Charlie Cleary has brought his dealer group – or buying group – through a lot of change in the last few years. As President of TriMega he has overseen, among other developments, a merger with managed print services (MPS) group INTEC, the acquisition and following shut down of e-commerce B2C initiative SmartXpress, the creation of a focused jan/san programme and an exit from BPGI. During his tenure member numbers have risen, in earlier years by double-digits, and the membership base now comprises a diverse variety of sizes, models and focuses.
So what does Cleary see before him now? It’s a different world to when he took the job in 2005, and dealers are under different and evolving pressures to branch out and take on new competitors. OPI speaks to Cleary about national accounts, the prospects of the group and predictions for the industry.
SH: So today you have 600 members; what does that equate to in combined sales volumes?
Charlie Cleary: Their outbound sales volume is a little bit better than $4 billion, with purchase volume running through TriMega of about $2.2 billion. That includes the wholesale purchase volume as well as their direct purchase volume through manufacturers.
SH: How are numbers trending?
CC: The member count has been flat over the past three years. We continue to gain new members while at the same time there has been an attrition of members; either merging dealers, dealers simply closing their doors, or, to a much lesser extent, dealer movement to other groups. In 2012 we saw the greatest number of dealers merging, more than 30, mostly for financial reasons.
SH: Do they tend to merge with other TriMega dealers?
CC: Yes in many cases, for two reasons: number one, there are 600 TriMega members, and number two, networking allows them to develop relationships. But while membership has been flat we have seen growth of 2-3% over the last three years. The more progressive dealers are growing at a greater percentage – in 2012 at 8% – by regaining market share from the power channel and expansion into other product categories, most notably jan/san and breakroom.
SH: I recall TriMega press releases a year or two ago trumpeting record rebates?
CC: The rebates have remained stable over the last three years at $32 million annually, so despite the challenging economic conditions our slight growth and effective supplier negotiating strategies have allowed us to maintain industry-leading rebates.
SH: There are rumours TriMega is facing financial trouble; what’s your response?
CC: I don’t know where that’s coming from but TriMega’s balance sheet is as strong as it’s ever been. The organisation is funded by our members, our shareholders, which continue to make us financially strong.
SH: So that’s a flat refute to that rumour?
CC: Absolutely. I have no idea what would be fuelling that rumour.
SH: Looking at what TriMega offers, why do your members choose your organisation over others?
CC: The number one reason continues to be rebates. We are giving out the best rebates in the industry. Number two is our new digital marketing tools. We have the first catalogue tablet app in the industry, and an electronic flip catalogue that dealers can load on their websites and link to their ordering systems. A third reason would be providing the best networking opportunities, which we’re very proud of. Michael Morris has done an outstanding job at developing a growing suite of innovative marketing tools, producing the best meetings, and facilitating tremendous networking opportunities for our members.
So, in general we are focused on leveraging the combined buying power and knowledge of our members so that we can provide optimum purchasing and marketing programmes. That continues to be the vision for TriMega.
SH: There have been suggestions that TriMega is in fact lagging behind in marketing programmes, but you say this is one of your strengths.
CC: Absolutely, and again I refer to progressive members that are growing their business, some by double-digit numbers, in a very challenging economy. They have embraced new technology to have market competitive websites, they put new feet on the street in the jan/san category and have focused on using innovative digital tools to increase sales to existing customers. And the tools that they’ve been utilising to do that are provided by TriMega.
SH: So you’re pretty bullish about the prospects of independent dealers?
CC: I think the industry has recognised that dealers have grown market share over the past three or four years. We have recaptured an 80% market share of mid-market customers that Staples, Depot and ‘Max have been talking about for a decade but have made very little progress with, if any.
SH: Is this likely to spark an organisation like Staples, which has a reasonable war chest, to acquire some larger dealers?
CC: There’s no evidence of that over the past three years. Staples acquired Corporate Express, but we have not seen acquisitions of OP dealers of any size for some time. I think the bar has been raised in their mind as to what’s worth acquiring because of the time, expense and challenges of an integration, so what might have been a $25 million hurdle five years ago would now be at a $100 million level. My guess is ‘Max would be more interested than Staples and I don’t see Depot playing in the acquisition arena. Back to Staples, we’ve heard in their reports to analysts about a focus on the internet, and a real concern about Amazon.
SH: That must give you heart that while they’re focusing on that fairly big beast, you can continue to make inroads into the middle market.
