Anyone who is familiar with the South African office supplies and stationery industry will know what a traditional place it is, with many of its business leaders having been around for longer than they’d probably care to remember. So when Dave Jenkins took over from John Farrell at the helm of the country’s number one reseller at the start of 2012, charged with revamping the entire company, it sounded like he had quite a challenge on his hands.
By all accounts, Jenkins is on course to complete the transformation in the three-year timeframe and here he tells OPI what has been achieved so far and reveals his growth strategy for Waltons.
OPI: You’ve been in charge about two years now. How would you sum up your achievements in that time?
Dave Jenkins: The last two years have been, from our perspective, highly successful. The business today versus the business two years ago is a completely different place. When I arrived here it was initially a three-year turnaround project and we’re now two years into that.
There is quite a lot still going on, but the business has been radically transformed from what it was two years ago.
OPI: Could you quickly sum up that transformation?
DJ: Yes, we’ve really moved from a decentralised company – which was essentially five independent businesses that, apart from the name Waltons, had very little in common. They were headed by five different managing directors, each with their own board, and they technically did what they wanted to and what they felt was best for their respective business, to the point of even competing with each other. There were no economies of scale, no sharing of best practice and we were just pretty much a disjointed business. It was a bizarre set-up.
The divisional boards have been dissolved and we now operate as one company with one managing director and one national board. We’ve got one corporate identity and our delivery vehicles and stores in all the regions will eventually look the same.
We now have one central purchasing identity instead of five separate ones, so obviously economies of everything are far better. With IT, we’ve had to manually consolidate five systems; going forward everyone will hang off a central server based in Johannesburg. And we’re busy putting a centralised ERP system in place.
OPI: The ‘old’ Waltons sounds a bit like a company which was cobbled together through acquisitions.
DJ: Which is exactly what happened. It was originally a Cape business that acquired other companies, and the managing directors of those businesses continued to run them technically as their own units. So it was a national business that wasn’t really a national business.
We’ve implemented the Microsoft Dynamics AX2012 ERP system in our Cape region. Like with all ERP systems, they come with their crocodiles that you don’t anticipate until you’ve hit the switch.
We’re busy fixing a whole lot of issues – these have definitely impacted on the business – but we’re starting to work through them now and come up with something that’s workable and manageable. We’ll roll the system out into our KZN region from 1 May and then, after that, to the Inland region. These rollouts should be a lot easier and simpler than the first one where we technically cleaned up all the gremlins. So that’s a work in progress and part of the three-year plan.
From a premises perspective, we consolidated our KZN operation into a new state-of-the-art office complex and warehouse in Durban and we did the exact same thing in the Inland region here at head office at Pencil Park in Johannesburg. We put four warehouses into one, so a big consolidation with economies and savings: you don’t have four lots of data lines, four lots of security, four lots of water and light and four lots of people doing the same job.
OPI: Sounds like some fairly major investments that you’ve had to make?
DJ: Yes, they have been. We built an 11,000 sq m (110, 000 sq ft) warehouse racked to 13 m (40ft) with about R300 million ($27.5 million) worth of stock tucked away. It has been a substantial investment; we have just revamped our entire office complex and moved in at beginning of this year. So the offices are revamped, the warehouse is new and it’s a very different place from what it was before.
Our marketing is now national marketing with national promotions and national campaigns. What we do in one area, we do in other areas and we’re starting to get this national operation going as opposed to five disjointed regional operations.
OPI: I guess the vendors prefer that marketing approach.
DJ: They do. They’ve always had to deal with multiple people and now deal with one person and there’s one set of rules, not five.
Certainly the indication from suppliers is that they’re far happier with the way things are now. It’s very difficult for suppliers to want to deal with a national company but actually work with five different sets of rules and ways of doing things. We are now making fast accurate decisions. We’ve also embarked on a really concerted effort to get closer to our suppliers, with renegotiated service level agreements on a national basis, for example.
OPI: Internally, how much of a challenge was it to change the culture of the organisation? You’ve obviously had to ruffle a few feathers.
DJ:It hasn’t been an easy task. The heads of the various companies were all senior blokes that had been with this business for 15, 25 years or so; stationery guys with a lot of experience in the business. For them to have somebody new come in and topple their castles and start changing the way they’ve been doing everything is not easy.
I must say there has been an awesome buy-in from the folks around the country but, to be frank, there never was an option not to. It was a case of the business needed to change and I wanted everybody on board and luckily there have been no causalities – they’re all still part of the team and just operate a little differently now, which must have taken a bit of getting used to.
OPI: Just a quick look at the business today: you’ve got three regions, haven’t you?
DJ: Correct, the Inland region, the Cape region and the KZN region.
OPI: And you have an office and distribution facility in all of those?
DJ: Yes we do; we also have distribution facilities in Bloemfontein and in Port Elizabeth. So we have five larger distribution centres and, if you remember our model, we have distribution centres and then we have what we call combos, which are front-end retail, back-end distribution, and lastly we have pure retail. These combo outlets are in the outlying areas of the country where they hold stock and also serve as distribution centres.
