The Wild Wild West

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The Wild Wild West

The jan/san sector has seen a considerable uptick in recent months. But while dealers across the country have shifted focus to maximize opportunities, they have often had to prospect in unfamiliar and sometimes unforgiving territory to source products 

 

To say dealers have had a tough few months would be an understatement. During a period in which sales of many traditional office products fell off a cliff, the jan/san category—along with PPE—provided a beacon of light in dark times. But with the opportunity and the extraordinary demand have come enormous challenges. Sourcing, availability, cash flow and pricing volatility are just some of the watchwords in that context.  

For many dealers, the jan/san and broader facilities category already provided a solid revenue stream pre-COVID-19. Oakland, California-based Blaisdell’s Business Products, for example, has been selling jan/san for about 10 years. Pre-pandemic, it accounted for about 12 percent of revenues – now that stands at 30 percent. Iowa’s Storey Kenworthy, meanwhile, reports sales increases of 67 percent in its facilities category, a space it has been in for around seven or eight years.  

Typically, PPE now constitutes a sizeable part of this broad category. So, combined, have these products made up for losses in traditional OP? In short, no; but they’ve certainly helped. There are also some profitable components in these segments, which are very much here to stay. 

 

Shortages 

But all this demand has led to the obvious: severe supply shortages. Jon Rossman, president of Chuckals Office Products in Tacoma, Washington, says: “The early demand for all types of PPE, jan/san and facilities products was unlike anything we had ever encountered. In March and April, there were challenges in every aspect of the supply chain. Wholesalers and suppliers were working day and night to try to keep up with demand, and still couldn’t do it. 

“The main issue, in my opinion, has simply been consistency of product availability and messaging on when products will be available. Everything we were used to was thrown out the window; we had to improvise and pivot when it came to telling our customers about availability, back-order timeframes and overall product content. We also went from essentially stocking just paper and a few other SKUs to stocking about 30 more products almost overnight. It doesn’t sound like a lot, but it has certainly kept us busy.” 

Frank Hoard, director of facility supply channel at Independent Suppliers Group (ISG), refers specifically to vendors when summing up the situation: “The vendor community has expanded considerably. As manufacturers could not meet the pandemic demand, new suppliers have stepped in with alternative products to help bridge the gap between supply and demand. Also, traditional jan/san manufacturers have moved their efforts into making items that will sell. For instance, we saw a major trash liner manufacturer start making disposable gowns. 

“From a wholesaler perspective, they have been slow to react and we have seen them have to say ‘no’ to business because they are bound by certain contractual relationships. This forced the IDC to move toward more self-sufficient and unorthodox supply chain options.” 

 

Nightmare supply chain 

There is no doubt that the supply chain has seen unprecedented pressures. As Lincoln Dox, vice president of Storey Kenworthy’s supplies division, says: “Initially, product was difficult to source and highly risky due to long lead times, poor transparency and communication, and the need to pay cash upfront.” 

He adds that vendors have been mixed in their quality of support and even trusted suppliers were unable to source product in a timely fashion: “A large manufacturer overreached, overcommitted and burned our dealership to the tune of several hundreds of thousands of dollars. It refused to make any concessions or provide any relief, and went radio-silent in the communication until we escalated.” 

The perception among dealers is that they’ve been left behind somewhat in the battle to secure much-needed product, with brand manufacturers—perhaps understandably—prioritizing pandemic first responders and, a little further down the line, the retail giants. 

Finding credible new sources of supply has been a phenomenal obstacle, but was unfortunately inevitable. Working with unknown vendors has also required substantial deposits and upfront payments (although this has by no means been restricted to new supply partners)—something that only dealers with strong balance sheets can afford. Add considerable price volatility and a high risk factor into the equation, and it’s no surprise that David Guernsey at Virginia-based Guernsey describes the scenario as a “truly Wild West environment for dealers”. 

