One of just two nationwide office products wholesalers in the US, SP Richards (SPR) is under constant pressure from all its various stakeholders – its parent company, outside investors and its suppliers, not to mention a disparate group of customers.
About 75 percent of SPR’s revenues come from OP dealers. It therefore has a vested interest in keeping its dealer community healthy and competitive. It does so by a number of means, among them joint sourcing agreements, private-label ranges and sophisticated analytical pricing software, as well as continuously high service levels. Some efforts encounter criticism along the way, others are wholeheartedly encouraged and embraced.
Wayne Beacham has been at the helm of the wholesaler since 2002 and since that time has overseen some sweeping and varied changes in the industry. Perhaps the most significant improvement for the dealer community has been a more level – though by no means yet even – playing field with the power channel, both in terms of purchasing power and technological capabilities.
With the demands of its slowly diminishing dealer customer base constantly growing, Beacham points to the fact that wholesalers today need to be able to rely on an operating model that is nimble and allows them to continuously revise and refine their go-to-market strategies. As he says: "The future belongs to the innovative and those capable of making fact-based decisions and the right investments."
OPI: The US economy has seen slow growth over the past few months, with consumer confidence still pretty low and continued concerns over inflationary pressures. What impact has this had on SPR’s performance? Your Q1 results were not all rosy, I believe, partly in comparison to an exceptionally good Q1 last year.
Wayne Beacham: You’re right, the overall economy is not moving forward as any of us would have hoped. As you say, we had a terrific start to 2006 with one of the strongest growth quarters we have seen in quite some time, with sales up 13 percent in Q1. But we were also impacted on several fronts as the year began. A significant consolidation took place in the north-east that had a negative effect on our overall sales results.
As for our latest sets of figures, our Q1 2007 results were not up to par. In early 2007 we saw more bad weather days than we can remember, which caused a number of our locations to close more than during a typical winter. We have seen some improvement in Q2 and based on a number of initiatives we have in place we are optimistic that we will see considerable improvement over the second half of the year.
OPI: About 75 percent of your revenues are generated by independent dealers, so what’s your view on the state of independents in the US?
WB: There are some segments of the independent dealer community that are struggling a bit, but overall we see many companies that are thriving and competing very effectively. We remain very bullish on the prospects for independent dealers in total and we will continue to invest in them.
The dealers that are focused on providing solutions and delivering value to the customers will continue to have a bright future. We do believe that the value component needs to evolve and we are working hard on a number of initiatives in support of independent dealers. No question, technology can be a great equaliser, and we will continue to invest to keep dealers on a level playing field.
OPI: Talking of technology, that’s often quoted as one area where independents struggle to compete with the power channel and wholesalers have made it their mission to provide some sophisticated solutions. What’s happening at SPR in that context?
WB: As promised, we released our new E-content in January, and we continue to make considerable investments in new technologies on behalf of our customers. We are very excited about our new Enhanced E-content and the online search capabilities that it will bring to bear. This really is a difference-maker for the independent dealers aligned with SPR, our supplier partners as well as ourselves.
The nine system providers that are part of our marketing alliance have embraced this initiative and have been working diligently to enable this new functionality. The new content has been available since January on iteminfo.com and has been receiving rave reviews. As the system providers finish their website development the SPR dealers will enjoy search capabilities that are as good as, or superior to, any sites now available in the marketplace.
E-content, while incredibly important, is just one example of the investment we continue to make in support of our customers. We are also in the process of implementing sophisticated pricing analysis software that would allow both SPR and our partners to improve sales and margins through the use of analytical pricing tools.
Furthermore, we are aggregating sales across the independent dealer channel to improve the effectiveness of our collective marketing campaigns. We strongly feel that successful companies must use technology and analytical tools to gain a competitive edge in the future.
OPI: It’s almost two years since the launch of the SAP solution for business products resellers, a project initiated by United Stationers and which was to be, we were assured, a wholesaler-neutral system. What’s your perception on its neutrality and the reception it has received among the independent community?
WB: We originally believed that the SAP solution would be wholesale neutral and early in the process we were working directly with SAP on the integration. However, over time communication ceased between SPR and SAP.
We have now concluded that this system is not wholesale neutral. SAP does not support our marketing programmes nor can it use our Enhanced E-content. One certainly could suggest that adopting a system that is not wholesaler neutral could limit the options available to independent dealers.
