up at present so margins are under pressure."


The demand from customers for a ‘good bargain’ in the corporate setting, as well as on the high street, is likely to increase as end-users keep a closer eye on expenditure and tighten their belts.
Terry Betts of CCS Media, whose company has been trading for more than 25 years, believes cost-saving will be on one of the major market drivers in the coming year and has this word of caution for resellers.


"The key market drivers in 2009 will be saving the customer money, but dealers must just not cut margins to achieve this. This is a time when only companies with a good sales force will survive," he warns.


SYNNEX’s Jim Estill says that customers will be looking out for a good deal – a move that sits well with the company’s growth plans.
"We will grow largely by increasing our market share," he says. "Customers will increasingly shop for the best value which will work in our favour."


Another major influence on the development of the machines sector over the next 12 months will be the SoHo sector (small office, home office), believes Spicers’ Rowe.
"The increase in SoHo working will impact the market for business machines in a number of ways," she remarks.


"Desktop models that are easy to use are key to the SoHo worker where they do not have the on site IT facilities and service contracts that many larger organisations may have.
She continues: "In addition to this, they are looking at the multifunction devices which give them the flexibility, whilst offering them a compact solution to fit in a home-working environment. The multifunction devices also reduce the amount of energy usage and heat output compared to having a
variety of single function machines which is great for both the home worker and office worker."


From a manufacturer’s standpoint such as Fellowes the SoHo market is also highly demanding in terms of design as well as function. "As more business machines enter the home environment, it is even more important to design products that fit the surroundings," Julie Abbott explains.
"This is not only through industrial design (making machines that are ‘more attractive’ or ‘more modern’), but through the features and benefits of the products themselves. For example, safety becomes paramount in the home environment."


Online opportunities


Online sales also figure heavily when it comes to office machines and there are still opportunities for dealers who take this approach, provided they proceed carefully.
Betts sees internet ordering as a growing trend. "Online ordering will increase," he says, but adds: "The ability to adapt the sales force to ensure they take advantage of this is key. Online ordering removes the need to input orders and this can increase productivity."


Jim Estill also sees a continuing move towards more online sales in this part of the office products market.
He says: "Online sales are huge. The primary disadvantage online ordering has is relationship and the cost to ship. This is where the independent can still compete successfully, and, of course, they can sell online."


For SYNNEX, growth is coming from dealer business as more and more resellers shift to machines and consumables and work in partnership with them and other distributors.
He explains: "OP dealers are definitely getting more into printers and consumables. In many cases, the printer is now the copier.


"What is driving growth for SYNNEX might not be what is driving growth for OPI readers. What we are capitalising on is the trend of office products dealers seeking the lower overheads IT distributors can offer, combined with a larger and incremental product offering."


In recent years, with more end-users shifting from single function to multifunction machines, there has been increased interest in and more demand for environmentally friendly equipment designed to save time, energy and money. From a HSM Securio shredder to a Pelikan PowerPad cartridge or an printer ribbon from Armor, the message is the same: save cost but also save the environment.
However, with many companies looking to tighten their belts in the coming year, this issue may not be quite so high up the agenda for the foreseeable future, believes Betts.


"Environmentally green products that can save the customer money are popular, but the green issue with most corporates has been put on hold, with price and service primary concerns," he explains.
Above all, resellers selling machines in the coming year should remember two key points, adds the managing director.


"Control your margins and do not allow your sales force to give the product away."
Jane Rowe believes the most important thing dealers can do to maximise sales of machines over the next 12 months is to really get to know their customers, understand their needs and to not be afraid to ask for help.


She says: "Understand your customer’s needs – what do they want the machine to deliver, what is the output they expect?
"Dealers can always get advice on business machines from Spicers by contacting their internal account manager."


It’s also important that the reseller explains fully to the customer about total cost of ownership so that they are not buying a machine that will cost them a fortune in the long-term. "In some instances, a printer may seem like a great deal, but they need to consider the long term cost of, say, cartridges to get the complete picture and be able to make the right choice for them," says Rowe.
As Betts puts it "to forecast any trends in the current economic climate is impossible, other than it will be a tough year".


However, thanks to popular products like MFPs, it’s not all bad
news for resellers, says Commercial’s Adams.


"The marketplace has changed dramatically and the vast majority of new devices sold are connected to customer’s networks. This favours companies who have a solid understanding of IT and decision makers are increasingly part of the IT function, rather than facilities.


He adds: "This development means that the channel has a great opportunity to sell solutions and services, but investment is needed in new skills and perhaps new people in order to achieve this."