OPI: But you’ve got the main distribution centre now in Johannesburg?
DJ: That’s right. We haven’t got to the Cape yet to do the same exercise that we’ve finished in Durban and Johannesburg, and the plan is to bring four warehouses into one new state-of-the-art warehouse, which is a project that’s about to commence as we speak.
We’re taking our current Woodstock premises, which are already ideally situated in Cape Town, and are revamping those – exactly what we’ve done in Johannesburg.
OPI: How tricky is it making the switchover from four facilities to one?
DJ: It is disruptive, of course. At the same time as pulling the warehouses together, we’re implementing warehouse management, which we haven’t done before. So it’s a learning curve and there are some problems that we have to watch very carefully and action quickly.
OPI: Do you double stock for a time as you make the transition?
DJ: Technically not double, but there’s definitely an increase in stock. Our stockholding as a result of these new warehouses is quite a bit higher than it should be, but we’ll run those down. What we don’t want to do is run out of stock and disappoint our customers, so from our side we’ve upped our stock to make sure that our customers are adequately serviced.
OPI: So you take a bit of a working capital hit there just to maintain service levels?
DJ: Correct.
OPI: How many outlets, as in retail outlets, do you now have?
DJ: We’ve got 85 branches across South Africa but that is distribution centres, combo stores and pure retail and we’ve just opened three new retail stores in the last three months.
OPI: What can you say in terms of your financial results and performance?
DJ: Our six-month results are quite encouraging; we’re up over 8% year on year. There’s quite a lot of exceptional cost that sits in that number and we still managed to grow in excess of 8%.
OPI: Full-year sales are around the R2 billion mark?
DJ: Yes, slightly over, about R2.2 billion.
OPI: So how has the top line been doing in the last 18 months or so?
DJ: It’s been pretty decent. Last year, we were up 5% and this year – we run from July to June, by the way – our top line is about 8% up.
OPI: Sounds a pretty healthy clip. What’s that due to mainly?
DJ: I think it’s driven a lot by share and we are really aggressive in the marketplace. There’s little doubt that we do things a lot better than we used to. I think where we’ve lost customers in the past there’s a turnaround and we’re picking them up again, as well as commercial customers and big corporate accounts. We’ve had one or two competitors trade themselves into bankruptcy and we’ve picked up a lot of
that business.
OPI: What’s the split between retail and commercial?
DJ: It’s roughly an 80/20 split, commercial/retail on top line and about a 70/30 split
on profit.
OPI: So clearly, commercial is the majority of the business by some margin. How do you organise this side in terms of sales?
DJ: We’ve got physical reps on the road, we’ve got audit clerks internally for inbound calls and we’ve got telesales outbound. And then we have the e-commerce channel which is becoming more important for us. So we either physically see people, they order online, or they phone in or we phone them. They are the four methods of securing business.
OPI: How is e-commerce developing?
DJ: Currently it’s about 12% of our sales, but it’s becoming a lot more important and we’re giving it a lot more focus. We’ve just relaunched our new B2B and B2C trading platforms and we’re looking to grow them quite aggressively.
OPI: 12% – that sounds low compared to other markets.
DJ: We’re not as advanced as you folks in Europe and North America, and I think we always lag you guys by about five or six years. But there’s no doubt that e-commerce is becoming a lot bigger than it has been in the past. We’re well aware of that and we’re taking steps to make sure we are keeping up. We understand that customers wish to trade with us when convenient for them and not just during business hours.
OPI: How many staff do you have now in total?
DJ: We’ve probably got about 2,250 permanent staff, but that grows to about 3,000 with temporary staff over the back-to-school season.
OPI: When you take a step back and take a look at the market overall, how’s that bearing up?
DJ: I think the overall picture has to be that the stationery market is in some form of decline. Technology must be driving a decline in pens, paper and pencils and so on. But we’re not seeing it; we’re seeing an increase in our business but I think that is driven by us increasing our share as opposed to anything else. Overall, there will be a decrease in the market going forward.
Again, I think we lag you guys, so the trends that you are seeing, we see five or six years down the line. It’s interesting, because everyone is talking about technology and how paper sales are dropping and all that stuff, but our paper sales are rocketing and our diary sales are increasing. So we’re seeing a lot of anomalies – we believe there is change, but we’re stealing share.
OPI: Have you embarked on a specific strategy to expand beyond what we’d call traditional office supplies?
DJ: Yes, we have indeed; the jan/san and breakroom category – what we call catering and hygiene – is our fastest growing category, albeit from a very small base. We’re seeing big growth in our IT hardware side of things and that’s where more of our focus is going. We are aiming the business in that direction because we know that technology is where things are going.
OPI: In terms of the overall economy, how is that looking?
DJ: My view is that the economy is still pretty depressed; it’s very price sensitive. Stationery is a commodity so people are looking to buy down, which is an issue that we face. Companies are looking at reducing costs and the climate is not good for us. We’ve lots of competitors and, as you know, the barriers to entry in the stationery market are quite low.
OPI: How do you position yourselves? I imagine you don’t want to get into a situation where it’s all about price.
