Though no longer the undiscovered bargain gem that it once was, Slovenia remains an antidote to much of Europe’s high prices. And this trend is highly reflected in the OP industry, a market that is estimated to be worth approximately 1100 million ($123 million) excluding office furniture and computer hardware. Intensely price driven, this may benefit the end-user, but it certainly does not help the country’s reseller community, and especially small players are being increasingly pushed out of the market.
Saso Bitenc is merchandising director of DZS (Drzavna Zalozba Slovenije – the National Publishing House of Slovenia), the quintessential Slovenian big player in publishing and OP terms. He says: "The Slovenian OP market has reached the bottom end of the pricing scale and any further price reductions will seriously impact on the weaker players in the market, probably resulting in bankruptcies.
"We have recently analysed prices for the mid-market in Slovenia and compared them to neighbouring countries: branded products here are priced approximately 15 per cent lower than in Italy and 20 per cent cheaper than in Austria. Sometimes, prices are even pushed below cost for the large accounts due to the strong competition. It’s quite easy: the only way prices can go is up."
Tomaz Rizner, managing director of multi-channel player Peritus, agrees. He comments: "Most resellers are unable to sell to their clients if they can’t offer the cheapest price. A lot of end-users simply don’t appreciate the whole cost of purchasing. Instead, they are happy to be on the phone for an hour, looking for cheaper products and eventually saving perhaps a few euros."
But while price is undoubtedly the defining factor, the importance of brands should not be underestimated – this explains the large number of international manufacturers present in the country – and especially in the mid-market, customers can be extremely brand-loyal. End-users are also spoilt when it comes to service. Many expect free delivery within an hour for an occasional purchase worth 120. This is particularly difficult for small dealers as they are reliant on every single order to be able to survive.
In line with the country’s overall performance since independence (see ‘jewel in the crown’), overall progress in OP terms has been gradual but relatively steady. But the pace of progress has been undoubtedly slower, not necessarily compared with other transitioning countries, but certainly compared to western European markets.
As professor of economics Joze Mencinger of the Economic Institute of the Law School says, the country is known for its lack of direct foreign investors and the office products industry is the perfect example. None of the large international resellers have made a splash here in the last decade, quite unlike in other central European countries such as Hungary, Poland and the Czech Republic. Pricing and margins pressures no doubt can take a lot of the blame, as can the fact that it is a very small market. About 40 per cent of all OP business is done in the capital Ljubljana, another 50 per cent in six regional towns.
All the large Slovenian players survived from communism and while they are no longer state-controlled, most are now owned by private investment funds. As in many small markets, channel boundaries are overlapping and particularly the big firms are often doing a bit of everything, including manufacturing, importing, distributing and retailing.
DZS and its major competitor Mladinska Knjiga (MK group) cover about two thirds of the market. Both are essentially publishing companies with their own book and retail stationery stores. They also have a wholesaling arm and are very active in the contract stationery field. DZS’ revenues for example can be split up into 125 million for contract stationery; 118 million for retail (112 million for books, 16 million for stationery); 112 million for wholesaling; and 16 million for publishing.
With only a few other sizeable resellers and importers/distributors, the rest of the market is made up of private local office suppliers with a small retail presence. These sprung up after independence when many people had lost their jobs and set up their own business. Most have ceased to exist by now, but there are still about 100 remaining. A few, such as Extra Lux and Unibiro have evolved to become established companies with revenues of between 1500,000 and 13 million and they are now presenting a notable threat to the likes of DZS and MK.
Peritus is another firm that was set up shortly after Slovenia separated from Yugoslavia. Rizner says: "We were founded from scratch in 1992, initially offering files and folders that were not available in Slovenia at the time. We started importing them, but weren’t entirely satisfied with the standard of product, so began manufacturing ourselves under our – now very popular – Redoljub brand. Having acquired considerable market share, we decided to also distribute foreign brands in Slovenia. Although we were successful, the business did not quite fulfil our expectations, because of the habit of Slovenian resellers to buy directly from manufacturers. We decided to downsize and restructure the company to prepare ourselves for the changes that we expect in the coming years."
Direct purchasing is of course practised in most markets, but in Slovenia it has taken on worrying proportions. Rizner explains: "It is typical for a small dealer with one store to import directly, even from China. Then there is the so-called barter trade, called ‘compensations’ in Slovenia. OP firms sell their products in return for buying back other goods. The philosophy is that one imports notebooks, the other pencils, they trade and both make money by skipping the specialised wholesalers. In reality, they both have bad and dead stock of both products."
Rizner is bullish about the fact that the market has to change to go forward and pulls no punches in his assessment. He says: "I’m sure that at some stage, the market will become similar to the western structure, with specialised companies, strong brands and powerful partnerships. The Slovenes will not reinvent how the trading industry works: wholesalers would not exist all over the world if they could be just skipped and everybody goes directly to the manufacturer. They have a function.
"But the market has not turned yet – there simply hasn’t been anybody with enough power or vision to come here. But I am convinced that if one of the large power players entered the market and approached it in the right way, even the big and successful companies here would collapse like a house of cards."
At the moment, there seems little prospect of this happening. The only international player visible in the Slovenian OP reselling landscape is Corporate Express (CE), through an exclusive partnership agreement reached with DZS at the beginning of the year. DZS has aligned its merchandising strategy by introducing the CE private label product line not only in Slovenia, but also in neighbouring Croatia where it has a presence.
So could this be the all important international player that Rizner has been waiting for? Hardly. He see little significance in the power player’s presence in the country." I do not expect the DZS/CE cooperation to bring any changes. There will be practically no impact on the market, as it is determined by DZS’ policy rather than CE’s."
Bitenc however, believes that local connections and partnerships are essential and the way forward. He says: "Slovenia is not a difficult market to enter if you have local connections and local people. That said, from a pricing and margin perspective, it’s hugely challenging. The main opportunities for all players lie in improved cost-cutting programmes, including logistics, ecommerce and supply chain management, an increase in private label and a better service offering."