Distribution disruptions grow, acquisitions continue and uncertainty reigns; just how can independents plan for the year ahead and identify which strategies will continue to reap rewards?
By Michael Chazin
What does 2019 look like for your business? While many dealers across the country admit concern about current industry turbulence and how it will all pan out, they are nonetheless full of ideas—and enthusiasm—when it comes to their own business plans for the new year. In general the dealers we talked with said they expect positive growth, increases in furniture sales, a greater reliance on health care and education vertical markets and strong breakroom sales. And even though nobody knows how the Essendant/Sycamore deal is ultimately going to play out, everybody has an opinion!
Dealers committed to Essendant question what the wholesaler will look like if its acquisition by Sycamore is completed. Dealers aligned with S.P. Richards also face a somewhat uncertain future. Can SPR survive without an infusion of new blood? Is the recent departure of some key executives a cause for concern? It’s anybody’s guess.
“I see opportunities for us as an independent dealer,” says Warren Roberts the owner of Warren’s Office Supplies in Sanford, Maine. “There continue to be strong opportunities for independent dealers, but that comes with some trepidation from not knowing what’s going to happen on the distribution side.” The fiscal year at Warren’s ends in June but at this point the dealership is 17 percent ahead of last year. He points to significant organic growth with furniture and facility/breakroom categories well ahead of year-ago results.
“In 2019 we expect eight percent growth, partially through acquisition and partially through organic growth,” says John Givens, president of Source Office & Technology in Golden, Colorado. He refers to his team of business development managers as the organic growth machine. Their mission is to open new accounts and keep those accounts serviced as they open new ones. “One way to outpace the decline in office supplies is to bring on new business,” says Givens, “but it is also still possible to grow sales by increasing market share in your area.”
At Officewise Furniture & Supply in Lubbock, Texas, the business is split fairly evenly between furniture and supplies. Managing partner Tommy Sansom expects supplies sales to be up a couple of percentage points and says furniture should probably come in with ten percent growth. Janitorial supplies also provide a growing market for the dealership and Sansom hopes a couple of his janitorial competitors will consolidate which could help his business.
Stockless Worries
Like most dealers, Sansom’s biggest concern is how wholesale distribution in the industry will impact his operations. “We’re a stockless dealer and our concern is whether Staples’ acquisition of Essendant will disrupt operations to the point that we can’t provide the same level of service our customers have come to expect,” says Sansom. He suggests that stockless dealers might have to look at returning to some form of a stocking model. “To turn around and bring in any inventory is a big investment,” he says. “We have to be ready and be able to act if it comes to that.”
The Essendant/Sycamore deal replaced a potential combination of the two industry wholesalers, Essendant and S.P. Richards. Givens says this latest combination is a poor alternative to what might have happened, although it might have put up a roadblock to any third party looking to get into the industry. “If I were an Essendant dealer, I would be keenly interested in speaking with S. P. Richards to have options in my back pocket,” says Givens. He speculates SPR could actually get a boost from Essendant dealers looking to jump ship.
“I think we have to stay diligent,” says Jon Rossman, president of Chuckals Office Products, Tacoma, Washington. “We rely on S.P. Richards as a partner, so we have to continue to stay focused on what is important to us, which is essentially for the wholesaler to provide us with a wrapped and labeled box ready to show up on our customer’s doorstep.”
Wholesale speculation
An Essendant-S.P. Richards combination could have resulted in additional opportunities, suggests Roberts. He says he fully expected a player on the facility and breakroom side to make a play to grow sales or that perhaps a furniture distributor might look for an opportunity.
Roberts also speculates on where SPR might be headed. He points to initiatives the wholesaler talked about a couple of years ago that were put on a back burner when merger discussions were ongoing. “Those initiatives don’t seem to be coming back fast enough to have an impact and that concerns me,” says Roberts.
A top priority at Officewise is for the wholesale situation to be fully resolved. “Right now it is hard for me to hire new salespeople until I know what we are dealing with,” says Sansom. “I just don’t feel good about making long-term commitments and investing until I know what we are looking at here.”
Steve Klaver, president of DBI in Lansing, Michigan, reminds dealers that the Essendant-Sycamore/Staples deal presents a business model that’s not totally unheard of in the office products industry. Thirty-five years ago, he recalls, Boise Cascade did the same thing. “If you were a Boise dealer they were a wholesaler and were also selling to end users,” he says. “I don’t think it’s a big deal. It will just be hard to pay a bill to Essendant when you know the group that owns Essendant also owns Staples.”
