Big Interview: Sid Lerman

If you can make it in New York, you can make it anywhere, so goes the song, and Weeks Lerman is certainly a success story in the New York OP market with sales of around $90 million.

That success is no doubt down to a move away from a reliance on traditional OP in the past few years, as Weeks Lerman has developed other categories such as breakroom, managed print, furniture and, more recently, jan/san and print hardware. At the same time, the firm has remained laser-focused on providing exemplary levels of service to differentiate itself from the competition.

CEO Sid Lerman is the first to recognise the input and impact of his senior management team. COO Cindy Ciaccio, who has been with the dealer for 25 years, and Rob Paar, Executive Director of Logistics and Purchasing, are two key staff members that have helped drive change at Weeks Lerman. Ciaccio and Paar joined Lerman as OPI caught up with the New York dealership.

OPI: Firstly, how did you perform in 2014?

Sid Lerman: Sales were flat for the year at approximately $90 million. Some categories were up, others were down. For example, traditional OP declined while jan/san, coffee and print were up.

OPI: Was that in line with expectations?

SL: Our expectations, yes. Our hopes, no! But it’s no secret that technology is causing the use of fewer office supplies. We got into coffee and breakroom about seven or eight years ago and that’s become a substantial part of our business. And most recently, the janitorial supply field has become a very important segment to us – again, just replacing business that is going away because of technology. Traditional office products represent about 40% of total sales now, and that includes ink consumables.

OPI: How did you do on the bottom line?

Cindy Ciaccio: We did OK margin-wise: we were up by about a point and a half. We work very hard to contain costs and we run a very lean machine. I think we utilise technology very well using the BMI OP Revelation platform, and we’re routinely meeting with our department heads in all areas of the business to try and use systems better, increase productivity and, again, drive down costs. 

Where that was probably most impactful was in the warehouse – Rob Paar and his team did a tremendous job of driving cost down there – and he also did a great job leveraging United Stationers’ capabilities with the software to increase productivity and drive down costs. 

OPI: Tell us more.

Rob Paar: One of the things we have is barcode scanners and using technology there; that has led to big savings because there is less handling of the products. We have developed our software in-house; we have programmers and we felt it was easier to do it in-house and control and verify it rather than outsource that function to a 3PV. 

OPI: Really?

CC: It’s relatively expensive to pay the monthly fees on those electronic point-of-delivery (POD) devices, as well as the investment in the devices themselves. We had a programmer that spent about six months developing the migration of our electronic PODs to smartphones. Putting that on smartphones and doing it all internally has been a huge thing for us. 

OPI:  Can you quantify the savings you have been able to make?

CC: We know that we have driven costs down in warehousing: that is reasonably easy for us to quantify and was about $750,000 between personnel, increased productivity – including the staging with United – and software. But it took us probably about three years to get to that $750,000.

OPI: How did you leverage your relationship with United? 

RP: We made some very big changes to how they routed our trucks, how the products came in and the way that we unloaded them right into our staging area. We probably do two trucks a night with United, so that’s a lot of merchandise.
We used our automated warehousing system to get merchandise that didn’t need to be handled more than once right into the truck staging area, so it didn’t have to get broken down in other areas – which is what we had to do before. We probably worked on that for about four months; United sent down personnel from its Cranbury facilities in New Jersey and I went to see them. United was very supportive, I must say; we were quite demanding and they did what they needed to do to get there for us.

OPI: A nice plug for United! Is there anything that you feel they should be doing better for you and the dealer community in general?

CC: From our perspective, there are things we’d like to see them do better product-wise. They don’t necessarily have yet a strong enough imported or lower-price alternative domestic product to keep their dealers competitive in the market. 

We’d also like to see them get lesser priced alternative products in OP and jan/san quicker. If the Staples of this world can do it, then United can too. 

With Lagasse they have a full arsenal of jan/san products – which is good – but they’re not necessarily the most cost effective.

OPI: How would you describe the New York market at the moment?

SL: About 95% of our volume ships to New York City and that’s where our sales people are focused. The market is certainly better than it has been; we’re seeing a resurgence in the Wall Street business and the financial areas; charitable and not-for-profits are making a big comeback; there are opportunities in education; and we have a large presence in healthcare. 

The opportunities are there, but it is still tremendously competitive.

OPI: Who are your main competitors?

SL: It seems like everyone gets to take a turn. Five or six years ago, Staples was the tough guy; more recently it was OfficeMax writing the big bonus cheques for converting customers – with the exception of the New York State contract where Staples did millions of dollars’ worth of products at a penny.

But for us, it’s still WB Mason that is the most aggressive – pricing-wise and marketing-wise – in New York. Mason is difficult, it’s very aggressive and willing to take losses on the front end, and that’s just not our business model.

OPI: So how do you compete with that?

SL: Part of it is trying to educate the customers that those prices don’t necessarily follow the length of the contract, and that somewhere, somehow, they have to be made up for. We’ve lost a couple of major accounts to Mason that came back within a year because they did see that there wasn’t sustainability with the pricing.

