US Office Products Annual Review 2013

2013 NAOPA Achievement Award winner Chip Hummel on industry evolution p8

Cody Phipps assesses theindependent dealer channel p20

US Office Products

ANNUAL REVIEW 2

013

3OPI MAGAZINEOPI.NET

EDITOR’SCOMMENT Editorial

Editor Andy Braithwaite

+33 4 32 62 71 07 [email protected]

Features Editor Heike Dieckmann

+44 (0)20 7841 2950 [email protected]

Sales and Marketing

VP – Continental Europe,

Middle East and Africa Ewan Dickson

+44 (0)20 7841 2954 [email protected]

VP – North America and UK Chris Turness

+44 (0)20 7841 2953 [email protected]

Digital Manager India Pride

+44 (0)20 7841 2959 [email protected]

Sales Executive Fergus Cox

+44 (0)20 7841 2952 [email protected]

Events

Events Manager Lisa Haywood

+44 (0)20 7841 2945 [email protected]

Production and Finance

Operations Manager Nicky Coulson

Production Assistant Jack Francis

+44 (0)20 7841 2950 [email protected]

Designer Charlotte Gerhardt

+44 (0)20 7841 2943 [email protected]

Accountant Charles Edwards

+44 (0)20 7841 2956 [email protected]

Publishers

CEO Steve Hilleard

+44 (0)20 7841 2940 [email protected]

Director Janet Bell

+44 (0)20 7841 2941 [email protected]

Office Products International Ltd (OPI), Diamond House, 36-38 Hatton Garden, London EC1N 8EB, UK

Tel: +44 (0)20 7841 2950 Fax: +44 (0)20 7841 2951

No part of this magazine may be reproduced, copied, stored in an electronic retrieval system or transmitted save with written permission or in accordance with provision of the copyright designs and patents act of 1988. Stringent efforts have been made by Office Products International to ensure accuracy. However, due principally to the fact that data cannot always be verified, it is possible that some errors or omissions may occur. Office Products International cannot accept responsibility for such errors or omissions. Office Products International accepts no responsibility for comments made by contributing authors or interviewees that may offend.

The only thing that stays the same is change

Well, it’s certainly been an eventful past 12 months in the US office products industry. The ‘Big 3’, after years of speculation, have become the ‘Big 2’ and the ramifications of that are going to influence the marketplace for some time to come.

That was by no means the only major transaction in 2013. Consolidation and divestment continued to gather pace, notably with deals involving Avery, Boise, Guernsey and ECi/Red Cheetah. And the first few weeks of 2014 have already seen further activity, with RR Donnelley agreeing to buy Esselte and IP spinning off its xpedx distribution division to merge with Unisource.

The move to online and mobile, declining usage of traditional products and the rise of the mobile/home worker are just three of the key trends that will ensure that manufacturers, resellers, wholesalers and systems providers alike will have to continue to evolve in order to remain relevant.

But then the need to evolve is nothing new, is it? It was interesting speaking with Chip Hummel for this publication’s Big Interview (see pages 8-14) and gaining an insight into how the industry operated in the 1970s. No-one then could have imagined how the office products landscape would look 40 years later, but for entrepreneurs like Chip change is just something you have to adapt to and invest in. And today’s younger generation of entrepreneurs is no different.

Andy Braithwaite, Editor

Follow us onlinefacebook.com/opimagazine

opi.net/ linkedin @opinews

Year In Review.................4 The top stories of 2013

Big Interview.....................8 OPI meets Chip Hummel

Depot/’Max Merger........14 A year of challenges ahead

Technology ....................19 Is your IT system good enough?

Cody Phipps..................20 More from his OPI Big Interview

Selling Your Business....25 What you need to consider

Category Trends............28 NPD gives us the figures

Print Challenges............30 The views of HP’s Steve Sakumoto

Branding.........................32 Are you doing enough?

CONTENTS

US ANNUAL REVIEW 20134

YEAR IN REVIEW2013

What a year that was!

A month-by-month look at some of the biggest news stories to hit the US OP industry in 2013

JANUARYThe year started with a bang in the US independent office supplies channel with leading dealer Guernsey announcing the acquisition of the office products division of fellow Pinnacle member Phillips Office Solutions. The deal took Guernsey’s annual sales well over $100 million and strengthened its position in the mid-Atlantic region.

Office Depot’s President North America Kevin Peters resigned from the company to take up the CEO role at truck and trailer parts firm FleetPride. He had been with Depot since 2007 and was named as President North America in 2011. A few eyebrows were raised when Depot didn’t appoint a successor to Peters.

