As we pass the half-year mark and business starts to return to some form of normal—whatever that may be—how has the IDC been weathering the COVID-19 storm and what is the outlook for the future?
The COVID-19 crisis has affected pretty much every industry in every country around the world. Globally, thousands of businesses have closed and millions of jobs have been lost. While it would be foolish to think that the IDC could survive unscathed, there is still some hope: many independents are finding ways to adapt their businesses as best they can, while a few are even enjoying unprecedented growth and increased revenues in at least some categories. But no one says it has been easy—even those who predicted the turmoil.
“We were lucky to be at the forefront when it came to personal protective equipment (PPE),” says Dutch Jones, executive vice president of sales for The Supply Room in Ashland, Virginia. “My brother has four children, so he was watching the virus from the start, focusing on the school systems, and basically forecast when it would hit here and the needs [people would have], so we were able to pivot our business early toward PPE.”
Yet obtaining PPE products has been a herculean challenge.
Supply vs. demand
“The supply chain has been crazy; sourcing product has been the hardest part,” Jones continues. “Some suppliers said ‘Oh yes, we’re ready. We remember SARS in 2002.’ A week later, product prices were up 400 percent and by the end of March they were sold out. We’ve had to figure out how to find new suppliers and tell customers gloves are up 175 percent. It’s a tough pill to swallow. I’d like to say there is light at the end of the tunnel, but I think it’s some way off.”
He is far from alone. “Product availability and allocations have been cumbersome to manage,” agrees Betsy Hughes, president of sales and marketing for FriendsOffice. “One of our biggest challenges throughout the COVID-19 pandemic has been the massive number of back orders and open orders. As product has been coming from all over, product codes have been inconsistent and we’ve had to figure it out.”
The ongoing shortages also mean that when product does arrive, it must be divided up appropriately and fairly by order timeframe and by need. “Our salespeople all want to help their customers,” explains Hughes. “We do our best to keep things fair and maintaining an appropriate communication process is key.”
For Tonya Horn, president and CEO of Rogards in Champaign, Illinois, attempting to get product has been “one of the scariest parts” of the crisis—but not the only one: “Another challenge has been making sure we don’t sign up for a bad deal and have to pass that inflation on to our customers. The last thing we needed was to get accused of price gouging!”
Steven Pawloski, CEO/owner of Arkansas Office Products in Jacksonville, Arkansas, has found some prices so off-putting that he has had to draw the line. “My customers know I am fair in everything and I’d show them my costs if they asked,” he says. “So, they know I am not gouging; it’s supply and demand. But gloves we used to get wholesale and could sell for $4; now, wholesalers are buying them from China for $10 and charging $14 to $18. I can’t turn around and charge my customers $25, especially for an item that will only protect them once. When COVID-19 is over, gloves won’t be $3 or $4 a box; but they won’t be $14 to $18 either.”
Dave Guernsey, president and CEO of Guernsey, Inc., Sterling, Virginia, thinks this improvement in the market has already begun. “It depends on the category,” he says. “Securing PPE and sanitizers was a nightmare, and a variety of janitorial products were really difficult to get. But availability is getting better. Pricing is also down—not to where it was, but more reasonable than in the past months, so supply and demand are beginning to stabilize.”
Thank you jan/san
While securing PPE and other COVID-19-related products has been difficult for most dealers, the jan/san side of the business has also provided a much-needed revenue stream.
“Safety and jan/san have been exploding categories for us,” says Guernsey. “We are already 395 percent over our year-to-date goal. By comparison, we’re at about 43 percent of our goal for office products and 80 percent in other areas.”
For similar reasons, Jones won’t be giving up on PPE anytime soon. “The sale of this amount of PPE surprised me,” he says. “We had never sold a mask before, and now masks and other PPE products are selling like crazy. It’s still unreal to me, the idea that we are going to stock masks forever.”
Pawloski is also betting on PPE’s longevity: “This need is not going away. I tell my customers to be ready for a second wave in September/October. Make sure you have enough disinfectant, wipes and PPE. I am not trying to make a sale; I am just being brutally honest. I know it is not in their budgets, but I tell them they need to make it part of their budgets. They need to buy enough to get through the year or they will have to shut down and they don’t want that. I also tell them, ‘I love that you are loyal, but if I tell you I have no gloves and won’t have them until August, and you need to open now, I am OK with you getting them someplace else.’ I’ve had a lot of positive feedback on that.”
