Between them, they’ve amassed about 50 years of experience across all industry channels. As such, Mike Maggio, President of US dealer group TriMega and Ian Wist, its Chairman and co-owner of Wist Office Products, were well-versed when put on the spot by OPI’s Steve Hilleard at the tail end of this year’s EPIC event in Las Vegas. From the threat of Amazon, the trouble with collaboration and the state of the industry to specific TriMega – and dealer – priorities, they pulled no punches in their answers.
OPI: Let’s start with a brief overview of TriMega as it stands today.
Mike Maggio: Sure. We have 475 members right now. TriMega is made up mainly of office products resellers, although we have a technology sub-group called INTEC as well. Our combined revenues remain somewhere north of $300 million – that’s down from a year ago but, comparing apples to apples, sales of our currently active members are up slightly.
OPI: What metric do you use internally to gauge the success of the group, ie what’s the number you focus on at the end of the year that determines whether it was a good or a bad year?
MM: Good question. I look at two things primarily. One is maintaining 100% payout of rebates. The figure varies and could be anywhere from $23 million to $25 million, but it has to be a 100% payout – that’s a very important number for us.
The other is that TriMega itself is operating at a break-even or slightly positive EBIT, so that there are no costs that aren’t covered. Those are the two key ingredients for me when I evaluate whether we are doing ok.
OPI: Ian, as Chairman of the board, would you concur with that?
Ian Wist: Yes. Personally, I like members buying direct. We have a lot of non-stocking dealers and created affiliate programmes for them. But I would like to see more dollars flowing through central billing – the greater that number, the more we’re paying out.
OPI: Looking back at the period since we last interviewed you in 2014, what have been the most notable achievements for the group?
MM: The standouts to me are firstly our purchasing clinic that we started two years ago. It has been a major achievement and I’m very proud of it. Grady Taylor has done a terrific job of formalising a process to help members buy better. It doesn’t necessarily mean shifting wholesale to direct or direct to wholesale, it’s about teaching dealers how to maximise return on one of their largest investments – inventory.
Secondly, the EPIContent joint initiative with Independent Stationers (IS) is a critical driver for the independent dealer community (IDC) as well as, quite frankly, for the manufacturers and the wholesalers. I’d like to think that everybody understands the value of it.
Thirdly, the Supplier Council and Top-to-Top Meetings with key vendor partners are things we have implemented since my tenure at TriMega began that are critical to us as we go forward as an organisation.
We continue to find ways to reduce overheads while providing equal to or, in some cases, better services to our members than in the past.
OPI: Let’s move onto the IDC in general and the threat that Amazon and Amazon Business are posing. How are dealers holding up to this?
IW: From my own dealership’s perspective – and we’re pretty proactive – we’re losing orders, not just to Amazon but to Walmart as well. It’s not hitting our public business yet where we are growing very nicely. But ‘yet’ is the clue here. Amazon Business is certainly out there trying to get into that space.
We’re also busy upping our game in the private sector – more law firms, insurance companies, real estate agents, and so on. There’s plenty of business out there to take, particularly because the OP big boxes are in a weakened position today for all the known reasons, and we’re able to grab those dollars. But the leakage to Amazon is always there.
OPI: Mike, you shared a session with Mike Gentile at EPIC this week. He described Amazon as a ‘disrupter’. Is that understating the threat?
MM: I don’t think that was his intention. Amazon is a competitor, we need to treat them as such and we do. But they are also a disrupter because they are changing the game. Ian’s experience is not unique. You walk into one of our dealer’s customers, confident that you’re getting all their business and it turns out that all of their employees have Prime accounts.
We’ve never competed with an organisation with that kind of reach. As such, we have to focus on our strength – local relationships. Amazon’s strength is data, ours is relationships.
OPI: But that alone will not be enough, surely. What specifically is TriMega doing to help dealers like Ian’s business and others?
MM: Well, I mentioned the EPIContent initiative before and that’s really important. But just as important is our mission to improve dealers’ cost of goods and make them more competitive.
In addition, we continue to focus on adjacent categories, adding manufacturers and broadening the product mix available direct, thereby enabling dealers to gain wallet share of their existing customer base.
OPI: Years ago, we spoke about Staples as a disrupter and you just alluded to the fact that they’re having some challenges at the moment. So the sale has gone through and the idea is to start focusing more aggressively on the mid-market. Office Depot is the same [and, shortly after EPIC, bought California dealer Complete Office Solutions]. Are you seeing that in the market?
MM: Talking with dealers around the country, Staples appears to have pockets where they’re really pushing local sales reps, but I don’t think it’s the organised, cohesive push that they’ve made it sound like. And who knows what the exit strategy for new owner Sycamore is – shore up cash or start selling pieces off? We’ll know shortly where they’re going.
IW: I’m not seeing that big push – from Staples or Depot – either and I don’t see feet on the street. Amazon is a much bigger beast. We’re a niche player and we’re going to satisfy the needs of customers who want to deal with other people rather than a ‘buy box’. That’s our relevancy in the marketplace. If you continue to pull people off the street, you’re just getting closer to the Amazon model and we really want to go as far away from that as possible.
