School rules OK?

Increasing competition, pressure to reduce costs and consumer trends in the global back-to-school (BTS) marketplace are ushering in the need for change.
Manufacturers, dealers and the power channel must all keep abreast of the latest patterns in the market. Only then can they effectively identify target audiences – and selecting that target audience is key.
According to Robert Oxley, account director for office panel retail and technology at UK-based GFK Marketing Services: "Because of the existing levels of competition between comparable brands, the downward pressure on prices in general, and the ever growing impact of the mass-market (MM) channel, traditional OP retailers need to have a clear plan of how and when to compete for sales, and when to make the best of what is going to be available given the overall level of consumer sales activity. They should also try to co-operate with and secure the support of manufacturers whenever possible."
All players involved must realise that the market is growing in sophistication. As such, they must recognise the changing requirements of their customer base.
As in any maturing market or industry, the BTS market is experiencing a shift toward the consumer market. Gone are the days when only a handful of suppliers offered a generic line of commodity goods. Today the BTS market is dominated by two things – choice and service.
Steve Jacober, who stepped down as president of the School, Home and Office Product Association (SHOPA) on 1 June, tells OPI: "In previous years, say from 2002 to 2005, the market was driven by a back- to-basics approach. Commodities were the mainstay that consumers were looking for. They weren’t looking to spend extra money on fashion goods or higher-end goods.
"However in 2006, we started to see a change. There was a lot more interest from the consumer in fashion, colour, and generally in higher-end merchandise. This is one factor that has contributed to improved growth and profitability. In 2006, same-store sales for the market increased by 4.8 percent, in line with the previous year, but gross margins and profitability went up by 2.6 percent."
Quality and service
And the European BTS market is also maturing. Karl Heinz-Raue, head of trade marketing and customer development at German writing instrument manufacturer Faber-Castell, says: "In Germany discount shops and the low-price products primarily offered by them are losing importance. The market is clearly becoming aligned to quality and service. This is reflected in an even greater focus on service-oriented sales channels such as stationery shops and the specialised departments of department stores as well as drug store chains."
He also points to trading up as a way in which to increase revenue flows. He says: "This requires making use of the visible trend towards higher-quality products and products with innovative designs and improved ergonomics."
Moving away from the conventional trading blocks, the South African BTS market is a good example of a market coping with change and maturing.
OfficeNational is the largest independent B2B OP provider in the country. Offering a powerful combination of expert local knowledge and national purchasing strength, the dealer group is 100 percent South African owned and operated and has a network of more than 600 staff and 56 outlets around the country.
And the BTS market the group participates in is slightly different to that of its Western counterparts. The South African market has up until very recently been heavily affected by local and national government procurement policies.
Commenting on the current health of the market, OfficeNational’s CEO, Ryan Bidgood, says: "The market is definitely growing, with government schools not getting any stationery from the Department of Education this year, but rather being allocated a small budget that they could spend at their discretion. It appears that a number of schools are no longer required to make purchases with their traditional suppliers and are able to shop around for better deals. And OfficeNational has benefited from this.
"In 2006 major retailers had a massive BTS drive, which was bigger than in previous years. The stationery market has attracted several retail stores that were never big players in the stationery market. The South African stationery market has grown and continues to do so at a great pace."
While the South African market seems to be going from strength to strength, emerging markets, such as Romania’s OP and school supplies industry, are also developing at a fast pace. The Romanian industry is currently worth between €150 and 200 million ($200-270 million) with growth forecasted of between ten and 15 percent per annum over the next few years.
Romanian OP supplier Be Proffice, part of RTC Holding, is the market leader with a vast national distribution network. In 2006, the company reported turnover of €59 million and is expecting growth of 18 percent this year. School supplies for the company’s wholesale division, Astra Plus, accounted for €2.2 million in 2006, a 25 percent increase on the previous year, and is this year expected to reach €2.7 million.
Brand power
While still an emerging market, the Romanian BTS industry is showing signs of reaching maturity. Liviu Banta, VP of product management at Be Proffice, says: "More and more people are looking for well designed and quality products. Licensed products are gaining a bigger and bigger share of the market. Beside the classic brands like Barbie or Disney, which are still popular, other brands including Bratz, Harry Potter and Cars are in high demand by the ‘little consumers’ and their parents seem to respond quite well too."
RTC’s retail operation, Diverta, is also experiencing a shift toward the consumer market. General manager Dan Rosu tells OPI: "The urban buyer’s preference points to personalised products and licensed brands or recognised trademarks. Branded products play a huge role in terms of sales, setting the general trend in this area of commerce. We could say that a new trend is the high level of appreciation of branded products. The customer has become more educated and therefore more selective. Choice is influenced by quality rather than price. Customers today prefer to pay more to have a quality product."