A Los Angeles appeals court overturned the award of $2.2 million to PaperPro stapler manufacturer Accentra in its patent dispute with Staples. At the same time Accentra’s assets were acquired by Amax, the distributor of the Stanley Bostitch brand in the US.

ACCO confirmed that Boris Elisman would succeed Bob Keller as its CEO on 1 April. Elisman was seen as the natural successor to Keller after being named COO in 2010. Keller would stay with ACCO in the role of Executive Chairman.

Avery Dennison agreed to sell off its Office and Consumer Products (OCP) division to CCL Industries in a $500 million deal that also included Avery’s Designed and Engineered Solutions business. CCL had been one of the interested parties in acquiring OCP in 2012 prior to the ill-fated transaction with 3M.

FEBRUARYLeading OP e-tailer Shoplet announced plans to launch in the UK and Ireland in partnership with wholesaler Spicers. The agreement also included the possibility of branching out into continental Europe.

Dealer group TriMega formed the ‘Next Committee’, a move aimed at developing future leaders in the office products industry.

The Office Products Software Alliance (OPSA) was announced between software providers BMI, ECi, GOPD, Red Cheetah, SSI and Thalerus. The stated goal of the alliance was to find synergies between the competing firms that would benefit the independent dealer community as a whole, but some observers viewed it as an anti-MBS Dev (owned by United Stationers) coalition.

The major story of the month – and indeed the year – was the confirmation of the proposed merger between Office Depot and OfficeMax, creating a $17 billion competitor for Staples. Rumours had been circulating in the financial press for several days before the deal was announced. News of ‘the merger of equals’ was accidentally leaked by the newswires before it was confirmed, leading to a hastily arranged

joint news conference at which competing CEOs Neil Austrian and Ravi Saligram sang each other’s praises. It was hoped

the merger would be finalized by the end of the year – until then, both companies would continue to compete with each other as normal.

Bob Keller and Boris Elisman

Alan Ball and Tony Ellison


YEAR IN REVIEW2013

MARCHIn the wake of the OfficeMax announcement, Office Depot shareholder Starboard put forward six names for the Depot board of directors – including former Home Depot and Chrysler CEO Bob Nardelli – as it looked to exert more influence over the merger process.

Consolidation in the paper sector continued as Domtar announced plans to acquire Xerox’s paper and print media distribution business in the US and Canada.

Illinois-based dealer Midwest Office expanded into the state of Missouri when it acquired BJ Office Products of St Joseph. The deal took the number of Midwest locations to five, but was the first outside the state of Illinois. President Steve DeMarco said he was looking to make further acquisitions.

Google began testing a same-day delivery service in the San Francisco Bay area in partnership with a number of national and local retailers, including Staples and Office Depot. The initiative was extended to a wider area around San Francisco a few months later, and same-day delivery

continues to be something OP resellers should have on their radar screens.

APRILLexmark sold its inkjet technology and assets to Philippines-based manufacturer Funai in a $100 million deal. Funai already had a long-standing relationship with Lexmark as a manufacturing partner. The transaction came as part of the US firm’s strategy to focus on laser products and document services.

OfficeMax unveiled its smaller format Business Solutions Center store. The first of these 5,000 sq ft stores – focused on ‘Max’s services offering for small businesses – opened in Milwaukee, and a handful of similar stores were operating by the end of the year.

Under-fire HP Chairman Ray Lane finally stepped down after receiving the backing of just 59% of the votes cast during March’s shareholder meeting. Two other directors also left the board.

International Paper (IP) reached a historic agreement with environmental group Dogwood Alliance. The two organizations had been at loggerheads for years over IP’s use of forests in the south-east of the US, but they announced a plan to work together to map forests around IP’s south-eastern operations to identify whether any endangered forests or high conservation value areas existed.

MAYStaples was the first major retailer in the US to offer 3D printers. Cube 3D printers from 3D Systems went on sale on Staples.com for $1299.99 and were subsequently made available in a limited number of Staples stores. Later in the year, Office Depot launched a 3D printing “experience” in 150 of its stores.

Chris Bates left his role as President of US trade association NOPA after almost eight years. His departure signaled a review of NOPA’s operating structure and changes were announced in December (see page 7).

Another key independent channel departure was that of Charlie Cleary, President of dealer group TriMega since 2005. Cleary’s position had come under scrutiny following the failure of the SmartXpress e-commerce initiative and issues with the Point Nationwide national accounts program.

