There might not be anything new when it comes to competition for independent dealers. “It is more like continuing to be the ever-changing competitive landscape,” says Steve Nahmias, principal at Office360, Indianapolis. In his view no major competitive changes have come to light in recent times but change is constant. “Big events continue to happen,” he says. “Amazon gets better, Staples gets better and Depot is going to pull itself back up. Everybody wants a piece of what we do.”
Current industry dynamics are characterized by turbulence and probably no venture is viewed so differently by so many industry veterans as the combination of Staples and Essendant. “That consolidation is concerning because I am not sure I buy into it,” says Kim Leazer, CEO at FSIoffice, Charlotte. The wholesaler’s new owners have indicated cost savings will be forthcoming but Leazer is unconvinced.. She contends that vendors have no more room to lower prices much further than they have already.
The turbulence impacting the industry creates chaos but it is also opening up new opportunity for those paying attention. “We feel that in these turbulent times, when change is happening quickly, there’s an opportunity with companies maybe not making it or becoming part of another organization,” says Justin Hummel, CEO of Hummel’s Office Plus, Herkimer, New York. “I see a significant opportunity for our organization to be very consistent and steady and trustworthy.”
Many suggest that the industry is changing quickly, when in fact change has been consistent for a number of years while many dealers were looking the other way. “We actually were in denial far too long,” says Bob Mairena, president of Office Solutions, Yorba Linda, California.
“We didn’t recognize the huge impact e-tailers and competitors like Amazon were having,” continues Mariena. “They were changing consumers’ expectations and then transferring that expectation to B2B businesses.” Amazon added value to the online experience and before long, dealers were expected to offer the same level of online service and navigation to remain competitive.
Some believe change should have happened a long time ago. “We needed to be more competitive with more buying power so the buying groups came together and dealers consolidated because they needed more power and more scale,” adds Mariena. “All of that should have occurred a long time ago, but we just kept putting it off. Of course, hindsight is 20/20.”
The IDC will survive the turbulence, but smaller dealers may struggle to last the course. “This will require some scale to compete based on the required investment of technology and marketing,” says Mairena. “That need to achieve scale, to a large degree, drives escalating consolidation.”
Consolidation impacts vary
Each segment of the office products market is impacted differently by consolidation. At Cardunal Office Supply, Cary, Illinois, Bill Walkiewicz, owner and president, believes one effect of consolidation is the elimination of some competition. “Dealers who remain have to be strong, because when all independents in their marketplace do well it gives the perception that they are a viable option for business customers,” he says.
Consolidation isn’t necessarily a bad thing, says Walkiewicz, it just points to the lack of succession planning. “We have done a few acquisitions where the dealer could not sustain financially and so we stepped in,” he says. “Wholesalers should be a bit worried about the aging population of independent dealers and focus on ways to strengthen those that continue to thrive.”
Dealer consolidation has both positive and negative impacts. “In the past wholesalers allowed small business owners to stay small,” says Eddie Mouton, founder and co-owner of Hi Tech Office Products, Scott, Louisiana. ”Unfortunately, because of everything that is going on now with wholesaler limitations, it makes it harder for smaller dealers to stay competitive.
“Smaller dealers are now going to have to make a decision,” says Mouton. Consolidation drives out unneeded duplication and makes the supply chain more efficient, which is good for the independent industry overall, he says. “But smaller dealers will have to make a choice – they will have to decide if they’re going to grow at all costs or sell out, merge or shutdown.”
Office360 is one independent that has purchased other dealers. “It has worked well for us as it helped us expand our footprint and penetrate adjacent territories,” says Nahmias. When a big box player purchases a Pinnacle member, right now it doesn’t feel any different but it’s probably not a good thing, he says. Nahmias reserves judgment on the Staples-Essendant deal as it’s probably too early to determine its full impact. “The consolidation of suppliers is probably not a good thing, but it doesn’t feel that different yet.”
It’s not just office supply dealers that are up for grabs. Keith Powell, vice president and owner at Pay-LESS Office Products, Omaha, suggests that dealers look at growth areas such as facility supply dealers to make additional acquisitions. “Those specialized people are something that we don’t have and the wholesalers will lead us right to them,” he says. “You’ll see that is going to change the face of traditional office products companies.”
One downside to consolidation that impacts every dealer is the consolidation of its customers. “For example, hospitals are buying up doctor’s offices and unless you service that particular hospital you can instantly lose a large portion of your customer base,” says Myers Jordan, a member of the leadership team at Herald Office, Dillon, South Carolina. At the same time, consolidation benefits companies like Herald who are also in acquisition mode. “We as individual dealerships are getter bigger, faster, leaner and smarter,” he says. “Consolidation is a critical component of our growth strategy.”