But Oxley stresses the need for price competition. He says: "BTS is largely, by definition, a consumer sales phenomenon and so tends to be price sensitive.
"There’s also a finite number of items required by the average family purchaser, and hence it makes sense to try to secure their purchases as early as possible before they are tempted elsewhere."
Diversity
Banta also highlights a new trend for more diversified school supplies. He says: "As the activities in school have been diversified during the last few years, the market is now requesting not only strictly educational products but also a lot of other products designed to develop creativity, practical skills and other talents. This is why Be Proffice, through its Astra Plus selling channel, decided to include this range of products in its portfolio, so we strengthen our relationship with brands like Morocolor. We have also recently established a new partnership with Crayola."
This diversity has been recognised by school supplies companies around the world. In the digital age, teaching methods are becoming more technologically sophisticated and technology products are therefore a significant source of demand in the category.
In established markets, technology has been driving the BTS industry at an accelerating rate for the past ten years.
According to SHOPA, a lot of technology- related accessories such as portable flash drives are doing well this season. And this is reflected around the world.
OfficeNational’s Ryan Bidgood says: "Computer consumables are doing very well. There is a great demand for products like memory sticks and CDs. This is largely because of the move towards the digital age as teachers are keen to use digital mediums."
According to Faber-Castell’s Heinz-Raue, demographic change is also something the BTS industry should be aware of.
He says: "The market follows birth rate trends, which unfortunately are declining in some countries in Europe. This results in a challenge for trade and industry to increase revenue in a market with stagnating to declining volumes."
Jacober also refers to another changing demographic that is having an effect on the US BTS market. He says: "If you take a look at the demographics in the US, the population of college age students is increasing. The college market is growing at a higher rate than the lower grades. This is significant because when students go shopping for back-to-college, they spend more money on average per person than lower -grade pupils. So it’s a higher ring at the cash register. And the product mix within the college market is slightly different. There’s a bigger focus on furniture and technology and computer accessories.
"All of these factors contribute to a stronger and more profitable retail market. I wouldn’t say the college market is driving a new era but it is definitely more important than it has been previously. I think that especially for the office supplies superstores that are already involved in furniture, and the dealer community that is already involved in the BTS market, the back-to-college market can offer some new opportunity."
While demographic and socio-economic factors may not be the most important driving forces behind the BTS market, it is an interesting point that Heinz-Raue makes concerning the need within the market to find new ways of increasing revenue.
Whether it be the need of the power channel to increase volume in response to economic constraints or the declining birth rate, or simply the need of the independent dealer to establish its presence within the market, much more needs to be done to ensure success within this increasingly competitive market.
The BTS market is no different from the OP sector in that its performance often depends on the health of the national, as well as global, economy. To increase revenue and profitability, firms in the market need to devise strategies to identify target audiences if they are to succeed.
Jacober points out: "General economic trends in the US, employment levels, corporate growth, etc all play a part in the industry’s performance. We had some mixed results in the first quarter. Some companies did better than others but right now we’re projecting that for 2007 we’ll have growth of 2.5 percent, in line with last year."
To increase revenues and improve profitability, companies should look at reducing costs. This has always been vitally important but the methods used have changed over time. Outsourcing has become a popular way of taking cost out of an organisation. The power channel, in particular, has realised the huge savings to be gained by directly sourcing certain commodity products, such as pens, being mass produced in China.
Commenting on the issue Jacober adds: "On the buying side, we continue to see BTS retailers increasing their mix of products directly sourced from the Far East and other parts of the world. The lowered acquisition costs undoubtedly contribute to profitability. A lot of the commodity products are outsourced – a lot of retailers buy directly from factories in the Far East."
While the cost savings cannot be disputed, outsourcing has its drawbacks. In a time when environmental concerns are rising up the agenda, more and more attention is being paid to corporate carbon footprints. And product transportation and packaging are increasingly being scrutinised.
Online trading is another obvious way to reduce costs. This is something that is gradually creeping into the market. Yet how effective it is remains a matter for debate.
OPI spoke to Sarah Noye, marketing manager at writing instrument manufacturer Stabilo UK: "Online retailers are a really nice addition to the market, and useful for manufacturers to point end consumers towards as people can purchase from them no matter where they are located in the country (for example a consumer in the Outer Hebrides is very unlikely to have access to a local WHSmith outlet)."
According to research from UK pollsters YouGov, over one third of shopping is done over the internet. More people are now getting broadband at home, and 53 percent of shoppers spent more online in 2005 than in 2004.
