Big Interview: Alan Ball

Spicers CEO Alan Ball has had his fair share of problems recently, but - as ever - remains bullish on the wholesaler's prospects in a tough market

It’s unprecedented for the same person to be the subject of an OPI Big Interview twice in the space of 18 months, but we’ve broken with tradition for this month’s interviewee, Spicers’ CEO Alan Ball. Ball’s time at Spicers has been something of a whirlwind and he can hardly be described as a shrinking violet, not afraid to challenge convention and often courting controversy with some of his initiatives.

Spicers has been experiencing some serious supply issues over the last few months following the introduction of new inventory software and the switch to a new main distribution centre near Birmingham. A full-length, in-depth interview with Ball on that topic can be found on opi.net. Here, the Spicers’ CEO discusses wider strategic issues, both at the wholesaler and in the UK market in general.

OPI: Better Capital has owned Spicers for just over two years. What’s your understanding of their strategy for the business?

Alan Ball: Well, they certainly still see significant value in Spicers. We’ve had these short-term issues but their expectation of the value of the business hasn’t changed and they still want to see this investment through.

We’ve got significant asset value still left in the business and we’ve got support from them in bringing new initiatives to market.

So I don’t think that this strategy has changed. They are obviously disappointed in the short-term blip that we’ve had, but this was always a long game; it was never going to be a quick win. But I think everybody recognises the repayments that have been made, the investments that have been made and the support that’s been given.

OPI: I think certainly many industry observers were looking at perhaps the end of this year for an exit from Better Capital. Is that still on the cards or has that been scuppered really by the recent trading conditions?

AB: Yes, I would suspect so. We’ve never talked specifically about an exit date, but if there was any intimation of an exit this year then I think current trading would make that difficult. The expectation of value hasn’t changed, but the short-term trading issues will certainly mean that profits are affected.

We will still be profitable and what’s important now is that we come out of this a stronger business and we then deliver on those initiatives to drive the incremental value that we know we can get to.

So at some stage that [exit] decision will be made.

OPI: Let’s have a look at your recent trading performance. Sales down 16% in the first half, that’s on top of the 18% decline last year. It doesn’t look too good on the top line, does it?

AB: No, but if you look at our like-for-like, once you strip out the sales that we had through some of the business in the previous year – the balance of OfficeTeam and some of the HP sales that we had – it suggested in fact that we were outperforming the market in December.

So we’re comfortable where we are. We clearly know that we’ve got to recover lost sales that we’ve had in the last couple of months, but we’re confident that we can do that. But the historical sales are very much predominantly on the back of those that we walked away from – business that wasn’t profitable for us.

OPI: But you can’t just continue to trade 8-10% down and say that’s in line with or ahead of the market. That’s clearly not a sustainable model, is it?

AB: No, and that’s why you’ve got to come up with new initiatives and new product ranges to offset that, which is exactly what we’re doing and have been doing, but in the very short term it’s not prudent for us to focus on them. We’ve got to focus on getting the business right and then redeliver those initiatives.

We’re still ploughing ahead with the paper initiative, the closed loop; that’s being launched now through the Brilliant Partners. We’re still doing the extended range of products; we’ve had some success there with some of the white goods that we’ve already started to sell through. So that programme will continue and that will offset some of the market decline as we move into other aligned industries.

OPI: If you take a look back over the last two years, what would you say are the main differences that you’ve brought about at Spicers?

AB: Spicers is now a much stronger business in terms of its routes to market and its ability to react to market change. It’s definitely stepped out of that sort of 1970s mentality. Its ability to change and its ability to deliver that change in a speedy way is absolutely fundamental and that has made a significant difference.

I think we continue to lead the market in innovation. If you look at some of the initiatives and programmes that we’ve delivered – some of which have been successful and some not, but you’ve got to try these things – we continue to lead the market and we’re now in a stronger position than we were two years ago.

Two years ago we were owned by a PLC that wasn’t prepared to invest and was effectively stripping the cash out and Spicers had little future. We’ve now got a dynamic business that, as I say, continues to lead the market.