Pawloski says Arkansas’ $1,000 per employee, no-payback PPE grant has helped: “We got $10,000 to purchase PPE to keep our employees safe. Hopefully, a lot of our customers got it, too.”
Never been busier
For Gorilla Stationers, LLC in Long Beach, California, these months have been “crazy busy” and downright lucrative. “We’ve been busier in the last four months than we have ever been,” says Rosemary Czopek, Gorilla’s president. “For eight years, before the shutdown, we were 100 percent drop ship; we carried no inventory. Now we are stocking seven figures’ worth of inventory. We turned our business logistics around to be open at all times, since product is coming from around the world. We purchased more warehouse space, bought our own vehicles and have drivers to pick up and deliver product at all times of the day. Our team [18 employees] is working 7:00am-10:00pm, seven days a week.”
How is this kind of growth possible in the middle of a pandemic shutdown? Like most others in the IDC, the company was deemed “essential,” but that is far from its only advantage. “We’ve been in the PPE market for years,” Czopek says. “We have a federal-funded emergency management contract that includes PPE and just got another huge contract, so we had the connections.”
As a direct importer, Czopek estimates that half of Gorilla Stationers’ business is selling to wholesalers and other dealers. This two-sided customer base has created another win for the company: “Before, we were required to buy a whole truckload of janitorial product, and that was a challenge. Today, we can buy truckloads, as we can now sell in a day what we sold in a month. Office products has been a little different; but we were awarded a new GSA OS4 award in May 2020, so our office products side is pretty okay.”
Nearly every dealer interviewed applied for the government’s Paycheck Protection Program loan. While expressing initial uncertainty, they were pleasantly surprised that the process seemed to go smoothly—most often, thanks to good relationships with their banks. Buying groups were also commended by most of the dealers for lending a hand.
“ISG came through with some of the first leads for product,” says Horn. “The buying group connection was really helpful. They worked with existing suppliers to help extend payment terms and that was very helpful in giving us some breathing room.”
Most other dealers likewise praised ISG for disseminating helpful information through emails, webinars and other means.
But when it comes to help from the supply chain, the verdict was mixed.
“No one knew this was coming, so they did the best they could and that is all you can ask for,” Hughes says, summing up the prevailing sentiment.
Not everyone was so impressed, however.
“I was surprised the wholesalers weren’t more helpful,” says Guernsey. “They didn’t extend payment or cut prices. We have been around a long time and are one of the largest dealers in the country. Brokers and others trying to get masks out of China required upfront payment; I get that—they don’t know us. But here, we are buying truckloads of hand sanitizer from a wholesaler we have been buying from for 20 years or more, and it wants us to pay 50 percent upfront. We will do this now—we need the supplies; but we also will remember this.”
Czopek agrees the traditional supply chain failed, but sees the payment situation differently. “The normal supply chain was unhelpful,” she says. “Wholesalers didn’t have the product and they haven’t been able to get it fast enough in a competitive manner… But thinking traditionally is not always the right way to look at it. The whole supply chain is asking for money upfront: 50 percent in all cases, and overseas it is 100 percent. That’s the only way we got product.”
Trends with staying power
While no one really knows what “the new normal” will look like, several dealers were willing to make some educated guesses.
“The new normal is being accessible 24/7 and I don’t see why that won’t continue,” says Czopek. “Now it’s common to get text messages and orders from customers and suppliers at all times, day and night.”
While most agreed the work from home (WFH) trend is here to stay, there is some debate over the degree to which it will continue and its impact on the market.
“Home delivery is and will remain what the new normal looks like,” Jones says. “It’s been a pretty big portion of business for us, as we have higher education and larger commercial accounts that can continue to WFH. I don’t think everyone will—some will want to come back for the camaraderie; but WFH rotation will continue, and businesses with a 10,000-foot office spaces will realize they can operate in 5,000 square feet and downsize. This will especially hit the commercial furniture market.”
Yet Guernsey is not so sure. “At one point, I thought it would be 30 percent that would continue to WFH and we started building a model around this. But then I read reports from Cushman & Wakefield, JLL and others, which all predict far less. One said 5 percent and one 10 percent, because employers consider the social and collaborative aspects to be important to their businesses. I think a lot of employees will have two days WFH and three days in the office—depending on the position, of course.”
When one door closes, another opens, claims the old adage; but right now, the real opportunity comes in the form of actual doors rather than metaphorical ones—as well as walls, screens and other space-dividing equipment, as most dealers agree the trend for office separation is here to stay.