One of the things that separates us is that we really service our customers in a way that other people are unwilling or unable to. And this value-added part of the sale has become a lot more valuable and a lot more meaningful to many of our customers.

CC: A major customer of ours for the past 15 years is a leading healthcare establishment in New York City. Typically, they’ll go out to bid every three years and the big boxes very aggressively try to get this business from us. About four years ago, we signed a three-year contract; at that time the business was worth about $7 million a year. 

This healthcare establishment belongs to a buying group called Novation and, in preparation for ‘Obamacare’, they themselves were looking to drive costs down. They had a dedicated Novation rep working with Rob Paar here for about six months, consolidating not just the core list but the whole catalogue – and we’re talking about an environment where there are 12,000 end users.

Within a year, we took $2.5 million in sales out of that contract with them hand in hand. The commitment we made to stand by them during this has meant that they haven’t put the contract back out to bid, and they also awarded us the coffee business. So there is really a level of trust there. For us, it was just a matter of business: “If that’s what you need, then that’s what we’re going to do for you.

OPI: If you compare your business today with, say, five years ago, what do you believe have been the biggest changes?

SL: I’d say the need to evolve into selling other product lines. OP was our main category for many years, but the declines we have seen are not going to reverse themselves. Our big push was in coffee and breakroom, and now our focus is on jan/san. 

It’s easier to sell more items to existing customers than to go out and find new ones, and we are finding that our clients are really embracing our efforts to sell them jan/san products. The jan/san industry looks like the OP industry used to look like. By that I mean there are a lot of small jan/san dealers around the country. My belief is we’ll see a lot of these small dealers consolidate or disappear. I believe it’s a lot easier for us to compete with the small jan/san dealers because they’re behind the curve technologically speaking. They’re in for some surprises.

OPI: What investments have you made in the jan/san category?

SL: In order for our sales reps to make intelligent sales calls, we really needed to have in-house expertise and we have a jan/san specialist. Generally, the reps will take our in-house expert with them on those sales visits. 

We also spend time to make sure the reps know the products, so we give them training: when you have to talk about different types of vacuum cleaners, floor cleaners and level of concentrate, etc,
 that can get very technical so we want
 the reps to be able to give end users confidence in us.

OPI: You have been active with acquisitions over the years, but nothing for a while. Why’s that?

SL: The environment has shrunk in the OP industry and we really haven’t seen much opportunity in that space, but we are always looking. But I believe there is opportunity for consolidation in the jan/san industry. 

OPI: We’ve seen some office resellers buying jan/san distributors recently…

SL: And I think we’re going to see a lot more of that. 

OPI: Would you look at that?

SL: Definitely. The OP industry shrunk dramatically because the smaller guys just didn’t have the scale, and I suspect the same thing will happen in the jan/san industry. There is too much new competition and they don’t have the technological capabilities. 

But of course, consolidation doesn’t happen overnight. 

OPI: You are one of the largest dealers– if not the largest – in the TriMega group. To what extent have you been involved in the American Purchasing Alliance initiative overseen by AOPD?

SL: I’m not involved personally. What I will say is that I think there are too many dealer groups and they need to consolidate. They really do.

OPI: Were you disappointed when TriMega and Independent Stationers (IS) didn’t merge?

SL: Absolutely. There are too many groups and the manufacturers can’t handle all these shows and the expenses. It’s just a shame the groups can’t sit down in a room and get it done. It’s the right thing to do, but it just hasn’t happened.

OPI: Why not, in your view?

SL: I guess it’s about the individuals and who gives up what, who leaves and who stays; I can’t think of another reason. Take AOPD, IS and TriMega – there is no need to have all three groups, in my opinion. 

OPI: Weeks Lerman has been mentioned in the same sentence as Pinnacle. Any comment on that?

SL: No! Just that I know they’d like us to join! But what I’d really like to see is IS and TriMega merge.

OPI: We rarely have an interview these days without referring to Amazon. Are you keeping an eye on them or are you concerned about Amazon?

SL:Absolutely. The New York market always has a bulls-eye on its back and the first place where Amazon went to open a physical location was Manhattan. Of course we are worried. As soon as they find a way to implement services outside of UPS and FedEx, we will have to be concerned. 

But it’s not just them – it’s the Costcos and BJ’s and Walmarts of this world too, and it’s a concern that they keep looking in our space. 

OPI: Finally, the news has just broken that Staples has agreed to buy Office Depot. What is your reaction to that?

SL:What we are basically seeing is the reduction of overcapacity in a declining industry. The combination provides enormous opportunities for cost savings, but the size and execution of the task is challenging. While demand for office products is declining, the competition from the likes of Amazon, Costco, BJ’s and Walmart is expanding. 

The office supply retail stores’ best days are behind them. Opportunities for the OP industry rest in other product lines like coffee/breakroom and janitorial supplies.