This Big Interview section is usually devoted to an industry heavyweight, a leader who is instrumental in shaping and developing the market.
However, in response to the reaction to the news that is.group is taking a group of its former members to court, we are focusing on one such independent dealer.
Following two years of bitter wrangling, threats of legal action and the loss of nearly $20,000, Bill Handler would perhaps be the last person you’d expect to deliver an objective, reasoned and informed opinion on the current crisis at is.group.
But with nearly 40 years of experience in the office products industry, Handler has witnessed the highs and lows, the comers and goers, and continues to represent all that’s good with the independent dealer.
Speaking from his Brooklyn-based dealership, Complete Office Products, it is clear Handler is a much respected and well liked member of the OP community.
Here, he explains how he became embroiled in the fall-out over the RDC programme. And despite all he’s had to cope with, he still manages to offer a viable and constructive solution that would satisfy all parties and allow is.group and its former members to move forward and return to the business of selling office products.
OPI: Can you explain your position in the current situation with is.group?
Bill Handler: I think of myself as a strategic thinker, I like to believe I always look at the big picture. It took quite some time to extricate myself from the fine detail, the nuts and bolts, the dollars and cents and all the ill-feeling to see where all this is going in an objective manner.
Basically, we are dealing with a degree of incompetence on the part of the leadership of is.group. Then there was a betrayal of trust when the people in question had to cover themselves and protect their jobs and their credibility. They did some things that they really shouldn’t have done, they hid some things, and stonewalled and misinformed the members.
OPI: Can you describe the background leading to the controversy?
BH: It was in March 2004 that the group realised it was being out-purchased by the big boxes like Staples and Office Depot and that it had to do something about it, especially in the commodity area. The group had to make sure its numbers remained competitive and it stayed in business. That was a laudable objective.
It looked at members of BPGI that had access to the UK and noticed that a group called Europa had essentially opened up a wholesaling operation. This co-operative operation appeared to us over here as an attempt to squeeze out the wholesaler’s margin and rebate that margin back to the dealers to help with their bottom line. It was a good concept, but the problem is always that the devil is in the detail.
Nobody realised that Europa was costing considerably more than the dealers thought it would cost them. It became evident that the people in charge weren’t doing what they were supposed to be doing and were failing to operate as efficiently as the people and companies they were trying to replace.
I think is.group were dazzled by this British idea and announced that it was going to start its own programme. It initiated the RDC and sent out a rather voluminous contract which many of the dealers probably didn’t bother to read thoroughly. We just assumed the people running the organisation were acting at all times in our best interests… how wrong we were.
OPI: Why did you sign up to the RDC programme in the first place?
BH: It sounded good and we didn’t have too many different options. We belonged to a buying group, which is essential to survive in the marketplace, and it gave us an option we couldn’t refuse. We had to sign or we wouldn’t have access to manufacturers at a reasonable cost. I just assumed there would be nothing dangerous in the contract that could really hurt me, so I signed it. That was a dangerous assumption, but I made it and so did a lot of other dealers.
OPI: When did it all start to go wrong?
BH: The training programme was very involved and it soon occurred to me that to get this scheme right, I had to hire a special person just to deal with the RDC. We started getting a lot of notices saying the computer was up and then the computer was down, and then you couldn’t use it every day but only twice a week, and then at certain times between 9.30am and 9.45am in the morning – there were all kinds of rules and regulations, and it began to look and feel as if we were dealing with a department of the federal government.
It was becoming so complex that I began getting a sinking feeling. I still said we should give it a go and I prepared to give my first order. I received some orders which I used to contact the manufacturers as I normally would to get the prices. However, they informed me that they could no longer deal with me, because the group had negotiated with them that they would no longer be burdened with our queries.
Apparently, is.group said it would handle everything. Evidently, part of the RDC funding was coming from the manufacturers which would pay the group for taking over some of the work it had to deal with. The manufacturers would just have to send the product to the RDC and that would be the sum of their involvement with the 800 dealers in is.group.
I decided to give it a go online, but I guess it must have been a pretty long line because I had to wait and wait for the prices. When staff from the group eventually did get back to me, they didn’t really know what they were talking about.
I realised right away that it was not humanly possible to deal with the entire portfolio of every manufacturer. There were problems after problems and there were minimum orders even for back orders of $1,200.
OPI: How did you feel?
BH: It was really getting to me, but the crunch came when I tried to source products that the RDC didn’t carry. I once tried to contact ACCO but was told I couldn’t, everything had to go through the RDC even though it didn’t even offer what I was trying to purchase.
I realised then that it wasn’t working, someone hadn’t thought the scheme out thoroughly. Perhaps a big dealer that ordered a limited portfolio of products in quantity and met all the minimum requirements could do this, but it was definitely not practical for a company like mine, which occasionally goes direct to the manufacturers with our requirements and specific orders.
OPI: How did the situation resolve itself?
BH: Ultimately, I received a notice saying I hadn’t met the minimum for the year. I didn’t know what they were talking about – it was comply or die.
