Experience as a school teacher has stood Office Club chief Mark Austen in good stead for handling his independent dealers. In this month’s Big Interview he tells OPI how his dealer group seeks to be different and the importance of remembering that Britain is a nation of shopkeepers
OPI: Hi Mark, I trust all is well in Watford. First up, for those unfamiliar, can you just give us a little bit of background on Office Club?
MA: Office Club is a UK-only dealer group, formed in 1992 with 12 members. Today we have around 300 members. Most of that growth took place in the mid to late 1990s. Membership has been static for the last couple of years, however, we are now beginning to see further recruitment as the market tightens up and dealers – particularly small to medium-sized ones – realise the value of being in a dealer group.
OPI: What is your ownership position with Office Club?
MA: When the group was founded, the members were shareholders. But in the mid 1990s we had a run-in with the Office of Fair Trading, and we had to demonstrate to its satisfaction that we were not what it termed "a special interest group" – or what you would probably call a cartel. We had to demonstrate that the members of Office Club did not hold shares in the company so, at that point, I became the sole shareholder, and that remains the case today.
OPI: You’ve already said that you have around 300 dealers with most of that growth coming in the mid to late 1990s. Can you flesh out the status of your membership at the moment?
MA: In fact, we’ve seen a slight decline in membership over the last couple of years primarily fuelled by members that decided that they no longer wished to sell stationery or office supplies. They found the market too tough and moved into other areas. We have seen some members acquired by other dealers, and we have had a couple that have decided to just go independent and rely entirely on their wholesale relationship.
OPI: What are your biggest members by revenue?
MA: Technically, our biggest member by size is a company called Jarrolds. Now, you must have heard of Jarrolds – it’s huge. It’s got a massive printworks – it prints Spicers’ catalogue. It has got a department store that sells fashion items and furniture in Norwich. I have no influence over that business other than it has a separate unit that sells a bit over Â£2 million ($3.7 million) worth of office supplies and it is thus a member of Office Club. It’s an independent family-owned company.
In terms of stationery and office supplies, our biggest members would be turning over around Â£6 million a year.
Right at the outset we said that we didn’t want to have the group outweighed by having very large members, so somebody of the size of Â£20 million or Â£25 million, we probably wouldn’t add value for and they certainly wouldn’t add value to the group either.
OPI: Do you have a figure for what your total annual revenue is?
MA: There are two sets of figures. Total member annual sales, excluding Jarrolds, is a little less that Â£250 million. But of that, we estimate about Â£150 – Â£160 million is in office supplies where we can have an influence, the balance being other products such as greetings cards etc that we don’t seek to influence.
OPI: We’re flying through this year, aren’t we? How has business been so far for members?
MA: Well, I can really only talk about Q1 for 2005 because, although I’ve got anecdotal evidence about April, it’s just the Q1 basis that really counts. Although our members are finding trading conditions patchy at best, some of them are doing exceptionally well. We’re having stories coming in now from members about the growth they’ve enjoyed during the first four months of the year. Some of them are doing extremely well, both in terms of sales and profitability.
As a group, we’re seeing small sales purchase increases with most of our vendors, which is probably the easiest way for us to measure it. So, for example, we’re 4 per cent up with manufacturer A, 4 per cent up with manufacturer B. And, although I’d like to believe that’s because our members are being incentivised to be more compliant with our approved suppliers, I think part of it is simply the fact that our members are enjoying some small level of sales growth with most of our suppliers.
OPI: How does the first quarter of 2005 compare with, say, last year?
MA: Well, if our purchases are up, you have to believe that means that sales are up. I don’t believe our members are taking on more and more stock. Now, I think that’s quite an exceptional performance. The information we’re getting from manufacturers is that our members, on average, are bucking the industry trends.
Certainly on a lot of traditional products, our members are buying, and therefore selling, at historically low prices. And if a member’s sales revenue is flat, it’s probably having to shift more product to maintain that same sales revenue line. So, although we tend to measure it in terms of revenue and profitability, if you look at units, our members are certainly seeing some increases.
