Tipping the scales
As the first few issues of OPI came off the press, neither the manufacturers nor the wholesalers were rejoicing in the exciting new world of office products that came with the OP superstores
Managing change – one of the most used buzzwords of the 1990s. Trite and vague as that may now sound, it captured the fears and aspirations of almost all channels, and the manufacturers and wholesalers were no exception.
Both channels in most western economies had an abundance of small, often regional, operators, with a good smattering of larger, national or, in manufacturing terms specifically, even global players (such as ACCO, Staedtler, Avery Dennison, Esselte and Fellowes). Private label was almost non-existent and brand loyalty high; consolidation was in its infancy, but growing, and bankruptcy a worrying prospect for many in the years to come.
Alan Hickman, Managing Director of UK wholesaler Kingfield in the early 1990s, paints a bleak picture.
"Everybody, including OPI, was ringing the death knell for wholesalers because a) in the USA the superstores were decimating office supplies retailers; b) Viking had made a spectacular and effective entry into the UK market [and was poised to do the same in several other European countries including Germany and France] and were already hoovering up the business of small end-users; c) there was talk of big contract stationers rolling up the good regional dealers by acquisition; d) dealers that survived a, b and c were forming buying groups as their response, and these co-operatives threatened to go down the European own-warehouse model route."
Top UK wholesaler Spicers had its very own set of challenges, most notably in France where, says then CEO Eric Smith, the company was "haemorrhaging money in a way that was quite frightening". Ultimately, Smith and his team proved all the sceptics wrong of course and is today a resounding success in France, more so than any of its other continental European markets, in fact, but it took a long time getting there.
In the US meanwhile, wholesalers were worried as channel power was shifting. Steve Schwarz, now with SmartXpress, was SVP of Marketing at United Stationers’ at the time. He explains: "The biggest challenge for us in the early 1990s was channel conflict. The independent dealer channel did not want wholesalers to sell to superstores (at the time when they only had retail stores).
Then, as rapid consolidation meant that longstanding customers were merged into those superstores and mega dealers, wholesalers’ sales volume dropped. The remaining consolidated volume with these large customers was significant, but they also demanded lower costs from us, so we were looking at overall lower sales volume from fewer customers demanding lower prices – not a pretty picture.
"Independent dealers felt they had no choice but to form buying groups in an attempt to gain back pricing power. They challenged wholesalers on two fronts. First, they demanded lower pricing in recognition of higher volume. In addition, they developed strong manufacturer direct programmes to lower dealer product cost."
From a manufacturer standpoint, Jess Beim, who spent his entire career in office products before retiring in 2008, mostly with Avery Dennison, vividly remembers the shift in power at the time when the OP superstores were ramping up. "It was a period of time where we literally had to keep a scorecard of which superstore acquired which dealer. It created a perceived need for dealer buying groups and changed the existing market pricing structure from manufacturers which included ever growing and new back-end programmes and incentives.
"These unprecedented programmes severely affected profitability at all levels of distribution and resulted in consolidation of manufacturers in order to broaden and strengthen product lines, to become a more important resource, to improve product mix and profitability and to make these ever increasing programmes affordable."
These ‘unrealistic demands’ made way for the growing threat of cheap imports; many vendors decided to source from cheaper Asian countries or indeed move their facilities to China or Eastern Europe. Private label was another phenomenon that grew from the price wars.
Reinventing the wheel
On the plus side, manufacturers became more visible to end-users. OfficeMax’s Mike Feuer refers to it as the "brown box syndrome". What the OP superstores did, he says, is "take products out of the box, add a sense of drama and give manufacturers audiences they’d never had before".
Point taken, grants Tom Sullivan from Smead: "The superstores offered choice. We were able to get exposure through good merchandising, good packaging and shelf space and all of a sudden we could sell the same products in orange, yellow, blue and green whereas beforehand it was perhaps 90 percent black. It helped us become better marketers and caused us to think about a broader expansion of our offering."
Innovation has been the buzzword of the last decade, as manufacturers have been trying to differentiate themselves in every aspect possible, particularly in view of the rise in private label products across practically all channels.
To compete with the big boxes and offer price-competitive products to their dealers, most wholesalers launched their own private label range. They also widened their product offering, matching the one-stop-shop trend. Jan/San, FM, furniture and of course EOS are categories that are now part and parcel of the wholesaler’s package.
Today, the industry is altogether more orderly, as channel members understand their roles better, concludes Schwarz. "As for the industry as a whole, I think the relative stability is caused by the inability of two of the three big boxes to effectively operate their businesses. The inefficient manner in which these two large resellers have operated for years now has given competitive relief to the entire industry, especially independent dealers. When these two weak parts come together, assuming they can build an effective business, we might see the next revolution." N
The final word
"What has surprised me the most is how quickly Office Depot has turned one of the best, if not the best, franchises and portfolios in the industry into a mess. It managed to kill Viking, lost grip in key markets from Florida over Georgia to California and has more scandals than contract wins in its delivery business" Tom Stemberg
"The sad thing for the industry over the past few decades is the lowering of sales & marketing skills to the point where the sole sales point has become price" Allan Crump
"Dealers are too slow to respond to change. We need younger blood to enter into this industry. We must become a distributor of products for the office, not an office products distributor" Paul Rodman
"Dealers and their groups still spend far too much time, effort and resources focusing on one another – we step over dollars to chase pennies" Dave Guernsey
"A primary challenge now is attracting new talent. As the OP industry becomes increasingly commoditised, at both a dealer and manufacturer level, my concern is that people entering the industry view it a more of a job than a career" Ted Nark