As I’ve just mentioned, we entered into a joint marketing agreement with nine established software providers that have over time demonstrated the ability to support the unique requirements of the independent OP dealer. Dealers need choices when it comes to software and we do not believe that one system will fit all dealers.
OPI: What’s the current state of play between the US dealer groups and the wholesalers? There’s been a fair bit of competition between the two entities of late…
WB: I don’t know that I would characterise the relationship as being centered around "a fair bit of competition". There is no question that there have been some highs and lows over the years and we may not always agree on specific strategies, but the lows would be an exception to the rule.
Buying groups and wholesalers are doing some incredibly positive things in support of independent dealers and we are partnering more than ever as evidenced by some of the global sourcing initiatives we have in place with several of the groups. We will continue to look for ways to work closely with the dealer groups for our mutual benefit.
OPI: On that theme, how is TriMega’s TriSupply sourcing initiative progressing?
WB: We are very pleased with our first year and applaud the bold move on the part of TriMega’s management. We are learning a great deal and have seen only the tip of the iceberg in terms of the potential of this partnership.
We believe it can really take costs out of the channel. We have had some very favourable experiences with the Direct Purchasing Catalog Group (DPCG) in recent years and Office Partners has also embraced a similar strategy.
OPI: What’s your view on is.group’s much debated RDC programme? There must have been some impact on the type of products dealers buy from their wholesaler (such as fewer A and B type items), for example.
WB: Our position has been consistent since day one on this subject. If it makes sense for the dealer to be more competitive we are supportive of the initiative.
However, we have had concerns that there is potential for cost being added to the channel as opposed to being removed. As an industry we can ill afford to see more equity taken from the balance sheets of our dealers.
I would also add that overall we have not been impacted on sales of our A and B items. It is our feeling that those that were buying these items on a direct basis prior to this programme have merely switched their sourcing to this offering.
OPI: There’s been some criticism of wholesalers not helping independents enough in targeting customers outside their traditional mid-market segment. Fair point?
WB: Historically, this has been an area where the large contract stationers were built to excel with national platforms. It’s a different customer segment with unique expectations and demands.
No question, this part of the market has been the domain of large national contract players. However, there are independent dealers that compete well in this arena.
Is it realistic for mid-sized stockless dealers with the support of their wholesaler to be able to compete on service for this customer segment? It’s an interesting question and with programmes like SPR’s 2PL and USA Express dealers are increasingly gaining confidence and access to larger pieces of business.
OPI: How has consolidation in recent years affected your customer base?
WB: Not dramatically overall in the last few years. However, we were impacted this past year as a large independent dealer was acquired by a national player.
At the same time, there are a growing number of dealers that are acquisitive, have very portable models and have shown they are capable of sustaining solid double-digit profitable growth.
A look at our top dealers reveals some that didn’t exist five years ago and several that have run rates easily in excess of $25 million.
OPI: Will there be a period of dealer roll-ups again?
WB: We believe that there will be some roll-ups but not to the extent we saw ten years or so ago.
OPI: Let’s move on to product categories. What percentage of your portfolio is traditional OP, as opposed to EOS, jan/san, breakroom, furniture…?
WB: Our traditional OP business would be in the low forties as a percentage, technology in the mid thirties, furniture in the mid teens, and our fastest growing segment is our cleaning and breakroom category, which now represents mid-single digits.
OPI: What other logical category extensions should dealers, and SPR, be looking to exploit?
WB: Recently we have expanded into the school supply and healthcare product categories. We are currently also extending our product offerings in a variety of safety and industrial products.
OPI: And what are the most important growth sectors at the moment?
WB: All categories are important to us, but we do see more upside in the cleaning/breakroom category as a great number of our customers are beginning to realise the true potential this vertical represents.
Based on our results over the last several years, we still believe there to be expansion opportunities in the furniture category as well.
OPI: What are your gross/net margin trends?
WB: Like the overall industry, we continue to be challenged in both of these areas. We recognise that we cannot improve our margins on the backs of our customers, which is why we have made this significant investment in analytical pricing software.
As an industry, we must become much more scientific in our approach to margin and mix management. Our global sourcing initiatives are really gaining traction and we have a number of operational initiatives that have taken significant cost out of our operations.
OPI: With cost and pricing issues in mind, what is your stance on private label? It’s become increasingly the wholesalers’ remit to help independents with their marketing and branding. Supporting manufacturer brands falls into that category. Is there a conflict?