Bob Mairena, CEO of Office Solutions in Yorba Linda, California, seconds that sentiment: “The reality is that we had to fend for ourselves and build new relationships, as we couldn’t rely on vendors that we had been aligned with for years and years. It was a very entrepreneurial environment, where you had to buy and sell and make decisions incredibly quickly. You could have a quote for a truckload at this price, call back 10 minutes later and either that truckload would be gone or the price would have escalated by another 10 or 20 percent. It was that quick. And you had to make decisions with cash in the bank, because you needed to make sure that you wired the money in advance to vendors. 

“I know a lot of independent dealers were burned by that process, because they wired money and often the product didn’t follow,” he continues. “For us, luckily, that didn’t happen, as we tried to put in safeguards wherever we could. But it was always a risky proposition to wire $100,000 in advance to a vendor that we didn’t have a long-term relationship with, hoping that the product would be delivered in a couple of truckloads.” 

 

Split opinions 

Whether the wholesalers—obviously a vital link in the chain— covered themselves in glory during these testing times is very much in the eye of the beholder. Blaisdell’s CEO Margee Witt is complimentary about S.P. Richards (SPR), referring to the wholesaler as a great partner that helped it source PPE products: “They were nimble and able to bring some much-needed items relatively quickly.” 

Chuckals’ Rossman also has nothing but praise for its partner: “SPR was, and still very much is, a major reason for any success that we have had throughout the pandemic. Don’t get me wrong, we have had some very good individual sales achievements; but SPR has really put its best foot forward for us throughout this whole ordeal. As soon as we could get our legs underneath us, the wholesaler attended all of our sales meetings, providing timely information about when products would be available and helping us procure specific products that we could turn into revenues very quickly. There is not a day that goes by, even today, that I am not talking with either our account manager, business development manager or general manager. It has really been excellent to work with all of them.” 

Office Solutions has been a sizeable player in the jan/san category for the past few years, mainly as a result of the acquisition of Gale Supply Company—an independent janitorial supply dealer based in Los Angeles—in 2015. This commitment to the category over the years resulted in both new and stronger alliances with vendors and a close relationship with first call wholesaler Essendant. But neither has substantially helped during COVID-19—certainly not for PPE, which Mairena explains was an existing but “insignificant” proportion of the business pre-pandemic. 

Sourcing the products in demand was difficult, to say the least. “We are a non-stocking dealer, so we rely heavily on our wholesaler’s sourcing ability and supply chain,” continues Mairena. “At the height of demand, the reality was that we needed truckloads of sanitising gels, wipes and gloves, not just a pallet. We had to source all these items directly; otherwise, we wouldn’t have been able to capture the opportunity as it presented itself. Hopefully, we can retain that market going forward, because we’ve forged relationships with new vendors as the ones that the wholesalers endorse left us in the lurch. Not just us, but the wholesalers as well, I hasten to add.” 

 

Vendor criticism 

GOJO is one brand that is often mentioned in this context—not having enough product for the wholesalers and seemingly cutting out dealers of every size completely. The manufacturer—best known perhaps for its Purell hand sanitizer range—freely admitted that it was completely overwhelmed in the early days; it ran at full capacity, ramped up production and prioritized distribution of key products to hospitals, first responders and critical infrastructure providers. The same applied to other operators such as Kimberly-Clark Professional, Clorox and RB.  

While dealers still report considerable shortages of Purell, there has otherwise been a slow return to some kind of normalcy in supply terms; but the stresses at the height of the pandemic have taken their toll, notably from a financial point of view. Says Dix: “High demand and low supply have resulted in considerable price gouging for items like gloves—a horrific product segment, incidentally. We also learned some expensive lessons where we grossly overpurchased on some items. Where they could, the wholesalers and ISG have done well in holding the line on costs and minimizing volatility.”  

Where entities like ISG—sometimes in conjunction with the wholesalers—have also done well, aside from aiding with supply issues, is on the educational front. This included much-needed advice and information on the Small Business Administration’s $660 billion Paycheck Protection Program; weekly COVID-19 bulletin emails; townhall meetings to share ideas, best practices and opportunities specific to the pandemic; and product-oriented presentations highlighting new and relevant COVID-19-related items. Product knowledge and expertise have become particularly important in the jan/san and PPE fields, given the types of raw materials involved and the regulatory requirements.  