OPI: Do you also have any goals in terms of membership?
MA: We are in the process of recruiting somebody who will have the primary focus of recruiting the right type of members.
Our membership is currently split into three levels. We have retail members – shopkeepers. They may have an element of commercial, B2B, delivered on credit business, but their primary business will be cash-in-the-till traditional retail. We also have a thriving group of B2B dealers, commercial dealers, and most of their business is therefore delivered on credit.
One of the things that people often miss about Office Club, because we do have a lot of people who have shops, is that we also have more pureplay commercial dealers than many other groups in the United Kingdom, and we provide them with a service which, it would seem, allows them to grow and develop their business, or supports that anyway.
OPI: So what would you pick out as the major things where Office Club differs from the other UK dealer groups in terms of what they offer?
MA: The most visible difference is that we are the only group that has a comprehensive package of retail support, not only in terms of point of sale materials and campaigns, but also in terms of the value-added services we offer people who have shops. We also offer a number of services to all of our members, but particularly to our commercial members, and these services are unique.
For example, we have a programme called EOS Buyer which really turns the dealer group model on its head in that historically, what dealer groups have done is deliver a price to the dealer. The dealer takes that price and tries to beat his existing supplier up to get a better price. What we’re doing is encouraging our members to place their EOS orders with us, without knowing what the price is that they will achieve, but knowing that because we have significantly more volume, they will achieve a better price.
And on average, that has delivered a measurable saving of 5 per cent to our members. For the larger members it’s slightly less than 5 per cent – maybe 2 per cent or 3 per cent. For the smaller members it might be as much as 8 per cent. But that average saving of 5 per cent on traded commodities like Hewlett Packard cartridges is really quite phenomenal, and is a unique service, as far as I know, that Office Club offers its members.
It turns the dealer group model on its head because, instead of us giving the prices, and then the dealers placing the order, the dealers gives us the order, and then we give them the prices. So it really does allow us to leverage our members’ volumes. In fact, in May we had our biggest month of the year for EOS.
OPI: How big a part is that, generally, of the business that your members do?
MA: It does vary. With some members it’s as much as 40 per cent. With the retailers it tends to be a lower percentage of their total sales but, of course, it’s an increasingly important part of their business. But I think that the margin challenges for our members that were there a couple of years ago, they’ve come to terms with. They’ve learned how to make good money from EOS, and most of our members now are making pretty healthy margins on cartridges.
OPI: And you think the turnaround has come from simply getting used to that new area?
MA: I think it’s getting used to a new kind of area. I think it’s realising that customers are prepared to pay a premium for the value-added services that the typical office supplies dealer can offer. I think that on the High Street – from the retail point of view – the traditional High Street retailers like WH Smith charge very high prices for EOS and that allows our members to undercut them and be competitive and be profitable. So that’s one thing.
The second thing we have that is very different is our internet marketing programme, which we call AIMS. It allows our members to produce a wide range of marketing tools to support their sales and marketing efforts online. They can produce professional flyers, posters, email campaigns very quickly and entirely to suit their own needs in terms of product selection, in terms of pricing, in terms of the codes they use – the full gamut. So that’s different.
We also have a programme called Office Partner. It is a series of sales and sales management modules that allows those of our members that choose to use it to price for contract tenders more effectively, to manage their salesforces more effectively and so on.
So there are quite a number of things that we do which are genuinely unique although, of course, the fundamentals of what we do – a purchasing programme and a marketing programme – is similar to that what is offered by every other group everywhere I guess.
OPI: Generally speaking, how positive are you about the independent dealer channel in the UK? How do you view it compared to what you see with the dealer channels in the US and the rest of Europe?
MA: I think that, generally speaking, the independent channel in the UK is doing very, very well, certainly compared to many other of the developed markets. There are a number of reasons why the UK dealer is doing well, and I think the main reason is that there is a equilibrium between the dealer, the groups, the wholesalers and the manufacturers, and that equilibrium helps keep dealers competitive. It’s also the demographics of the market. There are a lot of SMEs in Britain that, given a choice, would prefer to buy from a smaller company like them. So in the UK it’s certainly much healthier than in many of the other markets that I occasionally get a glimpse of.
