After more than 30 years in the industry, United Office Products CEO Chris Lee has had some of his most testing times in the last few months. Earlier this year, United lost seven members to splinter group Challenge Consortium, prompting restructuring that led to the redundancies of 12 members of staff.
Yet despite all of this, Lee is determined to stay positive. Clearly, the loss of members has not directly benefited United, but he does recognise an improvement in atmosphere. He comments: "I think there’s a better atmosphere now because we’re tending to get more positive than negative comment from remaining members. The dealers that have stayed have proved their loyalty and seem to be far more committed to getting it right rather than bemoaning their lot."
What Lee does admit though, is that members breaking away from United served as "a catalyst for change". He feels the restructure that ensued made United a better company as it now has more committed people leading it. He doubts whether the restructure would have come about if everything had been comfortable. Since the launch of the splinter group, United has created a merchandising and standards committee which is very much driven by members, and Lee is pleased that those members are wanting to get more involved in United and wanting to invest.
When asked if he was surprised at the members that chose to leave, Lee comments: "A merger will always create a segment of unhappy people, and it was them who decided to go and form their own group." Out of those that left, Lee doesn’t believe half of them would have gone of their own accord, but instead were lured away by the high "social camaraderie" that existed among the group. "For some of them it’s a completely wrong decision because they’d be better off in a bigger group. They’re going to struggle in what they’re doing."
Having started out as a graduate trainee at Ofrex, Lee has come a long way. He has served as CEO of both Guilbert and Momenta and is now the CEO of a dealer group which has an annual turnover of £175 million following the loss of several members. However, he anticipates that sum to stabilise now and grow to £300 million over the next three years.
Looking back, Lee reflects on the disappointment he felt over the way in which United’s former Officeteam members went about planning Challenge. He thinks it likely that plans for the splinter group were made at a mini conference held in Majorca last September, away from United’s official conference. Lee comments: "We created a good brand and made a lot of investment in good marketing material. I think they’d already made their minds up that United wasn’t for them and it wouldn’t have mattered whatever we had done."
However, Lee is not concerned that Challenge will in time become a competitor. "Unless they end up creating the infrastructure to create what they want, they’re not going to be able to do it. And most of the reason behind why they left United was that they didn’t want the infrastructure."
He very much doubts that Challenge will have as many members as it does now in a year’s time and if it does, he would expect there to be members that won’t be participating.
He is also keen to play down the significance that has been attached to the launch of Challenge Consortium with regard to the ramifications for United. "They had an incredible amount of publicity for something that’s really quite small." He continues: "They are very, very small. They have 14 members, United has 53. Their buying power is about £30 million, so it’s not a big threat really."
Lee believes that such splinter groups may become something of a trend across the UK as the wholesalers, which lost a lot of control over the marketplace, are now working hard to get it back by lowering their prices enough to attract small dealers.
He also sees the fact that corporates are instigating price wars as being one of the major challenges that independent dealers are facing at the moment. "I see the main danger to the independent dealer as being the investment by Office Depot and Lyreco – particularly these two – into large numbers of sales people to come down the market and offer ridiculous sales pricing."
According to Lee, this price war has been the major change in the industry over the past ten years. "The corporates have taken the pricing down in the large contracts to a level which they can’t sustain long-term. They are having to support it by moving down into the dealer market, to try and pick up business at what they perceive is a higher margin." He goes on to say: "Unfortunately, because of the way the market has fallen, particularly in the UK with Corporate Express, Lyreco, Office Depot, Banner and OyezStraker, the whole thing becomes a complete price war when a big contract comes up because everybody has to have market share."
Price wars are pushing retailers to move toward cheaper imports. Lee believes that the onslaught of Chinese and Asian imports has considerably reduced the quality of products to the end-user. "The Asian product isn’t of the quality of the UK and the European manufacturer. The market has been created because of the price. It’s like any industry. Because prices have been driven down, the corporate needs to supply at such a low cost to do those large contracts, so everybody now has to buy Asian products. So it’s not good for UK and European manufacturers." He fears that the current climate is to linger and that "trade is losing its quality desperately."
The other major change that has happened over the past ten years is the rapid growth in EOS, particularly toner cartridges. EOS now represents 35 per cent of the average customer spend. The problem with this, says Lee, is that EOS is a highly competitive, low margin product market and because it represents so much of the average customer spend, traditional stationery products are in reasonable decline.
He explained "EOS manufacturers like Hewlett-Packard and Canon all want to keep this market which they never bothered with before. They keep making their products more and more difficult to copy so that they can control the market. EOS manufacturers control the market and they make all the money." Lee blames the dominance of the EOS manufacturers for keeping resellers margins so thin.
Going forward, Lee hopes United will become something unique in the marketplace. "We’re trying to be a bit more than a dealer group. We’re trying to create a frontline company." He wants members to trade under the United banner as a single entity, much like UK removals group Britannia, to give them "the opportunity to fight against the corporates. The public is more likely to go to a well-known brand because it thinks that it’s going to get a better deal, and it probably will."
Lee doesn’t believe that Challenge has put a dent in United’s strategy in any way, shape or form. "We’ve got a two-tier strategy. We are committed to dealers trading directly to the end-user as United. That is our number one strategy. And to create high value for their individual businesses is a major point of that strategy, as is creating a national distribution network from it. The second tier is to make sure that the smaller dealer gets better value for money and has a marketing edge on his local competitors."
He continues: "The main protagonists behind Challenge didn’t want to be involved in our strategy and that’s probably the reason why they left. There were a couple of dealers that wanted to move on with our strategy but they have gone because the others did. But I’m not saying that they won’t come back."
So what if any of the members that left United to form Challenge want to return? Easy, says Lee: "The door is always open – for some of them."