With the shift in product focus has also come a shift in customers for dealers. Rossman explains: “We have experienced a lot of the business coming from other essential businesses and municipalities. Police, fire and emergency services have been a very large segment of business for us.” 

And as Andrew Atkinson, president and CEO at Preferred Business Solutions in Fort Worth, Texas, says, breaking down customers into specific product groups is now a thing of the past: “All customers are now jan/san customers.” 

The same is true for PPE. And much as the types of products in the basket have changed, so too have ordering volumes and frequencies. Where Chuckals operates, for instance, the working from home trend prevails and will likely do so for some time. This, says Rossman, has led to inconsistencies in sales, which seem to fluctuate like never before: “We have days of very few orders and days that are record setting.”  

Many dealers are offering home deliveries currently—an incredibly difficult and costly undertaking that probably is not feasible in the long term. As Blaisdell’s Witt explains, a remarkable 20 percent of its sales are now generated via the home/remote worker office. 

 

Lessons learned 

Everybody INDEPENDENT DEALER spoke to for the purpose of this article agreed on one thing: the need to throw out the rulebook and be agile. A real can-do attitude also helps enormously in weathering this heavy and protracted storm—especially as there are no sustainable signs yet that good times are just around the corner again.  

Yes, jan/san and PPE have been a lifeline for dealers; as have in many instances the technology and home office furniture categories. But even combined, they have in no way made up for the deep losses, particularly in traditional OP and breakroom. 

Says Rossman: “As an organization, we have learned a ton about ourselves, as well as the employees we have invested in. I would argue that the largest lesson we have learned is that growth and comfort do not co-exist. This was something I mentioned to our team a number of years back, but I am not certain that we all bought into it. Now we understand this better than ever. Change, along with some challenges, will be how we continue to grow. It is not always going to be pretty, but we will survive and thrive as long as we continue to work hard and get uncomfortable.” 

Witt agrees: “In mid-March, our sales plummeted by 65 percent. We’ve clawed our way back, but revenues remain down by about 25 percent. California has been a particularly tough market, as our governor will not open the state. We’ve learned that being nimble and able to change our processes within a short period of time has allowed us to survive these difficult days. We also believe that keeping up communication with our customers has been invaluable. We hope that once the shelter in place order is lifted entirely, business will start to normalize again. That said, we are hearing from many customers that they don’t plan to return to the office until mid-2021.” 

That means, much as COVID-19-related products are here to stay, so too is the need for home deliveries in some capacity. This obviously depends significantly on the geographies involved. Storey Kenworthy’s home state of Iowa didn’t have the same shelter in place rules that, say, California did—hence Blaisdell’s aforementioned high proportion of home deliveries—so residential drops were never in quite as much demand, according to Dix. But whatever end of the spectrum they are on, financially it doesn’t make sense for the vast majority of dealers to go down that route—it is quite simply too expensive. 

Mairena has also been considering what the working from home trend actually means for independents—not only from a business point of view, but also as regards the lifestyle and culture of dealers themselves: “Everybody is waiting to see what the new work model is going to be. Companies like Google can potentially have everybody working from home. But dealers are all about camaraderie and teamwork—their unique culture and value system are important, not necessarily what they do. But how do you have a culture and value system working from home? People don’t just work for a paycheck; they choose to work for small and medium-sized businesses like ours because it’s fulfilling to work with people they love and care about. It’s a family environment and the glue that makes them want to come back to work. How do we successfully recreate this environment when the time comes to get our people back into the office? It’s certainly something I think about when I ponder over the future of Office Solutions and many other like-minded independent dealers.” 

Coming from someone who’s been through his fair share of ups and downs and has ultimately grown through all of them, Guernsey’s assessment is a somber, but quietly confident one: “It will take all of 2021 for us to get back to 2019 sales volumes. The Guernsey organization has been around for five decades; we’ve seen a lot of downturns in the economic cycle, in terms of bubbles bursting with a recession to follow—one referred to as a great recession. But I’ve seen nothing that compares to this pandemic. COVID-19 is testing us all in ways we’ve never been tested before. That being said, we look forward and we build back.”