Jan/san trade association ISSA urged its members to assess the potential impact of the US government’s Federal Strategic Sourcing Initiative (FSSI). FSSI – well-known to office products resellers in the US – was due to be implemented in the jan/san category later in the year.

Alan Ball and Tony Ellison

Chris Bates


YEAR IN REVIEW2013

JUNEIn a major move in the OP systems and software market, ECi bought up rival provider Red Cheetah. There had been persistent rumors for a number of years that ECi would make such a move, but Red Cheetah CEO Andrew Morgan always maintained

that his business was not for sale. Morgan took on an “expanded role” across the entire ECi Office Products division in a co-President position alongside Anshul Choudry.

Office Depot pocketed around $690 million after selling its stake in Office Depot de Mexico to joint venture partner Gigante. Depot had been under pressure from shareholders – notably Starboard – to offload its Mexican assets. With OfficeMax already having a presence in Mexico, Depot would re-enter the Mexican market anyway following the closing of its merger with ‘Max.

New York’s largest independent dealer Weeks Lerman joined the AOPD network. It turned out this decision was linked to the award of the New York state office supplies contract to Staples. By joining AOPD, Weeks Lerman was still able to sell to the state via the NCPA cooperative contract.

Staples’ contract win also caused quite a stir when bid documents showed that it had priced more than two thirds of the 300 core list contract items at just $0.01. That aggressive pricing strategy came back to bite Staples as reports soon surfaced of product availability issues.

Dealer Wist Office Products strengthened its leading position in the Arizona market, acquiring OfficeSmart, a 20-year-old business located in Sierra Vista in southern Arizona. As a result, OfficeSmart’s former owner and NOPA Chairman Glenn McDaniel joined the Wist team.

Manufacturer National Envelope filed for Chapter 11 bankruptcy protection as owners The Gores Group sought a buyer. Coming out of Chapter 11 was leading educational products supplier School Specialty.

The month ended with the North American Office Products Awards (NAOPA), which were presented at SP Richards’ ABC event in Orlando. For the first time, the awards included the Professional of the Year and Industry Achievement categories, won by Twist Office’s Wendy Pike and Hummel’s Office Plus’ Chip Hummel respectively (read our Big Interview with Chip Hummel on page 8).

JULYThe CCL acquisition of Avery’s OCP division closed and Avery became a publicly reportable operating segment of CCL. Jim Sellors was named to head Avery’s North American business while Mark Cooper returned to lead Europe and Asia Pacific.

California dealer AAA Business Supplies & Interiors acquired contract furniture specialist Workspace Innovations – its 12th acquisition in total – bringing annual sales to almost $30 million. President Steve Danziger said AAA was also gearing up for major expansion in jan/san supplies and managed print services.

Large dealer group Pinnacle Affiliates added two highly respected dealers to its network – Innovative Office Solutions from Minnesota and Alabama-based Bruce Office Supply & Furniture – bringing its membership to 21.

Paper manufacturer Domtar agreed to sell the US arm of its Ariva distribution business to Central National-Gottesman (CNG). CNG subsequently sold the US Midwest portion of Ariva to The Millcraft Paper Company while the rest of the business was integrated into the Lindenmeyr merchanting operations.

AUGUSTOfficeMax began trading on eBay with its own store on the online selling platform. “We want to be wherever our customers are shopping so they can buy anytime, anywhere it’s convenient,” ‘Max told OPI.

United Stationers named Todd Shelton as its new CFO following the departure of Fareed Khan. Shelton switched to CFO from his position as President of United’s Supply division.

Office Depot and Starboard reached an 11th-hour agreement over the make-up of the new board of directors, with three Starboard nominees gaining seats on the board.

Cenveo agreed to acquire substantially all of the operating assets of National Envelope for about $25 million.

In the first deal of its kind for some time, Staples acquired Lonesource, a North Carolina dealer with estimated sales of $60 million.

ECi’s Ron Books and Red Cheetah’s Andrew Morgan


YEAR IN REVIEW2013

NOVEMBERSenior OP executives from around the world gathered in Chicago for the fourth OPI Global Forum, widely regarded as the best one yet.

The US Federal Trade Commission’s approval of the Office Depot/OfficeMax merger led to the transaction closing on 5 November. Before the month was over, former Delhaize America CEO Roland Smith had been installed as Depot’s new CEO.

The Depot/’Max merger forced Lyreco to seek a new US partner, and the France-based delivery giant soon announced a tie-up with mega independent WB Mason.