Another aspect of the competitive landscape that independents must continue to navigate involves partnerships with manufacturers. “As consolidation happens, partnerships with vendors become more important,” says Jordan. “As there are fewer manufacturers should these vendors decide they no longer need us as the middleman, they could effectively close our businesses.” He points to both copier and furniture manufacturers who have been known to sell direct to end users.
Partnerships with vendors are already going farther than ever before, with wholesalers even buying minority interests in dealers’ businesses. “They’re taking strong ownership interests and the money they invest has given many larger dealers the opportunity to buy other dealers and create mega dealerships,” says Jordan.
Wholesalers are making these investments to prevent big box players from buying out more independents, says Powell. “When they have a financial interest they look at you a little bit differently,” he says. “They’ll be more open to help us finance acquisitions and with skin in the game they would discipline us a little bit better than we discipline ourselves.”
The growing online threat
There is likely no larger competitive threat than growing online competition for sales of office products. Consultative selling, while still in practice, is no longer as effective as it once was, suggests Mariena. “You get all that information easily from the web and it is more comprehensive because it comes from the manufacturer,” he says. Given that level of involvement, is the customer really ready to pay for a hi-touch experience? “To a certain extent yes, but in the end most customers will gravitate to ease and low price,” he says.
Amazon has set the standard for online purchases, so dealers are compelled to up their game, adds Mariena. A committee meets regularly at Office Solutions to make sure the online presentation is competitive and that there are no obstacles for customers wanting to place online orders. “A lot of smaller dealers who are no longer with us really needed to invest huge amounts to continue to play online,” he adds. Many of those smaller dealers either sold out or folded because they were unable to make the investments in technology that were needed to stay competitive.
It’s easy to complain about the impact Amazon has had, but it is those who moan most who are most likely feel the brunt of that impact. “If all we do sit back and talk about how terrible Amazon is, we ignore the fact that they are helping push our buyers to smarter buying patterns,” says Jordan. “Our consumers are getting more intelligent, they are doing research on products, which is not necessarily a bad thing for us.”
Office360 felt the pressure of online competition and updated the look and feel of its website this past summer. “We made it look and act more like Amazon because that is what people are used to,” says Nahmias. “That makes us more user friendly.” Additionally, the dealership adds services to further differentiate its offerings from its online competitors. “Anything that Amazon can’t do, we have to go out there and emphasize and sell,” he adds. Offerings such as MPS, customized programs and design services are not available from online sources.
In the past year, Hummel has updated its ERP software and moved to use JumpTrack software to track delivery trucks and manage delivery operations. Next year the plan is to update the e-commerce ordering solution to achieve the user-friendly approach that Amazon is known for. Currently close to 70 percent of orders come in online. “We have something like 20 consecutive months of record sales though our e-commerce solution,” he says.
Another key element to the success of Cardunal as an independent dealer is the utilization of industry partners to their fullest. Without deep pockets to invest in his own online portal, Walkiewicz takes advantage of the technology available and spins it differently. He has employees on staff who have become familiar with offerings from ECI and that enables him to offer users features that help differentiate his offering from other channels. “We literally take some cool, little features that are available and dress them up and use them properly,” he says.
Everybody wants savings, Walkiewicz continues. When buyers search for a product on the Cardunal website, the results page that comes up includes a box with an alternative product that says ‘consider this.’ “We take the time to manually cross reference best-value brands and packages,” he says. A feature on the system presents those results to the customer. “Most times if they pick the alternate they save money and we get more margin,” he adds.
“Any independent dealer using ECInteractive and DDMS can do what I am doing, except there is no automatic file for it,” says Walkiewicz. You have to be familiar with the products and then build these capabilities manually, he says. “But that takes a lot of work that most dealers either don’t have the expertise or bandwidth to do.”
To become more competitive online, FSIoffice employs the full capabilities of its ERP system. “We have taken a little more control to make sure we have all the different capabilities online,” says Leazer. In a slightly different competitive move, FSIoffice has introduced a separate B2C site. In part, the motivation for this effort was to expand who the dealership markets to. It also goes after what Leazer refers to as “rogue spend”, which refers to the personal purchases that employees make outside corporate orders for office supplies.
Expanding product offerings
Dealers are in the distribution business. “If you are already making deliveries of a category, say office products, there is no reason not to bring in additional categories,” says Powell. Consumers are looking to consolidate their purchases with one order, one price and one delivery, and dealers can provide that capability and help those customers consolidate transactional costs. Earlier this year Pay-LESS added fresh fruit to its product offering and has seen that category take off. “Customers love that convenience,” he adds.