OPI: Collaboration seems to be the buzz word of 2017 and this EPIC show is another sign of that. How’s that collaboration extending to the perennial ‘will they/won’t they merge’ of IS and TriMega?
IW: Let’s just say we’re still willing to talk, but if there’s nobody to talk to, we’re not going to have that conversation, are we?
A few years ago the TriMega board unanimously voted to explore any and all opportunities to merge with IS. The board has never rescinded or taken a step back from that resolution. We have sat down with various members of IS numerous times. Each time IS decided to disengage from those discussions. We all know and understand the potential benefits for the IDC – getting there has been the challenge.
That said, we’ve collaborated on certain initiatives very well. The two Mikes have known each other for a long time and they’ve been able to work on tasks together which have been beneficial. As far as both groups as a whole are concerned, I would like to seek greater cohesion, but everybody’s got to legitimately want to work together and I’m not seeing that.
OPI: Mike, anything to add to that?
MM: There is a lot of collaboration occurring, yes, but I’m not so sure we all define collaboration in exactly the same way. I echo Ian’s comments that everyone understands the potential benefits for the IDC.
OPI: Let’s talk some more about the wholesalers. TriMega announced a closer relationship with Essendant in 2016 which was surprising given that you seem to have had a tighter relationship with SP Richards (SPR) in the past through your strategic sourcing agreement. Has that ‘alliance’ with Essendant borne the fruit you were hoping for?
MM: Not in total, it hasn’t. But that doesn’t mean we haven’t reaped some significant benefits, such as reduced cost of marketing, improved cost of goods and rebates for members, etc.
There are some components to the alignment that we’ve struggled with. Essendant has gone through a lot of changes since we made the deal and this has had some impact on the relationship.
We recently entered into a direct buy relationship with SPR to help our SPR-centric dealers a bit more, and there are still some components of the Essendant alignment that we look forward to implementing and that we feel confident about.
IW: The way events unfolded at Essendant has meant that we’ve fallen off the radar at bit, partly because our previous main contact – Tim Connolly – is no longer there. Let’s just say that collaboration doesn’t always work the way you had intended it to.
OPI: Given their share prices and financial results, should the industry, particularly the IDC, be nervous about what’s going on in the wholesale sector?
MM: From my perspective, absolutely. Any time there’s disarray at a partner of that magnitude we have to be concerned. They are both very strong companies and they’re not going anywhere. But all dealers, regardless of size and business model, rely heavily on their wholesale relationship whether they’re stocking 4,000 SKUs or five.
IW: Speaking from a Wist perspective, I’m a reasonably-sized stocking dealer and Essendant is my biggest trading partner. Half of my spend. So yes, there’s some concern there.
OPI: Would a merger among the wholesalers make sense from an industry perspective? Never mind Wall Street and that side of things?
IW: I think that is a frightening proposition for dealers, because of the lack of choice and the leverage that a single supplier would have over the business.
OPI: Could it be argued that Amazon is emerging as a wholesale source?
MM: I know lots of dealers that will buy something from Amazon because their customer wants it and they can’t get it anywhere else easily. As such, there’s most definitely some level of purchasing taking place from Amazon today.
I’m not sure they would be an effective wholesale distributor in the traditional sense, but dealers have a history of filling the customer’s need and Amazon enjoys quite a bit of business that’s then resold.
OPI: A lot is written about the need to take cost out of the channel. Mike, you said in your last Big Interview in 2014 that TriMega is primarily a buying group and that’s what it should focus on. Is there too much emphasis on price and margin among dealers and not enough focus on re-engineering their business or investing in technology?
IW: The purpose of TriMega membership is to achieve best cost of goods. Yes, you have to invest in technology and people to stay in business, but I don’t think you can stress highly enough how important it is to drive costs down and be profitable. It is then that you invest the profits in technology, infrastructure, etc. But the bottom line has to be robust first.
MM: Steve, I get your point, but we have to start with that basic premise. We’re not telling dealers they have to focus on cost alone, but that is our role. We help with all the other things as best we can, but at the end of the day, our job is to produce programmes and provide products that allow them to be competitive.
OPI: I’d like to go back to EPIC. I was surprised to see Pinnacle members wandering around. What’s all that about?
MM: Pinnacle is affiliated with IS and as such are eligible to participate. We were as surprised to see them as you are. We know them all and many we consider to be friends, but that’s somewhat irrelevant. They have been very vocal about the value of these type of shows. They consider them a waste of time and money. But here they are.
OPI: Let’s finish on a high – I hope! Where do you see the industry in five years’ time?
MM: That’s bound to be a loaded question where you tell me in a minute what I said five years ago and I was completely wrong.
I think we’ll still have a vibrant dealer community and I disagree with folks who say we’re going to end up with just 200 independent dealers. We’re close to equilibrium right now in my view, so somewhere between 1,000 and 1,500 is probably about right. And as long as independent dealers exist I don’t foresee a time where a buying group like TriMega won’t have relevance and add value.
What products will we be selling? Who knows. There’ll be many differences, but aggregating volume and behaving as one will continue to have value and I think we’ll still be here.
For more exclusive content from the interview, including the topics of branding, technology and dealer as well as manufacturer engagement, read Big Interview Xtra.