OPI: Do you think it will stay that way, or do you believe there will be increased problems as there are in the US where you’ve got the power channel players going more and more for the dealers’ ‘sweet spot’ – the middle market?
MA: I certainly think there’s absolutely no room whatsoever for complacency. Clearly, there are a number of well-funded and aggressive predators eyeing the dealers’ current share. It’s the role of the dealer groups to ensure that our dealers can maintain their sales and profitability, or ensure that we can support our members’ maintenance of their sales and profitability. So that’s crucial. And I think, historically, the dealer groups and the wholesalers in the UK have done a good job of that.
However, there are clearly seismic changes happening in our industry right now – I’d love to have a crystal ball, but I don’t – and many of those changes are a reaction to the pressure that is being placed by the bigger players: the pressure they’re putting on manufacturers which forces manufacturers to cut costs, the pressure they’re putting on the dealers in terms of pricing; and, of course, the pressures of the wholesalers as well.
OPI: As the market changes, do you think we will see dealer groups consolidating and merging?
MA: I think you will see changes – well, you are seeing changes in the current dealer group environment. We’ve seen the emergence of this new offshoot of the old Officeteam group, and I believe there is a chance that there may be some further fragmentation and then groupings of medium to large dealers.
I also think that the wholesalers will seek to sequester relationships with dealers of all types, and that will present some challenges for both dealers and the dealer groups. It is inevitable that some of the groups that are in the market today will not be there in five or ten years’ time, but I still think that while there are independent dealers, there will be a need for strong independent dealer groups.
OPI: You are a BPGI member, where do you see the real value in being a member of that group?
MA: The key benefit, as far as I am concerned, is information. You get a breadth of information – not all of it is good. You see mistakes that other groups make and you think, "I won’t go down that road". So, absolutely, it’s learning from experience.
At our exhibition in May, one of the features was a seminar on the power channel’s pricing tactics, and how dealers can understand them and combat them. Bluntly, we were given much of that presentation by is.group. The experience the Americans have been dealing with in combatting the power channel players is much deeper than the experience that we have, and we’re extremely grateful that they are prepared to share that with us, because it can only mean that we can help our dealers stay stronger.
OPI: As a kind of connected issue to that, I was going to ask you how you feel about the distribution initiative that is.group has gone into over in the US?
MA: To be honest with you Bruce, if we’re talking about the issue of dealer groups being distributors, my view is that we already have some extremely professional distributors in the UK – not only Spicers and Kingfield Heath, but people like Antalis and ISA – and therefore there is no value in Office Club being a distributor, and it has never been our intention to become a distributor. I cannot envisage any way in which we could generate sufficient volumes to allow us to distribute as cost-effectively as those large organisations do. So I guess I’ve not taken a huge amount of notice of what is.group is doing with their logistics platform.
But the second issue is – should dealer groups be distributors? And the answer is: it very simply depends on the circumstances in their local market. One of the strongest members of BPGI is Quantore in the Netherlands. There is not a particularly strong full line wholesaler in the Netherlands and therefore Quantore has, for some years, fulfilled that function for its members. Similarly in Germany, until Spicers entered the market, the dealer groups were the only distributors – people like Branion and BÃ¼roring.
Whether distribution is the right route for dealer groups, is entirely dependent on local market conditions. As far as is.group is concerned, they obviously feel it’s the right move for the group and its members.
OPI: So you don’t think it’s a bad idea. It’s a horses for courses scenario.
MA: Yes. What the dealer groups have to do is find a series of solutions to make their members ever more competitive. If distribution is a competitive gap in their local market, the dealer groups should attempt to fill it, as they do in Germany, Holland and France. But in the UK, there are a number of strong, big logistics companies like Spicers and Kingfield Heath, and no dealer group can hope to distribute as cost-effectively as they can. So what would the point be? There is already a distribution solution for our members – why try and add cost to the chain?