At that point I spoke with John Kreidel, the then president. I sent him a letter saying this scheme wasn’t working for dealers like myself and suggested the group should perhaps reconsider the RDC programme and look at introducing a two-tier membership.
is.group had raised the minimum order value fourfold from $1,250 to $5,000 which was well beyond our capacity. Previously, we had sometimes dealt direct with the manufacturers and their minimum was only $750.
How can a wholesaler demand such a minimum value with a limited number of SKUs?
OPI: What did you do about it?
BH: It was clear that I couldn’t function in this way and that was the same for many other dealers as well. is.group had cut off my access as a stockless dealer to the manufacturers. I could no longer get pricing or availability, but had to go through the group.
That, of course, ruined our service capability, which is one of our last remaining strengths. How can we possibly compete with the likes of Staples with this long and laborious process of ordering products while our customers are sitting there waiting for a response?
It was commercial suicide from the very beginning.
OPI: What did you propose?
BH: I suggested that is.group should introduce two tiers, one for larger stocking dealers that have the warehouse space and can order stock in $5,000 chunks. With the staff to use the ordering system, they would be entitled to the full rebate.
For the stockless and smaller dealers like ourselves, who need to turn on a dime with purchasing and delivery, I proposed direct access to our manufacturers to negotiate the agreements.
I thought this would be a much better way to operate. is.group replied saying there was merit to some of my points, but then added that "we can grow some larger dealers out of the smaller ones". I was told that "even the stockless guys that are engaging are finding out there is life after being stockless". I found that a rather arrogant statement, to be told that I had to be a larger dealer.
It was patronising to be told "don’t be small, be large" – I was being instructed how to run my business. It was a case of do it the group’s way or hit the highway.
I contacted TriMega immediately and signed up with them shortly after. We resigned from is.group with immediate effect stating that the new rules and procedures placed us in an untenable position.
It was clear that the position of the group would not change. We had our direct access to the vendors cut off and is.group did not fill that gap with the RDCs, so we regretfully tendered our resignation.
OPI: What happened next?
BH: Shortly after our resignation we received a letter from is.group – I guess we hadn’t been taken off the mailing list – saying that eight of the Omega members, the largest dealers, had decided to leave is.group.
The claim was that the bigger dealers’ use of the RDCs was minimum and it "didn’t materially affect the viability of the programme". It said it would adapt, change and buckle down and move forward.
Attached to the letter was a list of rumours that were being bantered about in a damage control exercise – the list began with the claim that is.group didn’t practise negative selling. It said its competition was perpetuating some of these rumours "possibly because it doesn’t have any value-added facilities like we do".
OPI: What else did the letter claim?
BH: It said another rumour was that is.group was about to go bust, while in fact the former dealers had only accounted for 10 percent of its volume. It stated "while it hurts us it’s not going to put us out of business".
The letter said there was no threat of the group going under "because its balance sheet remains strong". But the direct lie, which bit me and other dealers, was when the group said it was a rumour that if you’re in is.group you will be liable for losses over and above your rebate and the stock you hold in the group. It said this was not the case and that the scare tactics wouldn’t work as it was not true.
The letter then went on to justify the minimum order by saying the cooperative was broken and needed fixing.
It ended with a play on the Mark Twain quote: "Reports of our death are greatly exaggerated – we are still here".
OPI: How did you become embroiled in the current legal situation?
BH: After we resigned we started getting these large and unusual billings for $8,515.54. I resigned in November 2004, but the invoices continued well into 2005 – it really bothered me.
We were being billed for overhead allocations, etc. In addition, the group had confiscated my rebate for $7,734.24 which we had earned through our purchases.
When you total the sums, it meant that the group was claiming we owed it a total of $16,249.78 and we had to surrender our $1,000 stock in the cooperative.
Prior to our resignation we wrote explaining why we couldn’t work with the restrictive purchasing rules. Everything was so inflexible and we couldn’t cope with the time-consuming cumbersome bureaucracy.
OPI: What were your feelings at this point?
BH: It was like adding insult to injury. Because we couldn’t give this dysfunctional warehouse scheme enough business, the group was entitled to exercise its right to confiscate our honestly earned and paid-for rebate and impose additional costs in retrospect on our company.
is.group said we were hurting our fellow dealers by taking money out of their pockets by not paying for products or fees but that’s a very unfair statement. The organisation has taken more money from us than we have from it.
We’re only taking money out if you use the smoke and mirrors of legal juggling and technicalities. We’re not talking about fairness here or taking money from the group members, we’re being demonised and it’s improper.
We are trying our best to survive in a very difficult and competitive environment. This is not a philosophical disagreement and it’s not us who are forcing our fellow dealers to incur extra expenses – it is is.group.
It has no right to impose such a requirement of compliance. When it comes down to taking money from members and hurting the group, it has no one to blame but itself.
It was basically a big mistake to try to do something it wasn’t very good at.