The US Postal Service (USPS) and Staples launched a pilot program with USPS postal counters inside more than 80 Staples stores. Staples was the first retailer to take part in a USPS pilot scheme known as the Retail Partner Expansion Program. The move raised questions about Staples’ relationship with UPS.

SEPTEMBERVendor Acme United acquired a 340,000 sq ft manufacturing facility and distribution center in North Carolina for just $2.8 million. The site – located in Rocky Mountain – was purchased from the Chapter 7 bankruptcy liquidation of furniture retailer RoomStore.

Impact Office announced the acquisition of California-based EZ Print Supplies, one of just 15 suppliers that were awarded a blanket purchase agreement on the current Federal Strategic Sourcing Initiative (FFSI) contract. The acquisition was a significant one in the federal government sales channel, with the third incarnation of the FSSI office supplies contract (known as OS3) due to come into effect in mid-2014, and the possibility that this could become a mandatory contract.

There was good news for Independent Stationers (IS) with the award of the new US Communities educational and classroom supplies contract. The contract – which could be worth up to $50 million a year in sales – was effective from 22 October.

OfficeMax CEO Ravi Saligram ruled himself out of the race for the combined Depot/’Max CEO job, paving the way for an external candidate.

History was made in San Antonio, Texas, as IS and TriMega held the first-ever EPIC combined dealer group convention. The event was hailed as a resounding success by both groups, dealers, vendors and other industry stakeholders.

At the end of the month, the industry gathered in Chicago as ACCO Chairman Bob Keller collected the City of Hope’s 2013 Spirit of Life award. Keller led the office products industry’s fundraising efforts for City of Hope, helping to raise an amazing $11.7 million – a record – for the California-based clinic and medical research institute.

OCTOBERNew York’s Hummel’s Office Plus acquired fellow dealer Hayes Office Products. The transaction brought Hummel’s Central New York employee base to nearly 100.

Staples’ digital aspirations were confirmed when it bought Silicon Valley e-commerce software firm Runa. Runa develops e-commerce solutions that help online retailers personalize the shopping experience for consumers.

OPI estimated that the two-week US federal government shutdown cost office suppliers an average of $4.4 million a day in lost sales.

Rep group The Highlands Group (THG) struck a partnership with UK OP training and development firm The Business Performance Group (BPG). The deal was aimed at facilitating THG’s entry into the UK market as well as BPG’s access to the US.

MRO reseller Grainger revealed it had hired 100 new sales reps in the third quarter as it invested in sales growth, taking the number of new reps added in 2013 to 200. Another key area of investment is e-commerce and Grainger confirmed that this is the fastest growing part of the business, now accounting for a third of total sales.

DECEMBERA major development was announced at US trade association NOPA following a restructuring of the Independent Office Products and Furniture Dealers Association (IOPFDA). The NOPA board was combined with that of its sister division at the Office Furniture Dealers Alliance (OFDA) into a single IOPFDA board headed by George W Allen’s Mike Tucker.

New Office Depot CEO Roland Smith turned to former Wendy’s and AMF Bowling Worldwide colleague Steve Hare for the CFO job at the office supplier. Boca Raton, Florida, was also chosen as the company’s headquarters location ahead of OfficeMax’s facility in Naperville, Illinois.

Mike Maggio was confirmed as the new President of dealer group TriMega following Charlie Cleary’s departure in May. Maggio is no stranger to the office products industry, having worked in a number of senior roles at wholesalers and dealers for the past 30 years.

ACCO announced a new round of job cuts that will hit 12% of its North American employees in 2014. The vendor said it was streamlining its operations due to the economic climate, secular declines in some of its core categories and the impact of the Depot/’Max merger.

Roland Smith

Mike Tucker


BIG INTERVIEW CHIP HUMMEL

CENTRAL New York’s

largest independent dealer Hummel’s Office Plus was founded in 1934 by Harrison J Hummel, grandfather of the dealer’s current Chairman Harrison ‘Chip’ Hummel III. Chip joined the business in 1970, taking over as CEO from his father in 1975 before handing over day-to-day operations to his own children in 2011.

A highly respected member of the independent dealer community

in the US, Chip’s peers elected him as the recipient of the inaugural Achievement Award at the 2013 North American Office Products Awards (NAOPA) which took place at the SP Richards ABC event in June. OPI caught up with him at the Independent Stationers (IS) and TriMega first ever EPIC convention in September.

OPI: What did it mean to you to be the first recipient of the NAOPA Achievement Award?Chip Hummel: I’m not a big one for accolades, so it was kind of a surprise to receive this first-time award. I just love the dealer community and I really appreciate their vote of confidence, and I guess the simplest thing to say is that I’m very humbled by this award and the recognition by my peers.