OPI: If I can just ask you about BOSS Federation now. I know that you left BOSS but have now returned.
MA: It’s a bit of a non-event this, Bruce. It’s very simple. BOSS put our membership fee up immensely and we said, no, we’re not going to pay that much. It was a horrendous amount of money. But it then had a think about it, and reduced the fee, so we were happy to rejoin. Office Club’s position is that a strong trade federation is an essential component of the office supplies industry in every country, and we welcome the opportunity to have a vibrant forum like BOSS.
OPI: BOSS has obviously had criticism in recent times. Do you feel that it’s more on the right track again? Maybe it’s listening more to members or it’s adapting to how the market’s changing?
MA: Yes, I do feel that it is adapting the way in which it addresses the challenges that the market faces. And yes, I am happy that it does listen to its members. And, as a membership organisation myself, I understand how difficult it is to try and satisfy the differing desires of disparate members – and BOSS certainly has a disparate membership, doesn’t it? Everything from a Â£250,000 retail stationer up to a global power like Avery.
OPI: I know you are a Sunday league football referee and I was just wondering if it’s easier dealing with members or your footballers at the weekend?
OPI: I used to play in a Sunday league and I know it’s a bit hairy sometimes!
MA: I’ve been a referee for a very long time, and I’ve refereed at a decent level. The one thing about Sunday football is that most of the players know you after a while. They know what your sticking points are and, if you get a young lad who sometimes doesn’t know you, it doesn’t take very long for him to find out. He may not finish the game, but it doesn’t take him long to find out, and that’s that. Once every five or six years you might have a game that does get a bit exciting, but the experience usually gets you through it.
OPI: So, is there a correlation between your experience in handling Sunday League footballers and Office Club members?
MA: No, not really. I suppose, as you probably know, prior to coming into the OP industry, I was a primary school teacher for five years. And whilst I am not implying in any way that any element of the UK office supplies industry behaves like primary school children, nonetheless there are certain skills you learn which stand you in good stead in business, including the need to compromise. If you can stand up in front of 30 eight-year-olds and entertain them all day, which is what teaching is, then you can certainly work with a group of willing adults.
You’re talking to a man who used to get 120 infants for half an hour every Friday for hymn practice. It was just me, a guitar, and 120 five and six-year-olds. And I guess you could say – although I would be reluctant to – that you could draw some parallels between running a junior school classroom and running a dealer group for independent dealers.
I think the key is that it’s about working with people, it’s about encouraging people, but never forcing them. Those are the lessons you learn from running a dealer group, because what Office Club does not seek to do is to force its dealers to do anything. What we do seek to do is to encourage them to make the most of the commercial opportunities that present themselves to our members, many of which require a degree of cooperation and compliance which is not necessarily a natural thing for a very independent entrepreneur.
OPI: Office Club has taken quite a lot of interest in the retail channel, and I know that you had events that centred on this. Can you tell me a bit more about how you view that area?
MA: It’s very simple really. There are two basic fundamental ways for people to buy stationery. They can either walk into a shop and pay cash for it – that might mean credit card or it might mean collected on a local account – but typically it’s paying cash. Or they can order it for future delivery, typically on a credit basis.
Office Club has always seen its role as supporting our dealers in whichever way they choose to sell stationery. All of the other groups are really only supportive through the delivered-on-credit channel, but we have always seen our role as doing both.
The retail sector is a smaller part of the office supplies industry, but nonetheless it’s a very important and vibrant one, and many of the benefits we learn from retail can be translated into benefits for our B2B members.
OPI: I just wanted to move on a bit to your views on the new combined dealer group conference, The Main Event.
MA: My view on The Main Event is that I understand why the groups that are shareholders in Europa would want to hold a joint event, and it makes sense for them. But I guess we’ve always had a higher level of attendance and participation at our events than most of the other groups, so our event has the quality due entirely to member participation, to stand on its own.
OPI: There’s nothing else to add to that?
