Iconic US office products entrepreneur Howard Brown has returned to the industry with the launch of HiTouch Business Services, four years after selling his former business, Allied, to Office Depot. What significance will his return have on the US OP sector?
In May 2006, Office Depot bought Allied, at the time the largest independent dealer in the US with sales in the region of $350 million. Allied’s management team, including the iconic Howard Brown and his son, Michael, had restrictive covenants in place meaning that they couldn’t compete in the office supplies space. They, along with several other senior executives from Allied, invested in a company called Rentacrate which offers removal services and is currently doing upwards of $30 million a year in sales.
On 10 May 2010, the restrictive covenants expired and the Browns wasted no time in announcing their return to office supplies with the launch of a new company, HiTouch Business Services, that aims to provide a wide range of products and services for all types of businesses.
The timing of the move may suggest that the Browns have been planning this move all along, just waiting for the covenants to expire, but this is not so says Michael Brown, who is President of the new business and largely responsible for the day-to-day running of the operation.
"We didn’t go into Rentacrate to say, ‘Hey, we can do this so we can go back into the office supplies business," Brown told OPI. "We went into Rentacrate because we thought it was a great business model and it was an acquisition that we actually looked at prior to selling our Allied business."
The new HiTouch business is not a million miles away from Allied’s OneSolution model which pioneered the single source model in the independent channel, offering a multitude of services including supplies, coffee, jan/san, furniture, managed print, etc. Now there is the addition of the Rentacrate and the corporate shredding ShredX businesses to the overall product portfolio.
This has a number of positive spin-offs, aside the increased services proposition.
Whereas the Allied business was heavily focused on the mid-market, Rentacrate’s customer base includes many Fortune 1000 clients.
"We’re going to go into our current existing customers of Rentacrate and ShredX and now offer them all these new services we have," says Michael Brown.
"The success of Allied was really making sure that we had penetration of our customers along all the different businesses that we had and we now have Rentacrate and ShredX customers that we’re now going to offer all of these outside services to," he adds.
This also gives HiTouch access to different types of purchasers in FM.
"We’ve built up tremendous relationships with facilities managers through Rentacrate and ShredX," states Brown. "This means we’re really able to talk to the many different decision-makers within an organisation, and if I can’t sell them office supplies, but I can sell janitorial or managed print services, I can be in many different arenas with each one of my customers and, over time, hopefully I penetrate that customer."
Secondly, while Allied in its 1998 reincarnation under Howard Brown was a mega-roll-up – predominantly in the northeast – with about ten simultaneous acquisitions, HiTouch has its own infrastructure already in place through the Rentacrate business. This includes 14 physical distribution centres in many major markets throughout US and an experienced sales team that includes many former Allied executives such as Joe Aiello and Roger Post. In all, Brown says that there are at least a dozen former members of the Allied team on board.
Brown states that there are many phases to how the business will be rolled out across the US. "There’s a phase when we’re going to add some sales people, and there’s a phase when we’re going to make some acquisitions. But we’re going be to opportunistic about it."
However, he does add that they are likely to go after accounts they used to do business with as Allied. "I think that we will be very effective very quickly, especially in the New York/New Jersey markets," he predicts.
OPI understands that two experienced sales reps from New York-based dealer Weeks Lerman have already joined Hi-Touch. Whether this marks the start of a mass switch remains to be seen.
"A seasoned sales rep won’t be jumping ship unless they have an iron clad contract," one industry source told OPI, referring to no compete clauses.
"A lot of former Allied reps got burned when WB Mason let them go when their clauses expired, and they are bound to be wary about returning to work for Howard Brown."
However, other sources indicate that some current WB Mason reps, disgruntled with the way they are being treated, may be unsettled and could be looking for a change. Given Howard Brown’s successful track record, HiTouch might present an interesting opportunity for them.
Should they switch, this is unlikely to be regarded as much more than a nuisance by WB Mason, giving its reputation for fighting tooth and nail for keeping and winning customers.
So while HiTouch may have some near-term success with sales rep acquisition, rapid expansion through acquiring existing businesses would be the more likely mid-term goal, especially given Howard Brown’s previous businesses. Michael Brown has talked of creating a $1 billion business – this may sound ambitious, but it is not out of the question, especially if, as Brown says, HiTouch is sitting on a pile of cash. It’s also not restricted to the northeast, with its existing Rentacrate infrastructure in 14 markets across the US.
And they are bound to find a willing partner in wholesaler SP Richards. Howard Brown and SPR go back a long way – SPR’s VP of Merchandising Jack Reagan uses to work for Brown at BT, for example – and SPR would like nothing more than to help create its own mega-dealer to rival United’s relationship with WB Mason.
If they were going to bet on one person to help them achieve that, then it would probably be Howard Brown.