OPI: The UK wholesaling channel has had profitability issues for a number of years, and you’re not alone in this. Where do you need to go as a channel to make money for your shareholders and for your investors?

AB: You’ve got to look at the other sectors of the market. I mean, nobody’s having a great time of it. If you take the contract market we’ve proven that we can operate in that space, that we can bring in large contracts and that we can deliver them for dealers.

We know that a lot of the contract stationers are having their own challenges, therefore we believe that part of our strategy going forward is to deliver incremental growth in that channel. It’s a channel where we had zero representation and we’ve now got double-digit millions of sales. Contract is a £1 billion ($1.6 billion) marketplace as a whole, so there’s growth there for us.

OPI: This contract business is you working in partnership with dealers, is that correct? Or are you doing any larger contracts that are direct with Spicers?

AB: We have a combination of the two and we’ve communicated this very explicitly with dealers. We’ve got a line in the sand, a value that we will always quote dealers to secure that contract business, and we’ve done that.

We have a referrals system for dealers that aren’t able to secure individual contracts and we pay a commission on the business we get from that. Then there are certain contracts that are in excess of £1 million where no normal dealer has the ability to secure that business and we’ve gone out and we’ve won it against some of the large corporates.

OPI: So your argument is that you’re not competing against your traditional dealer base, but against the Lyrecos, Office Depots and o2os of this world?

AB: Yes, and if you look at those large contracts that we’ve won, all of those have been secured against one of the large nationals.

OPI: There was all this talk about Ernie’s a couple of years ago and MemoEtc, rekindling that going direct debate – what’s your view?

AB: Well, we still believe that the e-commerce channel is a significant opportunity for growth. We use Ernie’s purely for our discontinued and obsolete product range and the noise there has dissipated significantly because we’re not trading the same range that we were. We do have MemoEtc as a side but, again, the noise has gone to zero because nobody has seen an impact from it.

I guess the big players that we’re supporting in this phase are the likes of Hunts over in Ireland and Shoplet and Euroffice here in the UK. We see them as taking the market forward and growing that incremental business as well. So we’re supporting businesses in the e-channel that will grow and we’ll bring new products and services to them that will facilitate that.

OPI: So your direct relationship with Amazon has changed over the last few months then?

AB: No, we’re still supplying Amazon direct with 5 Star. They see that as a very important brand and it has a place in the market for them.

OPI: But that’s sold and fulfilled by Amazon.co.uk?

AB: Correct.

OPI: So you treat them as a reseller?

AB: As a dealer, as a reseller, yes.

OPI: Longer term, do you see the need to fundamentally change your business model? More of a hybrid wholesaler-cum-distributor-cum-contract stationer-cum-dealer group owner? You look at someone like Novexco in Canada and to some extent ADVEO in France. Would these models work in the UK?

AB: We’ve put our stake in the ground by getting the exclusive partnerships with dealer groups. I look at the likes of XPD and Superstat and I think they do an incredible job with their dealers. We forged exclusive relationships with those two groups that allow us to invest in them and which, in turn, allows them to invest in their membership. So I think we’re taking account of the market dynamics and moving in a way that’s more acceptable to the market.

On the contract stationer side, we’ll continue to plough that furrow because we’re taking business away from the large contract players rather than the individual dealers.

OPI: I guess that with the timing of these exclusive announcements and then your supply issues you’ve had some difficult conversations with Chris Collinson and David Langdown [Managing Directors at Superstat and XPD respectively]?

AB: Again, it comes back to the question of who your friends are, and that you kind of forge through this. David and Chris have been extremely supportive and they’ve passed that support through their dealers in settling them down and making sure that they understand this is a very, very short-term challenge in the grand scheme of things.

Of course, they’re working with their dealers’ best interests at heart and they’re putting pressure on us – which is absolutely right – but fundamentally their decision wasn’t based on a two-month blip; it was based on historical and future opportunity.

We all go through these challenges, but it’s how you get through them and how you come out the other side that makes a great partnership. I think they believe that the future direction of Spicers and where we’re going is very important to their members.

OPI: You mentioned Shoplet earlier; how have they been doing? We haven’t heard too much about them in the last few months since they announced their UK launch.

