Instead of coming out all guns blazing with a brand new plan when he first took the reins in January 2015, Lyreco CEO Hervé Milcent has kept a low profile, assessing and learning about the market and working on the reseller’s forward-going strategies.
Now that (most of) his ducks are in a row, OPI’s Steve Hilleard travelled to Lyreco’s headquarters in the north of France to find out more about what’s to come from this global giant, where things may have gone wrong and the new world of business supplies.
OPI: At last we get a chance to meet, after you’ve been in the job for nearly two years. Let’s start with your career background before you joined Lyreco.
Hervé Milcent: I worked for two big organisations. One was La Poste, the French national post office group where I was for ten years, and then I worked for publishing group Bertelsmann for 16 years before I joined Lyreco. In both companies, I was in charge of their B2B divisions, dealing with overall business development and to some extent also the divisions’ transformation plan.
At La Poste, I worked in the private segment for a number of subsidiary organisations and my first mission was to launch the Chronopost business, which is now the most successful courier company in Europe. I also worked for a marketing company within La Poste, called MediaPost. In addition, the group asked me to transform and bring back to profitability a very small subsidiary in the B2B segment. Dynapost was not in good shape at the time and it took me three years to bring it back into the black.
Like I said, at Bertelsmann I also worked in B2B. My first job was to open the French market for Arvato, Bertelsmann’s outsourcing services provider. After France, I did the same in the Italian and Spanish markets, plus some offshore locations. My last task at Arvato was to launch the CRM solutions worldwide division. Then I joined Lyreco at the end of 2014.
OPI: What was it about Lyreco that made you leave Bertelsmann? What attracted you to this industry?
HM: Well, for the previous 16 years, I had been working for customers in the CRM and supply chain environment and I was essentially looking to do the same kind of job but attack it from a very different angle. My expectation was to move from a service provider position to a profit centre competency. When Lyreco first contacted me, my objective was to be able to manage a full service portfolio in the office supplies environment
OPI: When Eric Bigeard left Lyreco, he left behind quite a legacy, both for you and also for Philippe Martinez and Steve Law beforehand. What were your priorities when you came in, given the history of the company and the legacy of Eric, and how do you feel you’ve measured against those priorities?
HM: When I decided to join Lyreco, I underestimated the legacy of Eric Bigeard. And still today, it’s very important to keep that legacy alive, because Eric had built this company over the past 25 years in terms of story, in terms of strategy, in terms of the team. I also completely underestimated how important Eric was not just to Lyreco, but to this industry overall.
As you know, Eric’s succession has been a bit painful at times over the past six years and I’ve had many conversations with him while I’ve been in charge. He’s always told me two things: first, we need to get back on a growth trajectory because there hasn’t been any growth since 2010. In fact, between 2011 and 2014 Lyreco’s revenues declined by 6%.
Second, we need to look at the profile of the company – it’s a commercial business with commercial reps. The model is robust, smart and very strong, but it needs to evolve and be reinvented. That is the main mandate I received from Eric and the shareholders.
OPI: Quite a big task given the macroeconomic environment following the 2008-2009 period, and then the subsequent process of digitisation which affected sales of core products, ink, toner, paper and so on. It’s also difficult to reinvent a model that has been copied across so many markets. How far are you through that transformation process now?
HM: Absolutely, it’s a very big and difficult task. In a nutshell and in my opinion, we had missed some of the megatrends affecting our industry – any industry in fact – since about 2010. This is why I have spent the past 18 months trying to understand what the core expectations of our customers and our environment are.
We need to follow the megatrend of the market and that is to be present in front of our customers every minute of the day, not every five weeks or even every week. We need to be there all the time.
That trend is a bit at odds with what we’re doing now. Currently, 100% of our sales proposition revolves around face-to-face value and that is good because this proximity and stickiness to customers is one of Lyreco’s core assets – in the past, today and in the future. But we need to embrace the megatrend.
That’s not to say we have to kill and reset what we’ve done before, but to evolve and move smoothly from a mono-channel to a cross-channel environment.
To do that, we need to achieve two things: to invest in data and be much cleverer in terms of our target audience, product segment, and clustering. Updating and getting right our hugely important database has been absolutely essential and we’ve been working on this for the past year or so.
The second point is our category management. We now organise our marketing strategy around four categories: core office products (COP), IT and technology, workplace, and industry/industrial. I want to really focus on these four categories and build up our offering in them with a three-pronged step: transactional, contract and end-to-end solutions.