WB: There is no question that our preference is to sell manufacturer brands. We expect innovation, training and continued investment by our manufacture partners and the marketplace will reward those that perform well in all those areas. That said, we have a responsibility to bring competitive price points to our resellers. We have expanded our footprint in China and around the world through our parent Genuine Parts Company (GPC).
By leveraging the spend that comes from being part of GPC, we see some very exciting developments in the years ahead. On occasions there could be some conflict of interest, but we are committed to helping our dealers sustain profitable growth and we are prepared to do so in a variety of ways.
OPI: But more dealers are increasing their direct spend with manufacturers…
WB: I would be hard pressed to agree that more dealers are going direct for their product needs. There is certainly a contingent of dealers that is focused on expanding their stocking model. However at the same time there are many dealers re-rationalising their stocking strategies and in fact reducing the number of SKUs they stock.
I would also add that we are seeing extraordinary growth with a number of our stockless dealers who find the portable model very conducive to expansion with our support. These dealers are simply laser-focused on sales and marketing and it’s working for them and us.
OPI: How do you feel SPR is perceived by its competitors as well as customers?
WB: We have a healthy respect for our competition and we hope that they view us similarly.
Things like our Advantage Business Conference, the first consumer price catalogue for independent dealers, our Signature Series Flyer programme, our new Enhanced E-content, our analytical pricing software and global sourcing investments are all reasons why we believe our customers view us in a favourable light.
OPI: I believe SPR has enjoyed an informal relationship with Spicers for some time. In view of the recent Kingfield Heath/ISA acquisitions I speculate that this may spook Spicers’ parent company and that we’ll see the wholesaler back on the market. Could there be some interest in Smyrna to formalise this relationship?
WB: Yes, we do have an informal relationship with Spicers and we currently share in a number of best practices. We are always interested in potential acquisitions, but at this time I do not see an expansion of our current relationship.
OPI: The wholesale channel in Europe – perhaps with the exception of the UK – is quite different from that of the US. Many dealer groups, for example, have their own wholesale operation. Can you see this happening increasingly in the US?
WB: The dynamics would appear to be dramatically different in the US. Power channel players were not that well established in Europe as dealer groups formed distribution operations.
There are multiple system providers in the mix that further complicate matters and I believe there are more stockless dealers in the US that have different requirements from stocking dealers. It would require substantial financial investment on the part of a large number of stocking dealers as well as likely infusion of outside capital.
OPI: SPR has a large operation in Canada, a market that’s also quite different to the US. How tough is this market for you?
WB: We are very excited about the prospects for growth in Canada. The Canadian dealers have been enormously supportive and we are in the process of opening a full stocking facility in Edmonton. The dealer model in Canada has historically been a heavy stocking model, but we are beginning to see that change.
OPI: With so much talk about stocking/stockless dealers and the role of the wholesaler in a consolidating industry, what’s your best guess as to what the next decade will hold? Is there scope for another nationwide OP wholesaler or could there be more joint efforts between the OP and the tech wholesalers in the US perhaps?
WB: The national wholesalers will continue to expand their product offering, but you will likely see a lot less redundancy. Today we offer a great deal in the way of consultancy, from financial planning to salesforce effectiveness and soon gross margin management.
We believe that dealers will require new software management tools and it is likely that the national wholesalers will be in the best position to make this happen for independents. Being proficient in business analytics will be table stakes for tomorrow’s dealer.
We see modest share expansion for independent dealers as a group, but there could well be fewer dealers. Without major share expansion, and with ongoing consolidation and margin pressures, it’s anybody’s guess as to whether three national wholesalers could be supported.
The distribution business is very capital intensive and SPR is fortunate to have the resources of GPC behind us. The market will dictate whether EOS and wholesalers become one and the same. It’ll be interesting to watch.
OPI: Who do you think have been the smartest operators in our industry over the past few years?
WB: From the vendor side, 3M continues to impress with its innovation and Hewlett-Packard certainly has made a nice comeback. From the mega-player perspective, Staples continues to operate at an impressive level, but Office Depot has also made considerable progress.
There are also a number of our independents that are incredibly impressive in terms of the way they have operated their business over the last few years.
And naturally, I would like to believe that SPR would be considered one of the smarter operators in our industry. We have performed fairly well over the past five years and have built a very strong foundation on which to expand.
The future belongs to innovators and those capable of making fact-based decisions and the right investments.