CC: Yes, clearly there’s a concern with Amazon and Staples; they’re formidable players and good competitors. Amazon is certainly a competitor for the retail and SOHO customer, no question, and I also believe they will be a competitor for the B2B customer. Those that argue they’re not, I think that’s naïve. Similarly Staples will continue to try to get into that small and mid-market customer with their website. That is a threat because a dealer is not investing the millions of dollars in technology that Amazon and Staples are.
SH: Are you saying that dealers’ future could be impacted by Amazon focusing on the mid-market, or that Amazon is likely to maintain its emphasis on the SOHO and small business consumer, which is not the domain of the dealers?
CC: I believe the primary target for Amazon is the SOHO market. I also believe that as they continue to improve their distribution capabilities and internet focus on the OP category that it will begin to impact the medium-sized customer, which will require dealers to invest in improving their web capabilities, data mining resources and internet intimacy.
SH: Who needs to step forward and ensure dealers have the right technology and web tools to take on Amazon? Is it the wholesalers’ responsibility? Dealer groups? Technology providers?
CC: It’s all of the above; the wholesalers, the buying groups, the suppliers, the manufacturers and the technology providers need to continue to improve investment and web capabilities for independent dealers.
SH: How confident are you that’ll happen?
CC: I am cautiously optimistic because it has to happen. Technology proficiency is the reality of the new market we find ourselves in, and that’s not going away. And the funds are there; it’s just refocusing where those funds need to go.
SH: You touched on dealer mergers. We have seen some larger independents coming together, the most recent Phillips and Guernsey. How likely is it that we’ll see more combinations of that scale?
CC: I think there is a chance of that. I think that the Guernsey acquisition of Phillips is a very good fit. There needs to be a very good cultural and a financial fit, and I think there certainly was in that case. I think we’re likely to see more dealer-to-dealer mergers that have a strong strategic fit, much more so than Staples or ‘Max acquiring dealers.
SH: Talking of OfficeMax, I believe Depot and ‘Max are again locked in discussion about a possible combination. What’s your take on that?
CC: It seems that it almost has to happen. I know there are cultural differences and huge financial challenges, and yet without them being combined going forwards they have a huge challenge to try to compete with Staples and Amazon. So it’s logical.
SH: If a combination didn’t happen, do you fear for their future?
CC: I certainly fear for the future of Depot, from all that I read. But it’s a long way to zero. So despite their decline in revenues over some years now, it’s still a long way to just go away and I can’t see that happening. I think that now there are outside investors that will force action, and would expect something to happen there in the relatively near future. I think ‘Max is better positioned financially. They certainly have challenges on the retail side, yet I think ‘Max can continue to be viable with a refocus on the contract business.
SH: Do you foresee any other significant industry events in the next year or two?
CC: More consolidation in our industry, for one. Manufacturers, rep groups and dealers. Also, I believe there would be more acquisitions by Staples of dealers in the jan/san arena, certainly more so than in office supplies. Jan/san has been a big growth driver in OP over the last five years; we’ve all seen it and we’ve all benefited.
SH: Two businesses pretty close to OP now are Grainger and Bunzl; what role do you foresee for them?
CC: Grainger has been rumoured to be getting into the OP business for 20 years; it hasn’t happened and I would speculate that it won’t. Bunzl has made a number of acquisitions in the last 18-24 months in jan/san, which is increasingly our industry too. I don’t know enough about it at this point to clearly understand the acquisition strategy but no question there’s something brewing there that needs to be further investigated.
SH: You refer to the jan/san industry rapidly becoming our industry, partly out of necessity. What’s your take on the decline of traditional office products?
CC: Traditional categories are absolutely declining and that is because of changes in technology and in workforce demographics. That trend will most likely continue. Jan/san and breakroom will continue to grow for OP dealers, albeit with inevitable margin pressure as more players jump into the market. Other categories like furniture, safety products and facility maintenance are all either being aggressively pursued or just getting on the radar. The real question is, what is the next high growth category for traditional OP dealers to jump into?
SH: It’s probably more service related than product related.
CC: And I think that’s absolutely right. I don’t see a product category that jumps out the way breakroom or jan/san has, so it likely will be services. We’ve had some dealers that have done extremely well in the MPS category, which is growing. The challenge for the traditional OP dealer is that it requires a substantial investment in people, both selling and servicing the model, and in software. Dealers that have been involved with selling copiers have got into MPS, in some cases out of necessity. Today we have 20 advanced MPS dealers, most coming over from INTEC. That’s helped our traditional dealers understand what’s involved.