The starting point is the transactional business as that’s our core, our DNA, but we have to build from there to become real solutions providers.
OPI: Why do you think you missed those trends several years ago? And the launch of the four product categories you mentioned – it all seems quite overdue.
HM: I can’t really comment on what went on in the past. Lyreco, under Eric’s guidance, introduced categories like hygiene and catering about ten years ago and that was a smart move.
But in 2016, we are still only generating 14% of our revenues from these two categories (now under the ‘workplace’ umbrella). And this is what I mean when I talk about missing the megatrends. We have an asset here and we know that the stationery business is shrinking, so we have to think out of the box of traditional office products and address exactly the same market, the same lead buyer, the same decision-maker for some more of the overall cake.
The second trend I refer to is technology and the opportunities this brings to wholeheartedly embracing a multichannel strategy. Half of the lead buyers today are under the age of 40, meaning they are likely to use mobile devices for ordering, do research on the web, and benchmark and assess every single aspect of their purchasing process. We have to adapt our strategy and be more in line with customer behaviour. Like I said, face-to-face visits continue to be important because that’s our differentiator, but we simply have to be in front of the customer 24 hours a day.
Overall, Lyreco needs to change its core model and become a technology company.
OPI: One of the ways in which Lyreco has historically achieved growth has been through either expansion into greenfield markets or via acquisition. You haven’t done much of either over the past ten years. Is part of your plan to expand new product categories through acquisition?
HM: Well, we did make an acquisition in Spain in 2011, but overall you’re right. And of course, we want to regain leadership and one way of achieving this is through investment and strategic acquisitions. We are relaunching our external growth strategy and particularly in emerging markets where we’re still following the traditional route to market, acquisitions are on the cards.
OPI: Let’s talk about some of your larger competitors here in Europe, Staples and Office Depot. Are you surprised that those two businesses have struggled in Europe, are pulling out and heading back to North America?
HM: No, I am not surprised, despite the fact that I’m still not that familiar with the office supplies business. But it was the same in the call centre industry I worked in years ago. We had to face and fight against two big US companies, and then suddenly they decided to leave the European market because they simply didn’t adapt to it.
That said, I think Staples and Depot leaving Europe is bad news for our industry.
OPI: Why is it bad?
HM: Fighting against Depot and Staples mainly in the corporate accounts space over the years has become a war about price and that’s a sign of the commoditisation of our business. We are now moving from a strategic purchasing environment to a non-core environment and this is my point – it’s a challenging situation for our industry in the coming months and years and we must not underestimate it.
OPI: Maybe with both businesses potentially being under private equity ownership we might start to see some more rational pricing – these guys are not buying businesses to subsidise them, they’re buying them for profit.
HM: Of course they will look at the figures very closely. Nevertheless, as the expectations of the market change, we have to move from a transactional business to an end-to-end solutions business.
OPI: But are you not just talking about your own business model rather than about the competition?
OPI: Do you ever have conversations at Lyreco that, if you can’t be number one or two in any given market, you would consider pulling out?
HM: I do believe that market leadership is hugely important in the B2B segment and in the services environment that we want to be in. So it’s vital to regain our leadership position everywhere.
OPI: So what happened to Lyreco in Canada, for example, could happen elsewhere?
HM: No, because except for Eastern Europe, we are number one or two in each European country where we have a presence. Asia Pacific is different anyway because it’s an emerging market so it’s essential that we invest there.
Overall, I’m very happy with the footprint we have. We need to have a growth platform and this for Lyreco is the Asia Pacific zone.
OPI: You’ve made a pretty long-term and substantial investment both in Asia and Australia. How long will the Lyreco board be prepared to invest in markets that, as yet, haven’t fulfilled their potential?
HM: Good question and one I actually raised myself with the board of directors shortly after I started. My recommendation was to reinvest and to really focus our energy on our existing footprint, despite the fact that revenues coming from Hong Kong, for example – where we first opened in 1999 – still don’t exceed 2% of our total.
But we need to persevere and also be consistent with our strategy. Greg Liénard has been with Lyreco for many years and has been in charge of Asia Pacific as Managing Director for the last few, but he was pretty much alone in what he did. We need to provide him with the investment in people and the expertise that is required.
Profitability in Asia has always been an issue and I’m pleased to say that for the first time this year we’ve reached break-even point for the Thailand market.
OPI: You left China. Was that an acceptance that you were never really going to make any money in that market?