Adding a product line such as fresh fruit enables a dealership to create another target of value within the customer’s organization, says Powell. “I am not only hitting the purchasing agent, but now I am in the HR department helping them with their wellness program,” he says. “It gives you more exposure within a company and ultimately with more exposure it’s tough to knock someone out when you’re providing that much convenience.”
Expanding product lines has made Office360 considerably more attractive to its customers. “We mostly rely on Essendant for the broad product selection it offers,” says Nahmias. “It allows us to expand our share of wallet with existing customers.” When a customer purchases its office supplies, janitorial supplies, promotional products, breakroom supplies and MPS program from Office360 the dealership becomes much more resistant to competitive encroachments. “They’re not going to cherry pick us as much if we’ve got the right relationship,” he says. “It makes us much stickier with that customer.”
At Hi Tech Office Products, product category expansion has been handled in a similar fashion. “It is pretty much done by default, whatever direction the wholesalers go is how we go,” says Mouton. Everything that the wholesaler adds gets loaded onto the Hi Tech website. At that point the challenge becomes how to market those additional categories and who to direct that marketing toward. “For the most part the person ordering office supplies isn’t ordering industrial supplies for the warehouse,” he says. “It is totally different; same customer but a different person ordering.” Reaching that additional buyer is a challenge for every dealer.
For the supply chain manager or purchasing director who is looking to consolidate vendors, expanding product categories can be a viable approach, suggests Jordan. “It gives those companies more of a streamlined view,” he says. “For that customer the moves we’ve made to strengthen our platform have boosted sales,” says Jordan. In addition to janitorial and breakroom products, Herald has added embroidery capabilities to enhance its already popular promotional apparel products. “We are having a great year,” he says. “The industry is changing a lot. This is our niche and we’re going to stick to it.”
Another successful strategy has been to pursue such niche sales. Walkiewicz contends that any dealer can find categories to compete in. At Cardunal Office Supply existing accounts were analyzed and classified by type of business. “We started to see patterns where we had success and then duplicated it by going after businesses we didn’t have while we built our expertise,” he says.
The dealership targeted businesses in the category that it wasn’t already selling. “When we do that we get a pretty high degree of success,” he says. In part, because when these businesses are called, salespeople can say that Cardunal already sells to specific clients in the category. The dealership has developed niche business with law firms, car dealerships and churches across the country.
Tried and true . . .
As competition evolves and some national players back away from some markets or change their approach, Hummel suggests that the white glove delivery service his company is known for remains unmatched in its marketplace. “That has been a competitive advantage for us that really stands out,” he says. That ties in with delivery expectations, how credits and returns are handled, account management, and standards programs. “All of these features are usually not built into programs when they are buying from other e-commerce solutions,” says Hummel. “That’s part of our cost of doing business, and it is awfully tough for somebody to come in and provide that.”
As buyers retire, more of them are being replaced with individuals from the millennial generation and that change represents another obstacle to continued growth. “Reaching them might be the biggest challenge,” says Hummel. In most cases these millennial buyers don’t want to meet unless you have something valuable to bring them. “if you are going to take time out of their schedule, they want it to be meaningful or something that will make their life easier or more efficient.”
At Herald, millennials on the sales force will often be assigned to sell to a millennial buyer. “While we certainly have many cross-generational sales relationships, our younger sales team often sees a high success rate with other millennials,” says Jordan, who is himself a member of the millennial generation. “We tend to be more loyal than we are given credit for, but our loyalty lies with the companies we work for, not the sales reps who call on us,” he adds. “Millennial buyers seem to be fiercely loyal to their companies and they are only interested in working with us to the degree that we’re able to bring value to their company.”
Nahmias at Office360 offers a slightly different perspective on working with millennial buyers. “This is Indiana and people are people,” he says. “If we build relationships and understand what our customers want and can provide that while being flexible, that’s really what works for us.” He adds, “we have to listen a lot more than we used to.”
One consolidation that dealers support wholeheartedly is the combination of TriMega, Independent Suppliers Group and Pinnacle Affiliates. Many suggest that the merger is a long time coming, and welcome the potential it brings to eliminate duplication and leverage precious resources more effectively.
“Being together can only benefit everybody—whether it is buying power, marketing or whatever,” says Mouton. If everybody comes together, it could make independents more competitive against their big box rivals.
Mouton would like to see a merged buying group get more active in areas where previously they had little involvement, such as negotiating in areas such as national deals for delivery vehicles, software or auto/health insurance.
The buying group merger will be a good for independent dealers as long as it works effectively says FSI’s Leazer. She suggests that to be successful some dealers will need to move away from a stockless orientation. “That would increase the amount of volume spent by stocking dealer members and make for programs that are richer and more enticing for manufacturers,” she says.
Michael Chazin is a freelance writer specializing in business topics, who has written about the office supply business for more than 15 years. He can be reached at email@example.com.