There might be cost savings for independents with an Essendant-Sycamore combination, suggests Randy Dixon, owner of Carolina Business Supplies, Charlotte, North Carolina. He has heard that one brand will be established for both Essendant and Staples which could be advertised nationally and provide strength for independents.
The Essendant-Sycamore acquisition is playing out against an industry backdrop of consolidation at every level. “I would call it rapid consolidation,” says Givens. “If you are a smaller dealer, there are larger dealers in your area that would love to have you join their team through an acquisition,” he says. “We feel this opens up opportunities to acquire smaller dealers in a way that is collegiate, cooperative and collaborative.”
Consolidation continues
Blaisdell’s Business Products, Oakland, California, is first-call with Essendant and is withholding judgment on impacts from any wholesaler combination. “Hopefully it will be something good,” says Mike Witt, chief operating officer. “We’re hearing there is going to be better pricing and more offerings. We’ll just have to wait and see how that pans out.”
Witt speaks of consolidation from first-hand experience. Blaisdell’s own acquisition of fellow independent Give Something Back was announced in late 2018. Witt says that the two brands will probably be co-mingled for at least six months, and possibly as long as a year, to gain every bit of recognition and goodwill that clings to the Give Something Back brand.
This was the first acquisition in Blaisdell’s history and Witt projects that sales in 2019 should see more than a ten percent increase on last year. “We will revert back to our organic growth game plan which has been a proven model with eight consecutive years of double digit growth,” says Witt. “We should have another good year, but we also have to be ready in the event the economy turns as we have been on this bull run for ten years now.”
Besides the obvious increase in revenue, Witt points to additional considerations. “It was important for us to make this deal happen,” he says. “Other players were trying to get Give Something Back and the last thing we wanted was another independent or a big box in our backyard.”
The acquisition would seem to be a win-win for Blaisdell’s. “We have a much bigger presence in the Bay Area,” says Witt. “Instead of ten trucks running around the Bay Area, now we have 21. We also have a bigger footprint in Sacramento and a new market in San Diego.” Blaisdell’s will work hard with its new sales staff staff and get them up to speed on how the dealership goes to market to achieve organic growth.
Technology tumult
A top priority for the new year at DBI is to remain on the cutting edge with technology and stay progressive with capabilities. “Within the last year we transitioned over to a new website,” says sales manager Nicole Zyla. With the new site search capabilities are better and faster, and digital web analytics, made available through ECi and Essendant, help educate and guide buying decisions for customers. Currently 58 percent of orders come in online; since the new website went live average order size has jumped from $140 to $158.
To keep up with national competition, dealers need to invest in technology. For instance, DBI recently added an instant chat feature to its site where customers can ask questions or find help with searches. “We get 15 or 16 chats a day,” says Zyla. “Some smaller dealers can’t afford to keep up with technology,” adds Klaver. ” Those with outdated websites could well be included in this ongoing consolidation, says Klaver.
It’s getting more difficult for smaller dealerships to stay competitive, suggests Dixon. He says that Carolina Business Supplies is always on the lookout to acquire office supply or janitorial dealers in the Carolinas as he ticks off the requirements necessary for success in 2019. Dealers need to belong to a buying group and carry multiple stocking categories including furniture, janitorial supplies, breakroom, packaging materials and safety. Then you have to go out and look for those customers that the nationals leave out to dry. “Freestanding buildings that buy anywhere from $1,000 to $4,000 a month in supplies are the perfect customer for an independent,”
claims Dixon.
“Staples cannot do what we do,” he says. “They’re not very good at the last mile of delivery and they don’t have the personal contacts that we have with customers.” Dixon relates how Staples has moved away from personal delivery services to couriers. “We use couriers too, but it’s not advantageous,” he adds. “You have to be selective when you use couriers, or you’ll lose customers.”
Stay the course
Regardless of what might be happening nationally, Rossman sees the path to success paved with his own efforts. “As long as we continue to stay the course and continue to meet people we have the recipe for success.” He says his dealership has consistently focused on small to mid-sized businesses with 20 to 50 employees. More recently he is finding opportunities to do business with still larger businesses with 100 to 500 employees.
Part of this new-found success in rooted in the inability of big box suppliers to effectively maintain existing accounts. “I see a real opportunity within that space to grow our market share,” says Rossman. He wants to partner with these larger accounts and says that big box suppliers don’t offer that kind of connection. “Office Depot and Staples want to emulate us and they are not successful,” says Rossman. “Their retention isn’t good and our ability to service the customer, in my opinion, is much better.” It is just a matter of going out and finding customers that want to do business with you, he adds.