HM: The train of the traditional approach in China has departed and in my opinion we have to completely change our attitude of how we need to invest in China.
OPI: Every conversation I have with every executive inevitably leads to Amazon. What’s your position on Amazon and its likely impact on some of the established markets that you have in the B2B space?
HM: Just after I joined Lyreco I asked about Amazon in the office supplies environment and some of my colleagues said: ‘No, don’t worry, Amazon will not be a main competitor of Lyreco because we’re B2B…’ Well, it wasn’t true 18 months ago and it isn’t any more true now. Amazon is a competitor. Does that mean it is or will be a real threat for us? I’m not sure.
Amazon will be in the B2B space at some stage, that’s for sure. But on the other hand what I try to push within Lyreco, and I said this before, is to continue to invest in our face-to-face USP and that is something Amazon doesn’t have.
HM: Yet of course, but it would be daft for them to invest in this way.
OPI: You said that in the not-to-distant future the customers that your sales people are currently talking to will be millennials and they work and communicate differently. So in future, will that USP of having a sales person visit once a month or once a quarter in fact still be a USP?
HM: Maybe not in terms of product, but our customers increasingly expect consultancy, support and new ideas, and this is where the so-called ‘showroom’ or the face-to-face is very important. Our sales reps are basically our virtual stores – available all the time but also very smart in terms of customer knowledge.
Apart from Amazon, do not underestimate Alibaba either. They’re coming too.
OPI: Let’s move on to Brexit. Were you surprised about the result? Your UK enterprise is still the second largest in the group, isn’t it? What do you think will be the consequence of Brexit for Lyreco?
HM: To answer your first question, yes I was surprised. I’m not really happy about the situation because I don’t think it’s good news for our European equilibrium. But we have to respect the decision of the population.
As regards Lyreco in the UK, initially after Brexit it was all a real mess, not the business as such, but things like trust and confidence in the country. A lot of questions were raised in the aftermath and our management team spent a lot of time reassuring people who are working for Lyreco in the UK about what might happen to them, since many of them aren’t British.
It’s really important to reassure and help everybody in these challenging times, because without our people our business is dead. We’re doing ok. August was a good month and we’re growing, so it’s not bad.
OPI: But you’re growing because of the failure of some of your larger competitors I would think?
HM: A bit, of course. But if I look at 2015 we grew by 1.5% and at the end of August we were up to 3.7%. I don’t think that’s solely the result of our competitors’ troubles. All our segments are growing, from the SOHO markets to the international division, and this is why we cannot say it is just competitors’ troubles.
OPI: What’s the situation with big international accounts at Lyreco? Historically, I seem to remember it’s something that you had to be seen to be doing as a large global reseller, but it wasn’t very important in the overall equation. Is that still the case?
HM: It was true in the past, but there has been quite a change as a result of globalisation. If you look at our customer portfolio in France, for example, it’s amazing. 80% of the CAC 40 [French stock market index] work with Lyreco. Some of them start in France and then they begin requesting a global solution.
I believe this is also part of the megatrends that are happening in the banking sector, the automotive industry and in utilities, for instance. There has certainly been a growth in companies that approach us and want to work with us across two, three or four markets, sometimes even the whole continent.
And it’s been a good trend for us. We are talking 7-8% growth this year in the large global enterprise business. But overall – and I can’t stress this enough – Lyreco is a local business and what we’re striving to do is to have the right solutions at a local level.
OPI: In terms of your network of partnerships around the world, where are your gaps now?
HM: First of all, what I received as heritage in terms of model, footprint and partners is nice. The big question mark now is the US.
I met Leo Meehan, the CEO of WB Mason, last July in Boston. He is very professional and he knows absolutely everything there’s to know about this industry and I learned a lot. I believe we could do so much more together. And, given the state of the competition right now, we have a real window of opportunity to take advantage, but we have to work together and combine our offering in the US and Europe.
OPI: We could go on forever, but we’ve nearly run out of time, so just one final question: what is the succession plan at Lyreco and for the Gaspard family?
HM: It’s not really my role to talk about this.
OPI: But you expected the question…
HM: And what I can tell you is that Mr Gaspard is still fully involved in Lyreco. His only desire is that his group keeps on growing and prospering. He intends to ensure his group’s future is in the best hands, and the proof is that he has recently appointed his daughter Nathalie to the board of directors.
OPI: So there’s a real succession plan. That’s a good way to end. Thank you Hervé.