Humble Hummel

OPI speaks to Harrison ‘Chip’ Hummel III, the first-ever recipient of the North American Office Products Awards (NAOPA) Achievement Award earlier this year

It’s a great honor and I graciously accept it on behalf of my family, employees, the vendor community – also especially Independent Stationers and SP Richards – and the whole dealer community which I have worked with for over 43 years. It has been an honor to work in this industry for most of my adult life.

I was just sorry that I could not be there in person to accept the award due to the floods in New York State at the time of this presentation, but I

was very proud that my son Harrison was able to accept it on my behalf. I saw the video later and he did an incredible job of representing the family and me.

Finally, I wouldn’t have been able to earn this award had it not been for the constant support of my wife Judy. She has been by my side day in and day out, allowing me to reach my dreams and goals – for our company and for me personally.

OPI: You started out in this industry in 1970. Fast forward to 2013 and what would you say are the main differences today?CH: Oh my gosh, it’s so different! Back when I started you went to do business with a customer and discounts weren’t even part of the discussion. You’d walk in, get an order and then all of a sudden you’d

receive the order or account on a handshake.

The industry has transformed into so many different layers and it seems like every five years there’s something that significantly happens, especially today with technology and all the data that’s collected – it’s just amazing. Plus, back when I started there were 18,000 dealers in the US and so many more smaller dealerships.

Unfortunately some have fallen by the wayside, but I think that as an independent dealer community we’re bigger and stronger than ever. It was a very different industry back then and there was much more customer loyalty and personal interaction.

OPI: It’s easy to be nostalgic, isn’t it, but do you hark back to the ‘good old days’?CH: I don’t know if I do that. I think that in any industry, there’s always going to be change. Take this EPIC convention with TriMega and Independent Stationers. I’m so happy that it’s happened. It was long overdue to get the two dealer groups together on the same platform, and I’m even more excited to hear that we’re doing it again next year.

Dealers are sharing ideas and they’re talking about working together and I think that’s just fantastic. It’s been a long time in coming; we should have done it a lot sooner. I’ve been working with the dealer community since I started in this business. I have never been afraid to help out another dealer and likewise many have helped me out when I had a question or problem and didn’t know where to turn.

OPI: Do you think this time next year we won’t be talking about a joint show, but it will be the new, unified dealer group show?

“The other [dealer] group’s dealers are not the competitors;

the big boxes are”


BIG INTERVIEWHUMMEL’S OFFICE PLUS

CH: I would love to see that, honestly. When I was on the IS board 20 years ago we tried to get that to happen. It was a different group back then and it never worked out – I think egos had a lot to do with it.

But I think we’re closer today. People realize the other group’s dealers are not the competitors; the big boxes are and we have to collaborate, put our heads together and come up with programs that are going to work for the entire independent dealer base. And even if there isn’t a merger, I think the collaboration will be very important for the independent community.

OPI: You could argue that having two sets of programs is dilutive, for example.CH: It comes down to economies of scale. The vendor community has only so many

dollars available to support the dealers. While they’re supporting multi-groups and multi-wholesalers, we have to realize there’re only so many back-end dollars. So, by combining resources you usually get economies of scale. I think it would also be wonderful for programs such as national accounts, GSA contracts and things like that if we were all working together…

OPI: What do you see as the main stumbling blocks [to an IS/TriMega merger]?CH: I don’t know TriMega that well because I’m an IS member, but I

really don’t think the structures are that different, I really don’t. The philosophies are similar and I think it’s about getting on the same page, coming up with a list of four or five important concerns that we have to look at and then working that list down. There’s always going to be a few little things, but once you get the cost of goods down and the deliverable of goods, once you get the national accounts working together and you get on the same technology platform, then there’s not as much of a difference as we believe there is, to be honest with you.

OPI: What’s the first question that dealers ask? “What’s going to happen to my rebate?”CH: Yes, that’s certainly up there on everyone’s top list! In all programs that I’ve ever been familiar with, rebates go up as participation goes up and as volume goes up.



So the thought process is that we have a tendency to splinter our rebates amongst the two groups. There may be some sourcing issues and decisions about which vendors we will work with as we move forward in order to achieve greater scale. And if we were combined, I think we would be able to do a better job of taking and introducing new products and promoting them in the marketplace, because it really comes down to having to go out and show, promote and demonstrate the new products that are out there.

The big boys can do that because of their sheer size, scope and technology. That’s the reason the dealer community must be working and collaborating together as one.