“We are one of the very few independent dealers left in the markets we serve in Maine and New Hampshire,” says Roberts. His message to customers and prospects is that Warren’s Office Products offers significant value when compared to its big box competitors.
When asked how he can compete against national suppliers he likes to turn that question around. “How do they compete with us when customers can pick up the phone and talk with any of four family members who are directly involved in the day-to-day ownership and management of the business?” he asks.
Commanding competition
When national competition is considered perhaps no participant is more prominent than Amazon. Sansom jokes that it’s usually a lower-level employee who drags his or her Amazon habit from the couch at home and brings it to work. “A business owner just makes the assumption Amazon is cheaper,” he says. “We have some accounts like that but that’s not what we build our business around. You can out service Amazon all day long, but it’s hard to get credit for it with these customers.”
Officewise addresses the Amazon challenge with appeals to its customers. Salespeople get in front of the customer and ask which products are being bought online and why. Then all the service shortcomings are mentioned. Sansom explains how they once had these same conversations with people buying from Staples and Office Depot.
“We keep an eye on Amazon price-wise,” says Dixon. Carolina Business Supplies converts customers buying from Amazon on a regular basis. With customers that have a structured approach to purchasing, the dealership generally comes out ahead in face-to-face confrontations over Amazon. “Amazon can’t do what we do,” Dixon says proudly.
Orders from Carolina Business Supplies arrive complete in one day, get delivered by a known person who places materials where they are wanted and can facilitate returns, “We tell our customers and prospects if all you want is a dozen pens, go to Amazon and buy them there. We are not a fit for everyone,” he adds.
Givens proposes that independents need to migrate to more dynamic pricing to be fully competitive with Amazon. “Amazon is a fierce competitor that will continue to chip away at the office supply sector on commodity products where services and solutions are not important,” he says.
Dynamic pricing probably goes beyond the capabilities of almost every independent and Givens suggests this offering might more easily be achieved with some assistance from the wholesaler. “I would hope that S.P. Richards and Essendant will lead the charge and help us rethink our go-to-market and pricing strategies in a way that would be more dynamic,” he says.
Sufficient support
Both Essendant and SPR have specialists to help with specific category sales. “We certainly take advantage of that,” says DBI’s Zyla. However it seems there is some concern about the availability of specialists and how frequently they can be called upon for assistance. She says that a growing number of dealers want to use these services. She is concerned about the availability of specialists and whether an acquisition could change that. “We hope they continue to put resources into their digital analytics and hope to see them continue to grow their vertical market teams,” she adds.
“We just need to make sure we utilize the tools the best we can and realize, that whether they are supplied by the wholesaler or the buying group, they are designed for the masses,” says Roberts. At Warren’s Office Supplies the needs are seen as a little more personal and the dealership has developed its own custom flyer, which focuses heavily on the concept of family ownership and includes the dealer’s loyalty coupons to engage people.
Now in its second incarnation, the custom flyer is tailored to the needs of the customers in New England, which the dealership understands better than most. “We can’t always rely on what is offered to get what exactly we want,” says Roberts. “We find that what we produce on our own tends to be much more effective.”
Sales success
Just because overall office supply sales are declining doesn’t mean that dealers have to take that as a given for their own particular territory. Concerted efforts to increase market share can result in increases in supply sales, suggests Givens. He sees a similar situation with print-copy products, where the market is in decline based on some of the same determinants – fewer reports printed with less ink and paper consumed.
Although the market for copy, print and electronic content management is in decline Givens still sees opportunities. “Our programs are uniquely different from the copier and printer industry so that our solutions will have a greater positive impact on end users,” he says. Consequently, his copier team is picking up market share in part by bringing in new customers.
As 2019 continues to unfold dealers want to finalize partnerships with their wholesaler and determine how that relationship will factor into their long-term success. Rossman has encouraged his sales team to show customers, in his words, “that we are human”.
“We reap rewards when we show them that we care and how we are a part of the whole process,” says Rossman. This approach is taken not just to increase sales but to demonstrate that Chuckals wants to be a partner. “Just like we need to partner with our wholesaler, our customers may need a partner as well.”
Michael Chazin is a freelance writer specializing in business topics. He has been writing about the office supply business for more than 15 years. He can be reached at mchazin503@comcast.net.