AB: Well, I know they’re ahead of expectations. As you know, Tony’s [Ellison – Shoplet CEO]quite a private individual – he’s not shy in coming forward when he’s got comments to make but he’s quite difficult to nail down in terms of numbers – but he’s pleased with the progress that’s been made. I think I’ve mentioned before that they’re doing an annual rate of £5 million of sales now, which in the first year I think is a pretty credible position.

They’ve started to recruit and now have a team of direct customer service people that call out to end users to secure new business, so again that investment continues and we support them with that.

OPI: What does Shoplet bring that’s different for the UK market?

AB: Well, its whole model is different to what most e-tailers would use. I guess the nearest I could compare it to would be somebody like a Ben Johnson [an independent dealer based in Yorkshire]. Shoplet has this definition that they believe you’ve got to engage with the customer both online and offline. They have a direct customer service team that will contact customers on a very regular basis to talk about the purchasing experience and about offers and promotions, and I think that’s what differentiates them from a lot of e-tailers.

We all shop online. You don’t get a call from Amazon saying, ‘how did you enjoy your last experience and here’s a voucher’. You get an email to that effect but how many of us take advantage of that? The difference with Shoplet is they’ll pick the phone up, they’ll speak to the customer and they’ll say, ‘we’ve got a discount for you today, it’s exclusive to you. Go online and use this code’. That human interaction certainly works for them in the States and they want to replicate it over here, and it will be interesting to see how that delivers.

OPI: What’s your take on the general state of health of the UK dealer channel?

AB: We all continue to have concerns about the whole channel. Dealers still have extreme financial difficulties and we’ll continue to see consolidation. But as we’ve always said, dealers are resilient and because of their nature and because of the way that they operate they will always find ways to maintain that local relationship. So you’re not going to lose the dealer channel, but it will significantly reduce in numbers.

 It’s well documented that five years ago there were double the number of dealers. But are we ever going to get to a position where there are no dealers? No, we’re not. Are we going to get to a position where there are bigger, stronger dealers? Yes, I believe so. Although at the moment no-one is prepared to pay value for a business and therefore dealers’ aspirations of exit are very often not matched by the reality of the market. We’ve all heard the stories where three years ago they were all offered X and now they’re being offered Y and they don’t want to take Y.

The sector is not great and therefore values are significantly reduced. You only have to look at the market cap of companies in the marketplace and you can see where the challenges are. The UK market needs significant consolidation, and I think anybody who’s got the balls to go out with the cash to consolidate will be winners. There has to be continued consolidation, without a doubt.

OPI: Do you want to throw a couple of names into the hat there?

AB: Well, I think if you look at the contract channel it’s well documented; Lyreco, office2office and OfficeTeam – they are all having their challenges. Two of those have got RBS involvement, and you’ve just got to look at the whole channel and the route to market and ask if it’s sustainable.

And, as I say, if somebody’s got the balls to be able to pull all of that together, then there are bound to be synergies; and on the back of synergies there’s future profit opportunity.

That would be healthy for the sector as well, because then it releases a whole host of sales opportunities.

OPI: Your non-executive director has a bit of a reputation as someone who does that in the office supplies industry.

AB: He has, but thankfully at the moment he’s fully occupied with Spicers, making sure that he pulls us back on track.

OPI: It’s easy to be negative about the channel, but there are dealers that are growing. What is the profile of the successful dealer today?

AB: One that is prepared to take risks, to invest when others are not, to look at the market differently and to offer a different level of service and just to kind of rip up the rule book.

Again I’ll call out Ben Johnson as one of those. They’ve taken this whole telesales operation and they’ve re-engineered the traditional dealer by being exclusively telesales. There are a number of other dealers that have taken that model and have been extremely successful. Others have started to look at different product ranges such as FM and breakroom, and where they’ve focused on that in their local sector they’ve seen growth opportunities and seem to be doing well.

Some have targeted education because the traditional educational players don’t have great service to the market. So you’ve got a number of dealers, people like Egan Reid and Office Gold, that have started to aggressively attack the schools market. Similarly, some dealers are targeting the NHS [National Health Service] because doctors now have the ability to buy direct.