SH: You don’t sound, reading between the lines, terribly confident about most of your dealers grasping the MPS issue.
CC: I think they understand MPS, but the hesitation is the required investment. With a challenging economy dealers are figuring out where to invest dollars to get the greatest return. In the last five years that’s gone into technology, websites that can compete, and feet on the street in the form of jan/san or breakroom specialists. So I’m less optimistic about traditional dealers embracing a full-blown MPS model. To be fair, that’s why we launched our blink programme with Supplies Network, which gives dealers a simple way to tap into MPS without the investment because it bundles toner with service in a turnkey manner.
SH: Let’s talk about SP Richards (SPR). To refresh memories, can you explain the rationale of your sourcing and partnership?
CC: Our strategic sourcing alliance with SPR is leveraging our combined volumes in negotiations with our preferred supplier partners to create premier purchasing programmes. That effort also had a private label component with a new brand called Business Source and that venture has been very beneficial for TriMega as well as for SPR.
SH: Can you share any concrete data in terms of Business Source volumes, or any other financial benefits as opposed to your previous engagement with BPGI?
CC: Business Source was above $50 million in 2012 in purchase volume through our group, so at a number worth talking about. On the benefit side I can report that we’ve seen improvement in our purchasing programmes compared to those that we had from BPGI.
SH: So you have no intention to rejoin BPGI now there’s a new CEO?
CC: TriMega’s partnership with SPR and our strategic sourcing alliance have worked extremely well, and we certainly support that alliance going forward.
SH: SPR’s YourBusinessSource model could, to some, look suspiciously like a wholesaler-led dealer group.
CC: Certainly not from this buying group’s perspective, again because we are partnering very closely with SPR in our buying efforts. I think their programme is to support dealers that are looking for a brand identity, for competitively priced proprietary products. We’ve not seen it in any way as a threat.
SH: Given your close relationship with SPR, what has been the impact on members that are first call with United Stationers?
CC: I’m not sure that I agree about us having a closer relationship with SPR because we have an excellent relationship with United as well. We have programmes in place with United that are benefiting our members and there’s not a perception today that we’re favouring one wholesaler over the other.
SH: Let’s focus on your members. Firstly, it’s no secret that some larger members have defected to Pinnacle Affiliates. What would you say to suggestions that the two main US dealer groups are no longer able to cater for their needs?
CC: I certainly respect the Pinnacle group and its dealers and applaud what they’re doing. At TriMega we’ve done an excellent job at representing the interests of larger dealers through our DSC programme, and we’re very confident we’re meeting their needs.
SH: How can you if they’re leaving?
CC: Each dealer has their own business model, needs from their buying group and reason for aligning with one group over another, including larger dealers. We are trying to meet the needs of every independent dealer out there.
SH: You said that a key draw to be a member of TriMega is your e-marketing, which the larger dealers that have left would say they no longer have use for. If the merger process continues and we see larger dealers springing up across the US, this could become a problem for you. How can you keep TriMega’s volumes at a level that gives you the required clout with the vendor community?
CC: Specifically as it relates to large dealers, we have lost only two in the last 15 months, so there has not been a significant exodus. That said, we’re certainly focused on retaining and growing members. I understand that some Pinnacle dealers feel differently, but there are a number of TriMega dealers that see the value of what we provide – the networking, the digital marketing, the rebates and so on. In answer to your question, if we see that there are other large dealers leaving TriMega going forward then we’ll need to re-evaluate the value proposition.
SH: Final couple of questions: we’ve written about and support the combination of TriMega’s and IS’s annual meetings in September. What was the background to that, especially given that your relationship had hardly been the warmest in the last few years?
CC: The comment about not being the warmest is probably a bit overstated, at least publicly, because we actually have a good relationship with Mike Gentile and his team. In any case, the genesis of our decision on a joint convention was the discussion regarding meeting overload and redundancies in our industry, and TriMega and IS have been talking about this for some time. We wanted to proactively lead the charge and our boards are looking to create increased efficiency, improved results and new synergies with this convention. We’re meeting requests from suppliers to eliminate some of the redundancy, time and expense of meetings, as well as create what we believe is going to be the dealer event of the year in 2013.
SH: Do you think your wholesale colleagues will jump in and join the party with an industry week in the not-too-distant future?