MA: That’s my view of The Main Event. It’s just another dealer group exhibition. I think the costs of entry are quite high, but really you’ve got to ask me that question after the event, because it will either be a success or a failure. If the groups genuinely deliver real member attendance – and by real member attendance I mean members going round talking to suppliers, not members going to conference bits and not bothering to visit the suppliers, which is what has happened at some other dealer groups’ dos – then it will be considered to be of value. But if they don’t deliver real member participation in the exhibition then it will be a one-off event.
OPI: What do you think is the key to getting members into those events?
MA: I think there’re a number of keys, but the real thing has to be, why should a member bother? And you have to give him reasons to bother, and supporting the group and saying thank you to suppliers aren’t good enough reasons.
It’s a condition of attendance at our exhibition that every supplier has to have a stand offer for our members, and our members have some excellent offers, and spend money – I mean serious money. Last year, over Â£250,000 worth of business was written at our exhibition. Now, I don’t think that happens at the other dealer groups’ exhibitions. It may do, but I don’t think it’s encouraged in the way that we encourage it.
So our members have an incentive to attend and because of that they appreciate and value it. Our suppliers meanwhile have an incentive to attend because they know that our members are going to be there, and they know that they are going to listen to what they’ve got to say and place orders. It’s not rocket science.
OPI: Well, we’re almost done. Just one last question and it’s a general one. Are you positive about the future of the UK’s independent dealers?
MA: Unreservedly, yes. I believe that the future for the well managed independent dealer – and that’s the qualifier – is very bright. And I believe there are lots of well managed independent dealers in the UK’s office supplies industry. There are always going to be some businesses where the proprietor has no succession plan and is coming to the end of his working life, and they will go away, but they will be replaced by new, younger, and more vibrant businesses. There is always going to be a small element of people who aren’t running well managed businesses, and they will also go out of business.
OPI: It all comes down to the entrepreneurial spirit of the small business man?
MA: Yes, absolutely. Remember that Britain is a nation of shopkeepers, according to Napoleon, and we’re very proud of that. I believe that will remain the case for the foreseeable future.
Will our members have to change their offering to stay in step with the times? Unequivocally yes. Our retail members are certainly changing the offering that they have in the High Street to meet the changing demands of the British retail consumer. And our commercial members are changing the way they operate in order to meet the requirements of the business consumer.
Change is the only constant. But given that entrepreneurial spirit, given professional management, and given the support of strong, independent organisations like Office Club, like wholesalers and distributors, like manufacturers, and the future for the UK dealer is extremely buoyant.
Now, over the next couple of years it might get a bit tough, but that’s just a stage in the economic cycle.
I’m saying that Bruce, because I actually genuinely believe that the future for the well managed independent dealer is bright. It’s not just something I’m saying because of my job. If I was managing director of Acco I would still think the same thing, although it is a noisy and fragmented community.
OPI: So much depends on who’s running these businesses, doesn’t it? Who’s providing the rudder for those businesses, how they’re thinking, are they proactive, do they have the entrepreneurial spirit?
MA: Absolutely. If you look at most dealers – and I believe this is true internationally – they are what I would call lifestyle businesses in that they exist to provide the proprietor and his family – or the proprietors and their families – with a great lifestyle. They are not typically vehicles for the acquisition of wealth. They are vehicles for the acquisition of income to fund a lifestyle.
Very, very few dealers are able to sell their businesses for significant sums of money, but they are able to enjoy both incomes and lifestyles from their businesses that they probably could not obtain elsewhere. That may mean a position in the local community. I met one of our members recently and walked up his local market town High Street with him, and I was gobsmacked by the number of people that stopped and said, "Hello Mr Smith". It wasn’t "Hello Fred or Bert" – he had a real position in that community, and that’s worth something.
There are dealers who play golf two or three days a week because it suits them to do it, and they run their businesses to allow them to do it. That’s a lifestyle choice. And I think most of our members have got pretty screwed on lifestyle objectives, and that’s part of what makes it work.