OPI: Talking of the big boys, what’s your take on the recent Depot/’Max merger and the opportunities this presents for independents?CH: Depot and ‘Max are on different operating platforms, they have different sales organizations and they have different philosophies. So typically, when there are mergers and acquisitions such as this, there are tremendous opportunities for the dealer community to go into the marketplace and secure new business while they work out their new strategies.

I would also think that there will be some ‘Max/Depot sales people looking for employment after this merger. This would be a great time for the independents to go out and grow their sales force.

OPI: What could it mean for your dealership in particular?CH: Both of those organizations work within our area, so we will go out and promote who we are, staying very much on a local theme and trying to promote the localness of our organization.

When times are tough it’s a bit more about price; as the marketplace

changes and the economy improves a little, price isn’t quite as important, and service and relationships get back to being important. These are areas where independents can reach out and do a better job than the big boxes.

OPI: What about the opportunities for you in some of the larger commercial contracts and public sector accounts?CH: There are national accounts and school contracts, and you

certainly have the GSA that’s going to be impacted by this. I’ve been on a hospital board for a few years and one of the things that hospital consortiums are saying is that if they don’t have combined revenues of $1 billion, they’re going to have a difficult time in becoming and staying profitable.

That gives us an opportunity to go after some of the bigger contracts out there and I think some of the independents can do that through national accounts programs, working together and things like that.

OPI: When you take traditional products which, say, 20 years ago were 100% of your sales, what do they represent now?

“As the economy improves a little, price isn’t quite as important, and

service and relationships get back to being important”



CH: I think the traditional office supply items today are about 40% of our sales, so it’s still huge. But it’s not like it was and we’ve had to find other areas to replenish sales and growth in our marketplaces.

OPI: Jan/san, coffee and those sorts of things – are they big parts of your business now?CH: Well, they’re about 15% of our business currently, but we really believe that the janitorial marketplace could be up to 25-30%.

OPI: 15%! It sounds like you’ve got some potential there to grow.CH: There’s tremendous growth potential, yes.

OPI: How have you approached that? Have you gone out to seek jan/san specialist sales reps or are you retraining your existing team? Or a bit of both?CH: At this time it’s kind of new for us. I mean it’s only 15% of our business, but we know that it’s going to be a growth category. We’ve attended some national meetings to get a little bit more familiar with what’s going on out in the industry. We have trained our people to go out

and sell what we will call the basics, but we definitely feel that we need to have a jan/san specialist.

In fact, we may find it helpful to acquire a smaller janitorial company that can help us along the path because it is a learning curve, and we’re hoping that in the next year or so we can make a small acquisition. It’s interesting how the office supplies side wants to get into the janitorial side and, if you talk to some of the janitorial people, they want to get into office supplies. Both think it’s easy; both will find that it’s not as easy as they think it is.

OPI: Do you think in terms of distribution, back-end systems, those kinds of things, the office products industry has an advantage there?

CH: Yes, currently we do have an advantage. Our model is typically next-day delivery. As I talk to some of the different jan/san people, it is interesting to hear how they deliver: two-day, five-day and weekly deliveries, for example. They also deliver a lot in bulk.

So I think they’ve got the product knowledge, but I’m not so sure that they have the infrastructure to do it the way people want it to be done today. Most people today expect next-day delivery and any SKU that they procure from you, they want to see the next day.

OPI: So will we see more cross-fertilization or cross-consolidation where the jan/san guys are going to come and buy office guys, and vice versa?

CH: I believe you’re going to have some jan/san suppliers buy office products companies for their technology and you’re going to see that we will buy some jan/san people for their expertise. And this is going to heat up considerably over the next few years.

OPI: We’ve seen a bit of that, haven’t we? Crystal Rock acquired Hartford a few years ago and just bought Universal, but they don’t seem to have grown that side of things as much as we might have expected.CH: I do believe this is where there’s an education process on both sides. We have a tendency to believe that janitorial is easy to sell, but as you get past the toilet tissues and the towels, there is some complexity to it.

OPI: Crystal Rock made its name selling water. Is that an interesting category for you? CH: Well, we’re crossing into that area; we sell 24-pack bottled water and five-gallon jugs. It really is not much of a difference in delivering a case of copy paper or a bottle of water. We look at it as a widget, and our job is to provide any widget that our customer is looking for, and procure it efficiently, effectively and competitively.

Having said that, I know water doesn’t sound like you have to be a specialist, but it’s not as easy as a lot of people think getting that water into the hospitals and getting it where it belongs, making sure you have a pick-up process in place to pick up the empties, and making sure that the empties are clean and kept clean. So we’ve learned that it’s a lot more than just selling water.