OPI: How about your own moves into other product categories?

AB: We’re already up to 4,000 additional lines now on our extended range. We’ve still got a target of 50,000 for the next year and that hasn’t changed. For example, we’ve got 2,000 white goods – microwaves, kettles, ovens, fridges, freezers, etc – from a wholesale distributor specifically in that channel.

That has given our dealers an immediate sales opportunity and we’ve started to see sales generate from that. We’re working on technology and we’ve got about 1,500 products in the technology range that we don’t carry as stock, but have available on our platform. And we’ll continue to expand FM, breakroom, industrial, etc.

OPI: If you had the choice, would you be acquiring jan/san distributors and educational products distributors? Would you see these as a natural fit to the Spicers portfolio?

AB: Ideally, I would be. The difficult thing is finding the right investments at the right value, and I think what we’ve proven so far is that we can organically grow a sector. But invariably, if those types of opportunities come on the table at the right value, then clearly there’s an advantage in buying them.

The likes of SP Richards and United Stationers are doing that now and I’m sure that that will continue and will eventually come across to the UK market as well. But at the moment, there’s sufficient scope and sufficient depth and breadth of product opportunity to do that organically to start with, until you really understand a sector and understand the nuances of it. Then you can make that informed decision.

OPI: You mentioned tech products. Is that through your relationship with Westcoast?

AB: It is yes, and others, but predominantly an extended range through Westcoast.

OPI: How far does your relationship with them go? Is it two-way?

AB: Yes, we’re working with them in partnership on the contract side as well. They’ve got a very healthy IT contracts business with XMA and we are working with them to secure additional contracts.

OPI: How does that work?

AB: They’re experts in the IT field, but they’ve got relationships that also allow them to supply office products and at the moment they’ve not got the expertise to do that. So we support them in that in the same way we do it for any dealer or reseller that wants to win contract business. That’s an aspiration of theirs and we’re quite happy to support that.

OPI: Spicers and Westcoast have been mentioned as a possible business combination. Do you think that you’d be a good fit?

AB: Well, certainly the synergies are there and I would say that a number of combinations would make a lot of sense. But yes, looking at anybody in that field, undoubtedly there are some synergies.

I think it’s a great move for us to partner with Westcoast on the purchasing side, but also then look at how we could assist them in growing in office products as well.

Whether or not there would be a coming together…; we’re not going to go out and buy Westcoast, so it would be a case of Westcoast acquiring us. It’s whether or not they see the value in doing so.

OPI: Have any talks taken place?

AB: As it happens, I had lunch with Joe [Hemani – Westcoast CEO] recently, but it was more around how we work together and how we continue on the contract side as opposed to whether or not Joe fancies a punt.

But yes, I think it’s important that we maintain those relationships. We’re very close to a number of partners around the world and we’ll continue to be so because when Better Capital does look for an exit, we’d be looking at those partners to see who’d be interested in coming to the table.

OPI: Your name has been mentioned in the same sentence as ‘management buy-out’. Is that something that would interest you?

AB: Aspirationally, if that was an opportunity then I’d love to do that, without a doubt. We’ll wait and see at the appropriate time when our investor decides that the exit is appropriate and then we’ll see where we are. But certainly, aspirationally, that would be a great position to be in.

OPI: So, where do you see yourself in two years’ time?

AB: Still at Spicers in one way, shape or form. I think there’s a lot still to do so I’d like to think that we can see this through and we can continue as part of the industry. You know I think we’ve built a great business here and I’d like to see that through and continue.

OPI: And if not, you’ll go and live on an island in Michigan?

AB: Well, that’s a nice holiday home getaway. It was a snip at $125,000, mind you.

OPI: I’ve had a few comments about a tweet you made on that purchase and the timing of it, in terms of the supply issues that have been going on.

AB: The opportunity came along and it was too good to miss, to be honest.

OPI: No sense that you should have perhaps kept that to yourself at that particular time?

AB: That would be boring though, wouldn’t it?

OPI: I don’t think anyone could accuse you of being that.

AB: Good – and long may that continue.