Net profit

 

The office supplies industry is already fully aware that the internet has been a massive success for resellers.

 

However, it may surprise some to hear just how big the phenomenon has become. Recent data revealed that the fastest growing online product category in sales over the past year was office supplies, with a staggering 60 percent year-on-year increase.

 

In The Top 500 Guide to Retail Websites, published by Internet Retailer, office supplies constituted 40 percent of the list.

 

Web-only merchants grew sales by 49 percent, compared to the cataloguers with 40 percent growth, followed by the retail chains at around 27 percent. Large retailers still accounted for 40 percent of all online office products sales.

 

Office supplies companies generated $10.3 billion in online sales in 2005, with Office Depot and Staples each generating a total of $3.8 billion in online revenue last year.

 

Kurt Peters, editor-in-chief of Internet Retailer, says the success of office products in the report summed up the industry’s "perfect fit" for online retail.

 

"Office supplies are made to be sold online. They are commodities and repeat purchases and they are usually bought by people sitting at a computer with persistent internet connection. It’s a lot easier for the customer to go online and order than it is to browse a catalogue, then pick up a telephone."

 

Peters says repeat customer technology, largely driven by online office products resellers, made it "very simple" for the consumer. Simplicity has been a big hit with time-poor office workers and resulted in substantial revenue growth year on year for the online channel.

 

The report showed stronger growth online than offline for the big retailers. Welcome news, as it reveals the customer shift towards a way of doing business that is cheaper for the operator. The figures also show that the resellers are all growing at a roughly similar rate, meaning that they are not losing market share from customers converting from traditional to online shopping.

 

Less is more

 

And the OP superstores are piling on the growth through successful eCommerce strategies. As mentioned above, Office Depot reported web sales of $3.8 billion in 2005 – that’s 26.6 percent of its total overall sales.

 

Staples, meanwhile, announced exactly the same online revenue figure, a 23.6 percent increase on the previous year. OfficeMax recorded 2005 web sales of $2.57 billion, a 28 percent rise on 2004 figures.

 

All three players actively engage with their customer base to mould the look and feel of their websites. In 2005, Staples interviewed thousands of customers to determine what product categories shoppers expected to find.

 

As a result of this research, Staples found that "less may be better" and actually reduced the number of office supplies categories displayed online from 24 to 17.

 

"Online retailing continues to grow in general because consumers continue to shift their purchase patterns to include online shopping," says Griffin McCarthy, senior director of direct marketing for OfficeMax. "The office products industry is prime for online shopping because so many of the products we sell are well understood by the customers – they feel ‘safe’ in knowing exactly what they will get as a result of their online purchase. Industries such as apparel have a more difficult time because their products often require customer interaction with the product prior to purchase."

 

Despite the rise in web trading, the traditional catalogue still has its place as a useful resource for the consumer.

 

"Online offers an immediacy that is attractive to customers," adds McCarthy. "Catalogues play a key role in the overall shopping experience and will continue to do so, but online shopping encompasses the entire shopping process – from browsing to order placement. That provides a sense of ease and efficiency that many customers like."

 

OfficeMax says it recognises that there is a shift in culture and economics associated with the online marketplace. Customers are changing the way in which they obtain information about products and services, as well as how they acquire, use and evaluate those products and services.

 

"We’re not really surprised by the success per se, but we do believe we are in a very exciting time of change and discovery," comments McCarthy.

 

Many eTailers were set up during the late 1990s, but the dotcom crash left few standing. Such was the extent of the cull that there is generally acknowledged to be only one company of any significance left in the US – Shoplet.com.

 

Founded in 1994, New York-based Shoplet has over 60 wholesalers on its books, including United Stationers, SP Richards and ActionEmco. eTailers are stockless companies and therefore rely on OP wholesalers to fulfil orders. As such, they are able to offer a huge range of products.

 

Shoplet carries approximately 200,000 SKUs, including 35,000 office supplies. Small eTailers are also able to offer large numbers of SKUs. For instance, Business-Supply is able to offer 45,000 SKUs, with office products accounting for roughly 26,000 of this total.

 

Higher margins

 

With a tendency to sell predominantly to the SoHo sector and to the mid-market, eTailers claim to secure better than industry-average margins on office products and even higher margins on IT hardware.

 

Although the eTailing market picked up in 2004 on the back of an upturn in IT spending, according to UK-based MPA, pureplay online merchants remain "a small channel in the US OP market, and they will continue to be pressurised by the increased eCommerce activities of other OP resellers, most notably the superstores and retailers."

 

Euroffice in the UK, meanwhile, has so far resisted pressure from the retail giants and continues to grow. Managing director George Karibian says the success of the website he co-founded is not at all surprising.

 

"The internet provides unlimited customer reach at a much lower cost than traditional catalogues. Combined with the drop-ship model, the internet overcomes the limitations of traditional dealers serving customers within their geographical vicinity.

 

"Getting things right on the internet can really pay off. Unfortunately, very few get it right. Euroffice’s 20 employees currently generate £20 million ($37.6 million) in sales and a 70 percent annual growth rate. By traditional industry standards, these metrics are highly impressive. However, they are not so impressive by the internet standards of other industries."

 

That said, the future of online office supplies looks bright, with no sign of slowing. Christine Buscarino, director of online marketing for Office Depot, says that PDAs and laptops will fuel online retailing. "As customers become more mobile, they are becoming dependent on wireless devices that offer an experience similar to the experience on the web," she points out. "Shopping through these devices will continue to be adopted and used to both communicate and make a purchasing choice.

 

"Social networks are also a key growth factor for the web as users become more inclined to communicate and learn through peers. Their purchasing decisions are often made from an optimal online retail experience they hear about from a friend or colleague. The viral component of the web is growing and retailers online are optimising their brand experiences as well as their presence within social networks and blogs."

 

Says Internet Retailer‘s Peters: "As large as online retailing is now, it’s still a small percentage of overall retail sales. But we will continue to see growth as people become more comfortable shopping online. As the younger generation moves into office manager jobs, we will have fully evolved online shoppers – they won’t go through the change experienced by staff today."