CC: I do believe there is a possibility; I don’t want to overstate how quickly that can happen. I do think that with the economic challenges we all face it’s a part of consolidation, and working together to eliminate redundancies and expense makes sense and ultimately will happen.
- President of TriMega since 2005
- SVP of Hartford Office Supply for 15 years from 1990, which was sold to Staples in 2004
- Prior to 1990 worked for Boise Cascade as a General Manager in Philadelphia and Boston
- Member of the National Office Products Council for City of Hope
SH: Now the dust has settled, how would you say independents, not just TriMega members, have fared in their pursuit of national accounts?
CC: I would say reasonably well. The actual sales results are lower than expected but maybe because expectations were set too high. Independents have done well; they have built a robust national account model that absolutely can compete with the big three, with a centralised computer system that is absolutely mission critical. So the progress that’s been made, in our case, in a two-year period, developing what is currently a run-rate of $20 million in sales, has gone relatively well.
SH: But $20 million is not much more than a rounding error in your collective sales volume.
CC: Understood, so that’s where maybe the expectation was set too high. There clearly is an opportunity to regain market share; it takes time. Staples is not going to roll over and hand us national account business. They have the resources to hang on to anything they want to. And I think independents have found out how challenging it can be from a competitive price standpoint. We are very comfortable that we’re getting traction in the market and starting to see the efforts of two years paying off. We’ve got credibility in the market, we have references to share and we’re more believable today than two years ago.
SH: Speculation in the industry would suggest that Independent Stationers (IS) is enjoying more success with its programme than Point Nationwide; would you agree?
CC: I don’t know; I don’t have access to that information so I really can’t speak about how we’re doing as compared to IS.
SH: I understand Tom VanHootegem, your VP of National Accounts, is leaving and not being directly replaced.
CC: Tom was heading up our Point Nationwide national action account programme, and elected to pursue another opportunity. He is absolutely being replaced and we are currently looking.
SH: To what extent has Point Nationwide been a drag on TriMega’s financial resources? Other members of personnel are appointed to run the programme and if you equate that with the $20 million income that’s being derived on fairly low margins, one must assume that this is not accretive to TriMega’s financial situation in the short term.
CC: Point Nationwide is a wholly-owned subsidiary of TriMega, with its own operating budget. It has had a balanced budget from day one, so it has not in any way impacted the financial performance of TriMega.
SH: Where does the funding come from?
CC: It is member and supplier funded, with over 100 dealer members today.
SH: Did you have any financial support from SPR?
CC: SPR is one of our supplier partners, and exclusive wholesaler for Point, so absolutely.
SH: So what are your expectations for Point Nationwide?
CC: To continue to grow the national and regional account business, focusing on corporate accounts as compared to federal government business or state and local business. We are committed to this model and venture; we’re going to continue to help members invest in growing the business that we believe is getting traction now. We’ll begin to grow at an increasing rate.
SH: What’s a realistic annual revenue figure?
CC: We’re looking at $30 million in sales in 2013. We believe that’s realistic based on the $20 million run rate that we’re at in the fourth quarter of 2012. From there we can grow it to $50 million, we’d like to think sooner rather than later, but it may take a few years. Whether we get substantial traction in the marketplace to be somewhere between $50 and $100 million in national account revenue remains to be seen.
SH: Is the number and enthusiasm of participating members increasing or declining?
CC: The number has remained relatively flat. The enthusiasm is, on balance, about the same though some are further engaged by employing a dedicated sales person focused on national account development. Just like any other business venture, some have embraced this far more than others.
SH: Talking of enthusiastic support, there was less than enthusiastic support for SmartXpress. Could you talk us through that scenario?
CC: The concept was, through the acquisition of SmartXpress, to allow our dealers to get into the internet B2C market, where they struggle to capture business. We didn’t get where we wanted to because the investment in systems to be able to compete with the likes of Amazon is much more substantial than we had originally projected. When we realised this, we decided that this is not the right investment on behalf of dealers.
SH: So have you pretty much abandoned the idea of competing in the B2C arena?
CC: Yes, as a buying group we have.
SH: Charlie, what do you think you’ll be doing in five years?
CC: I think I will continue to be leading the largest independent dealer buying group in the US, and I’m hopeful that the market share for independents will be around 20% as compared to the 13% market share that we have today. I look for independents to be significantly growing their regional and national account market share, leading the market with internet intimacy and providing the best personal service in the business, which continues to set them apart from the public companies.