OPI: So what other widgets are you looking at adding to the list?CH: Well, one of the things that we’ve found – we’re in the north-east – is we sell quite a bit of rock salt and ice melt. It’s an area that we got into about three or four years ago and we’re selling about 15-20 tractor trailer loads a year now.

OPI: Where does that go to?CH: It goes to banks that have to procure it for their sidewalks,

“We have a tendency to believe that janitorial is easy to sell,but there’s some complexity to it”



hospitals, schools… And again, you’re not dealing with the same person; you’re not dealing with a purchasing agent in this case. Usually you’re dealing with the facility manager. One of the things that the OP industry needs to realize is that traditional office supplies maybe being purchased through the front office, but it’s the back office, the facilities managers, who are handling the rock salt, the ice melt, the janitorial products, the chemicals, and the machines like that.

OPI: How did you get into that ice melt category? CH: Our management team was looking at ways to widen our model without creating too much difficulty in distribution. And when you wake up and there’re three feet of snow on the ground, it doesn’t take you long to realize there’s a lot of ice melt being moved around.

It’s also something that some of our customers came to us about and said: “Hey, did you ever think of stocking ice melt? You’re delivering the copy paper, would you ever consider that?” We tested it and what we found is that it rapidly became a significant SKU in our business.

So not only do we have the regular shaker bottles for little sidewalks, we also have the pails that have 40 or 50 pounds that sit out in front. And then we have the bags that we sell and we also sell bulk. So it really became

something that progressed very quickly over three years.

OPI: It doesn’t sound exactly like selling copy paper. You’ve got that seasonal aspect and then obviously it’s dependent on what kind of winter you have.CH: The key to that is buying it right and making sure that we have a lot of pre-orders with our customers. We actually start booking ice melt orders in July and August. Our customers have an idea of how much

they use and we give them a better price if they order it upfront. We stock it for them, so when the season comes we probably have four or five tractor trailer loads sitting in our distribution center before the first snow ever hits. Most of it, to be very honest with you, is pre-sold.

OPI: Any other new areas that you’re looking at? IS has just won an educational supplies contract. Is that something you will look at?CH: Absolutely. That will be another marketplace that we’re going to explore because we do a lot of business with schools. We’re very excited about this new IS US

Communities contract because it’s going to help us look at categories that we were never able to deliver before. Another thing that we’ve developed is coffee. We’re a big Keurig dealer with the K-Cups single cups, and we’re pretty excited about their new Bolt pot system. We tested that recently and think that’s going to be a very successful category also.

So, between the water, the K-Cups, the coffee, the janitorial and the new school supply contracts, we don’t know what’s next. We’ll keep our ears

open about what will be the next thing that we’ll be procuring down the line. But what we try to do is to get good at the category because sometimes you get too anxious about bringing in too many products.

OPI: Let’s look quickly at ink and toner. It has traditionally been a large and profitable category, but where do you see that going with managed print services (MPS)? CH: That’s another area we’re exploring, and we’re looking at possibly acquiring a dealership that has a strong MPS solution. Again, it can be learned, but if you’re going to provide the MPS solution and the toners and the cartridges, what we discovered is that we also need to be able to provide the hardware and service. We’ve been talking to a couple of different MPS people and we’re hoping that in the next year or so that’s another acquisition we’re going to make to broaden out our categories so that we can do a better job.

“MPS is definitely here to stay, despite what some people

may think”



“Independents are starting to realize the importance

of total collaboration”

Chip with his children Solace, Harrison IV and Justin.

I think MPS is definitely here to stay, despite what some people may think.

OPI: Just to finish off, how do you see our industry developing? Everything seems to be changing so quickly now…CH: Oh, it changes much faster than it used to! It changes within a year; not even every five years. I believe that you have to look at your business plan every quarter. You have to take a look at what you’re doing well, what’s changing, what’s not selling, what categories you want to sell. Education is a key – you have to have educated sales people to be able to handle all these things. It’s not just, “here’s a whole bunch of things and go out and sell them”. They have to be educated.

I see more consolidation, independent dealers becoming larger, and competition coming from places that we never saw before. It’s an ever-changing world that we live in and what we have to do is learn to react to it and react quickly. We need to know our competition, understand what our competition is willing to do and how they’re going to do it.

The demands of this industry are going to forever change and I think analytics is the key to the future of the OP industry. You have to be able to analytically look at data and make sure that you take that data, sort it properly, take that information and then react to it.