OPI: Where do you think is.group is now?
BH: I think the group is currently at the midway point, it hasn’t got rid of the RDC and it still hasn’t faced the problem. Strategically, it has no business being in wholesaling; it’s just not competent. It’s a difficult job even for established wholesalers like United Stationers, which is still having problems getting it right. This is something that should not be burdening the mind of someone like Mike Gentile. He has more important things to consider as he goes head-to-head with the big boxes.
OPI: What is the right balance for a dealer?
BH: The best strategy in my opinion is for dealers to do the 80/20. They should stock 20 percent of the items that represent 80 percent of the volume and let the wholesalers deal with the remaining 80 percent. I believe that would be a wise thing to do.
OPI: How would you summarise the situation now, in hindsight?
BH: We have this betrayal of trust with blocking access to the manufacturers, imposing compliance rules and creating this technical game of smoke and mirrors with rebate confiscation and retroactive liability.
There were false assumptions and I guess the arrogance of thinking that the group could do it all, which defies the worldwide trend of outsourcing. The division of labour is very important to most companies, but obviously not the group. is.group has been reactionary, it hasn’t moved forward but backwards.
OPI: How do your fellow dealers feel?
BH: The group has created a lot of ill-feeling in the industry. It’s hurting my fellow dealers and damaging the credibility of the office products industry as a whole. It’s especially harming the credibility of the independent dealers in their dealings with the manufacturers as well as the wholesalers.
We are under so much pressue from the big boxes. The wholesalers must take the view that we’re a bunch of petty, feuding tyrants. They must be thinking that business cannot be too good if we have all this time to conduct this food fight.
OPI: How would you solve the problem?
BH: is.group should look at the bigger picture and call off its dogs and lawyers. The path to resolving this situation does not involve beating up ex-members of the group; it’s a distraction. The group needs to get its house in order, it should shed the RDCs and acknowledge defeat with it.
It has lost the war, now it should just get on with it. Write off the losses and start afresh. If it behaves in a mature fashion and enlists the goodwill and support of its fellow dealers and acts in a responsible way, maybe even reach out to TriMega, I think it can regain some of the lost credibility with the manufacturers as well as the wholesale community.
Once both of these channels become convinced that is.group is moving ahead in a mature, responsible and successful fashion, they will probably be willing to shoulder some of the burden by extending invoice dates and provide the opportunity for the group to get itself together and get the balance sheet back in order.
OPI: How can it start to repair some of the damage?
BH: It should get back to basics. is.group claims that we have taken from the organisation, but we haven’t; it should leave us alone and allow us to get on with business.
OPI: How many are still holding out?
BH: A lot have settled because they didn’t want the aggravation and the associated legal costs. They weren’t bothered about the principle of the thing, they just wanted to get rid of it, walk away and get back to their business. Most of the dealers decided the easiest path was to settle regardless of the rights and wrongs.
But I have taken the view that we only have a place in this industry if we are good citizens of the OP nation. We have to consider each other with respect and work together in a friendly and competitive manner.
OPI: Are you going to settle?
BH: No, I think we’re going to join the lawsuit, that’s the direction it’s heading in. I feel it is important to make a stand on a principled basis. What has been done to us and the other dealers has been outrageous. We are all professional and responsible dealers, but we have to do the right thing.
OPI: But what of the consequences?
BH: If is.group does crash, it is going to have an impact far beyond the current and past members of the group. The entire industry will lose credibility; all buying groups will lose credibility. I think the situation is.group is in right now is very dangerous. It should take a very long look at itself and quickly change its strategy.
It is true to say you can survive any kind of tactical error but it’s very difficult to survive a strategic error. is.group has performed a strategic error of major proportions.
OPI: Why has the situation deteriorated so far and so fast?
BH: We don’t like reading what the group has been saying in OPI magazine. We have been painted as a bunch of deadbeats and criminals. That was totally uncalled for and wrong. No one wants to be insulted in that fashion and it has now become a personal matter.
Many dealers are being billed for large sums of money; my amount is relatively trivial when compared to some of the others. is.group must be desperate to behave in this way; it must feel its back is against the wall. People act out of character when they are highly pressured and the pressure must be enormous. The group needs rescuing from itself, bankruptcy and ruin.
OPI: Can you see a way out for the two sides?
BH: Yes I can, the group should take a very close look at the accounts of former dealers and determine which ones really walked away, defaulted and hurt the group by not paying their legitimate bills. It should separate that group from those that defaulted on the basis of smoke and mirrors, and had claims made against them with the use of technical clauses and retroactive allocations.
is.group should pursue those that have really hurt the group and leave alone those that have supported it. Those that have fallen foul of the group on the technical requirements should receive an apology and be allowed to walk away.
Grouping us all together is unfair and unworthy of a dealer co-op. It should start looking at mending fences and repairing relationships with the dealer community. Only then can it move on to fixing dealings with the manufacturers. That’s the only constructive way in which it can get out of this crisis.