“Office collaboration got hit by a jackhammer,” says Jones. “I don’t think the open office space concept will ever come back. The virus changed all that. When workplace floorplans pivot from open space, they will need plexiglass, panels and dividers.”
Another trend dealers agree will continue is the increased emphasis on health and safety.
“The preoccupation with health may fade over time, but it will take more than a few years,” predicts Guernsey. “Our staff insisted on having hand sanitizer, areas close by for handwashing and have requested things things like individually wrapped flatware versus having to reach into a dispenser and pull out a spoon, as they are much more conscious about hygiene. We are presently working to source the flatware.”
While no one would have chosen—or even imagined—the shutdown caused by COVID-19, many dealers are making the best of it.
“Our creative sourcing has actually earned us new business or brought back former customers,” says Hughes. “We were able to ship them PPE and we received a resounding response of, ‘We appreciate your help so much!’”
Pawlowski discovered a similar benefit—one he thinks other dealers should take advantage of, too. “Normally, you have to go in with a lower price to get in the door, but now a higher price does not matter,” he says. “Today, it’s all about supply: if you have the supply, they will buy from you. Reach out. Say, ‘I have this item in stock. Here is the price. It will fly off the shelves by Friday, so buy it now if you want it.’”
Horn took advantage of the business lull to review processes: “We lost two salespeople and one delivery driver just prior to the shutdown. But we have now filled all of those positions. We reorganized our sales team, so we have a new sales leader and support structure. And we had just installed new software, so it was good timing to test it and get rid of any bugs.”
Another plus for many dealers was discovering new manufacturers and product lines.
“A variety of janitorial products are really difficult to get,” says Guernsey. “But we found secondary brands that have the same efficacy levels and are just as good.”
Pawloski agreed: “We love our wholesalers, but when they say they only have two disinfectants—Lysol and Clorox—and can’t get them to us, it’s our job to find manufacturers that can. Any dealer relying on just normal wholesalers now is probably not going to make it.”
While supply chain and other more immediate problems may be improving, the next few months promise to be tough for most dealers and the IDC overall.
“The hardest challenge is the day-to-day uncertainty,” says Guernsey. “We have no clue how long this will go on. Will there be a second wave? A vaccine? The CDC and FDA guidelines keep changing. We have a good idea of how to protect our customers and staff, and I have confidence consumers will return to a somewhat normal workspace. But we can’t know exactly what they will expect when they get there, and that has a profound effect on how we do business.”
Jones agrees: “Anticipation of what the ‘new normal’ will look like is the biggest challenge. It will be interesting to see how customers’ needs are going to change and it will be a challenge for dealers to be ready.”
The elephant in the room
For nearly all in the IDC, cash flow is another major concern.
“For us, it’s about trying to regain a solid financial footing and feeling good enough about our cash flow to invest in the future,” Horn says. “Sales noticeably picked up the last two weeks—we’re definitely off the bottom. But you want to feel secure the rebound is really happening. It’s been bad news for so long, we want to start seeing good news. But it’s been so long since we’ve seen it.”
Pawloski believes the future holds cash-flow problems for both sellers and buyers, which could end up as a double whammy for dealers. “No one is talking about it; but if you had fewer sales the month before, there’s not going to be enough money to pay for the supplies needed when everyone comes back to work,” he says. “We are lucky we own our building, so we worked with our bank and refinanced to make sure we had enough to buy PPE and other product. But dealers that don’t own their building can’t do that.”
Czopek also sees cash flow as integral to securing inventory: “One of the biggest challenges for the IDC will be stock availability and market fluctuations. In PPE, there are no terms out; it is cash upfront, and dealers that don’t have the capital are not going to be able to play in the market in a meaningful way.”
“It really depends on the balance sheet on how long a dealer can carry the business,” suggests Guernsey. “Some will close their doors; some will sell; and others will remake themselves into a different business. Those that had furloughs or layoffs will lose talent. All this will have profound implications, and some have argued that up to 25 percent of the IDC won’t be able to stay open. I tend to have more confidence in the resilience of independent dealers.”
Jones agrees some dealers may close, but his confidence in the rosy future of the IDC overall is unshakeable. “There are going to be some in the IDC that won’t make it. It will be too tough financially,” he predicts. “But the ones that do—and there will be a lot of them—are going to come out on the other side and find more opportunity. There will be more loyalty from customers they treated right, who will remember and come back. There will be more customers looking to support local business. It’s really difficult now, but keep fighting. I am really optimistic that the IDC will come back stronger; and at the end of the day, the independent dealers that make it through will find a pot of gold.”