DJ: We try not to trade on price. There are other substantial benefits to doing business with Waltons which make price a little more palatable – although I guess they never totally negate price.
Customer service; being a national business able to deliver anywhere in South Africa; the range that we keep that far surpasses anything that anybody else keeps; the quality of our products; the stability of the business being part of Bidvest; our Level 2 BEE [Black Economic Empowerment] rating, which is particularly good. We probably have eight or nine reasons why we believe customers might pay a little bit more.
OPI: You’ve just had your back-to-school season. How important is that for you?
DJ: It’s very big for us. There’s no doubt that we dominate the back-to-school market from a sales perspective and every year we try and improve. There’s still a lot that we can do, but we’re pretty efficient at back-to-school.
The final numbers for this year haven’t quite dropped out yet, but it looks like we’re probably in double-digit growth from a back-to-school perspective. It’s very good.
OPI: And I guess back-to-school is heavily reliant on the retail side?
DJ: It is heavily reliant on retail, but we are very strong with direct-to-school. We actually run back-to-school in three models: bulk into schools, which they then distribute themselves; pre-packs, which we pack for them, labelled per child and deliver that to the school; and thirdly retail.
OPI: Let’s talk about your retail strategy.
DJ: Retail is very important for us. We’ve just hired a person called Sean Bell as our Retail Director. He’s coming to us from BIC where he the current Sales Director and will start in mid-March. His goal is to drive our retail strategy and really improve our offering, so you’ll be seeing a new Waltons look and feel in the next year to 18 months.
The way that stores were previously established didn’t involve a lot of science, so consequently what happened is we’ve got a lot of stores that are not situated in the right places and a lot of stores are far too big for what we actually need. Now we are using geomapping to select the right geographic area, the right location and the right size. That’s a big focus of ours.
Product-wise, what we’ve done from a retail perspective is to take a commercial range of products and slap them into the retail stores. So we’re going to be doing some work on that, bringing in a specific range of retail products that will really attract customers to our stores. We’re also looking at getting into the franchise side of things, so we’ll start trialling that in the next couple of months and we hope to have our first franchised store up and running by the end of this calendar year.
OPI: Are you targeting existing retailers for that?
DJ: We’re looking at a couple of models. The first is with existing stationers that we can rebadge and assist. The second is establishing greenfield franchise operations in smaller towns where we wouldn’t have a fully-fledged Waltons operation.
From a concept perspective, it’s smaller stores in the more outlying areas where we wouldn’t put our own retail stores.
OPI: What about international expansion? I know you have operations in Namibia and Mozambique.
DJ: That’s right, but Namibia is actually a separate business entity in the Bidvest group, although I am on that board as an Executive Director. We trade in Mozambique, we’re going to be entering the Zimbabwe market shortly – we’ve just secured a partner there – and we’re looking at Zambia, so Southern Africa is high on our agenda.
OPI: Zimbabwe sounds like a challenging market to enter.
DJ:The fact that it’s right on our border makes it reasonably simple to do business there. However, there are new rules and regulations that have been promulgated in the last few months which are complicating trading there. We’ve signed a partner, but now some legislation has been passed which is making it difficult for the partner to actually trade there.
There are some issues with Zimbabwe, but we believe within the next couple of years it will be a decent market for us.
OPI: And that will be a multichannel strategy for you?
DJ: We will run a combo and a retail operation there, similar to our South Africa model
OPI: So commercial and retail sales?
DJ: Yes, and in these African countries
we’re probably restricted to six or so
outlets, strategically placed in locations where there is strong demand.
A lot of our customers here have moved into Southern Africa very successfully and have asked us to come along with them and offer them the same solution that we offer them here in South Africa.
OPI: Just a couple of quick questions to finish. When you look at the competitive landscape, who would you say is your number one competitor?
DJ: The one main competitor I would say is Walmart, which is Massmart here in South Africa. They’re starting to open accounts and to run distribution. It’s not just on the retail side, but on the commercial side as well. They’re the ones to watch; they’re astute and they will definitely be stiff opposition.
We’re finding new competitors in stationery as these retail chains get bigger, so you’re starting to get the clothing stores and big pharmacy chains now holding a range of stationery. From a retail perspective there’s lots of competition on the stationery side.
OPI: How do you view dealer groups like Office National? Are they serious competitors to you?
DJ: Yes, they are. They are national and they are competitors for us, there’s no doubt. We find them in a lot of the areas that we’re not in, and in places where we’re closing branches we find they’re opening some. They’re definitely a competitor to us and we watch them closely.
OPI: How is your global accounts relationship with Lyreco?
DJ: We’re in contact and we work relatively closely with them. We talk about issues, opportunities and strategy so we have a very good working relationship with Lyreco. I think if we did a bit more work from our side we could benefit more.
OPI: Do you have a significant number of contracts with them that you service?
DJ: No, not significant. There’s lots of communication between us and them and it’s a nice relationship for us to have, but is it hugely impactful for us? Probably not.
OPI: Okay great, thanks Dave. Appreciate your time.