Noye comments: "But there are still shoppers out there who haven’t been converted to their computer and who are aware that the internet has its drawbacks. Web shoppers often complain about bad website performance, and consumers often like to test their stationery before purchase, and so while this market is growing, it is still not playing a big role in this market… yet!"
Jacober adds caution, saying: "Without a doubt online trading can reduce overheads and everything else that goes with eCommerce. But it is important to note that the opportunities are for the industry as a whole and not just for the BTS category."
But Faber-Castell’s Heinz-Raue remains sceptical. He says: "Customers value being able to purchase the set of products specified by teachers as completely and inexpensively as possible. The internet trade is hardly capable of accommodating these needs, therefore it is of little significance for the BTS business."
Standing out
So having explored the changing shift toward the consumer market and increasing competition creating the need to cut costs, what is left is to consider how independent dealers can compete with the power channel.
After speaking to a variety of manufacturers, dealer groups and other leading industry figures, the resounding answer that can be heard loud and clear is that independents can offer something the power channel simply can’t – customer service and flexibility.
Jacober says: "Traditionally the office product dealer community hasn’t been overly involved in the BTS season but I think it does offer an opportunity because dealers have knowledge and relationships in the marketplace and it’s really a case of developing the right product mix and the right merchandising and marketing message to reach a particular group."
Noye repeats the sentiment that independents should offer what the power channel can’t – they should deliver personal and high-level customer service. She says: "Independents can compete by playing on the weaknesses of the big chains, such as impersonality, lack of testing opportunities, lack of specific knowledge and customer service issues. And by ensuring that when a customer visits they are made to feel welcomed, important and secure, the independents can hopefully entice more shoppers at BTS time. It is customer service that is key at this time – product expertise, advice and the fact that customers can try your products will give you the edge over bigger competitors.
"What’s more, in-store presentation will give customers a nicer experience with eye-catching displays and suggested products right in front of them."
Heinz-Raue adds: "In order to be able to compete with the hypermarkets and other large format operators, traditional retailers must distinguish themselves through their product ranges, along with their service orientation. Large enterprises usually require one year to determine their product assortments. This provides an opportunity for specialist shops to offer interesting new products earlier than their large competitors do by making rapid decisions on their product assortments."
Getting the basics right
Ever the realist, Oxley is keen to add: "In reality independents probably can’t compete in certain market sectors. However, what they can do is secure their core business market, and prevent the erosion of incidental sales to the mass merchandisers. The big retail chains tend to have the negotiation muscle to secure good deals and the economies of scale to implement them, and this is a function of their size and turnover – areas that are outside the direct influence of the traditional dealer networks. Getting the basics right and maintaining a high level of customer service and satisfaction has to be key. However it’s the old adage of keeping an existing customer being a better financial proposition than having to gain their replacement.
"Creating footfall into retail stores (where they exist) will be critical and promotional offers that add value to the offering must have a role to play – remember you’re competing against the perceived ease of ‘dropping it into a trolley’ or at least buying it with a selection of other non-stationery items in a variety or department store. The point of difference is unlikely to be price, but it can be convenience, service, advice, range, knowledge or support. A good, well presented range of attractive, market-leading products will obviously help to entice the consumer over the threshold."
Overall, in terms of school and office products, to improve profitability the marketplace has to truly understand the dynamics of the industry whether product development trends, product sourcing trends or ultimately just being smarter.
There is a wealth of information available from buying groups, manufacturers and other organisations that the industry needs to take advantage of to better understand its environment. Smarter is always better.
The industry needs to take that information and translate it into something that can reduce costs, whether it involves greater reliance on technology for the buying process or managing inventories more efficiently. These are all standard things but sometimes they get lost in the day to day shuffle. People are so concerned about the short term because the market is so competitive, but it’s important to understand the market that you’re playing in and maximise your potential.
Being aware of product trends and what’s going on in the consumer market is vital. For independent dealers trying to compete, consumer research while expensive is very valuable. They need to keep up to date with the competition by going out into stores and by taking a look at the trends as well as relying on the manufacturers to provide greater insight for the future.
And as Jacober says: "The best way for a dealer to get into the BTS market is to concentrate on a particular niche in the category, whether it is college, schools or art and craft – whatever they can effectively manage and sell to. That’s the way to go. To be all things to all people is very difficult. It’s all about targeting your market and keeping a narrow focus."
But it’s vital to recognise that in the digital age, teaching methods are increasingly technologically sophisticated and as such technology products are a significant source of demand within the market. This will characterise the market for years to come.