OPI: And your confidence in the ability of the independents to adapt and thrive – has that remained unchanged?CH: No, that doesn’t change. I am so confident that independents will be successful. It’s a unique group of people. We’re entrepreneurs and we believe in what we do 100% of the time. We’re very competitive people; we don’t like to lose, so we find ways to win.

The nice thing is that independents are also starting to realize the importance of total collaboration, that an independent next to you in the marketplace is not the enemy. They may be a little bit of the competition, but they also can be your best friend. And one of the things that we’ve done in our area is we actually meet on a regular basis

with some of the independents and discuss strategy, combine purchases and even logistics, because we’re really not the bad guys; it’s the big boxes and the bigger companies that are coming in and doing the things that they do well.

To get together and jointly work on projects and marketing pieces and things like that are going to help the independents remain strong.

Like I said, I’ve been in this industry for 43 years and I’ve seen a lot of change, but I still believe the independents are going to get stronger and stronger. We’ve shown that we’re not afraid to learn, and as we’ve learned we’ve grown, gotten

smarter and as we move towards the future, we’re going to do an even better job.

I see our industry developing into a business products distributor, as opposed to simply office supplies. Our ability to embrace economic change, technology and distribution logistics will be determining factors of our success.

Product specialists will be imperative and drive not only growth, but margins and profitability. Lastly, we all need to be

accessible through ‘non-traditional’ ways, so we are not simply dependent on outbound solicitation. With these, and everything we bring as a community, our futures look very exciting.

OPI: So, confident that a Hummel will be running the business for the next 80 years?CH: Right now I have Harrison IV, who is our COO and the Chair of IS, and we’re very proud of him. My middle son Justin is our new CEO; he has taken the helm and runs with it – fast, organized and with great passion.

My daughter Solace is our Chief

Administrative Officer. She brings a dedication to detail that I love and admire. We went through five years of family succession planning to get there and as we approach our 80th year in business I feel very comfortable that the future is bright for Hummel’s, the independents and the dealer groups.

I can’t be sure, but there’s a very good chance that we will be around for a long time with many more Hummels following in the footsteps of my grandfather, my dad and I. ★


FEATURE BIG BOXES

-15

-12

-9

-6

-3

0

3

2005 2006 2007 2008 2009 2010 2011 2012

OFFICE DEPOTNORTH AMERICAN RETAIL COMP SALES

(%)

And then there were two

2013 was a crucial year for the big boxes with the Depot/’Max merger and Staples’ reinvention strategy, and 2014 will be just as important

IT’S almost a year since Office Depot and

OfficeMax announced their ‘merger of equals’ in somewhat embarrassing fashion with an unauthorized press release and a seemingly hastily arranged press conference. At the time, many were left scratching their heads by the lack of detail that was provided about the merged entity: no name, no headquarters, no CEO, no management team and no real details of strategy.

We then had to wait nine months until early November before the Federal Trade Commission (FTC) gave the deal the green light, and that in itself probably explains why February’s merger announcement was so vague. There were still some concerns that the FTC would not approve the transaction and scupper the deal as it had done in 1997 for the proposed Staples/Office Depot merger. Back then, it was Staples’ management team that had been earmarked for most of the top jobs and the merged entity was to be based in Boston. This led to an exodus of top Depot talent from which it arguably never recovered.

Once FTC approval was given in November 2013, the Depot/’Max transaction closed swiftly and – despite a brief period when Neil

Austrian and Ravi Saligram were joint CEOs – Roland Smith was then named as the new CEO (see box: A man with a mission).

So, where does Depot go from here? Apart from the usual tricky issues of integrating teams, corporate cultures, IT systems, logistics, client contracts and the store network, there’s the whole perennial question of the continued relevancy of the office superstore reseller model.

Staples has identified online – in particular Amazon – as the greatest threat and has been going through a ‘reinvention’ process for the past 18 months or so. This has led to massive SKU expansion as part of its ‘beyond office supplies’ (BOSS) strategy – including a vertical market focus on areas such as food service, healthcare and education – backed up by the new ‘Make More Happen’ rebranding. Major investments have been made in improving online and digital commerce capabilities, and sales teams have been realigned to reflect the decline in traditional stationery and office supplies.

Whether Staples’ strategy is successful remains to be seen, of course, but Office Depot will need to create some form of new corporate vision or mission of its own in order to stand a chance of surviving the secular changes that we are seeing at the moment.


FEATUREBIG BOXES

A man with a missionNew Office Depot boss Roland Smith is making things happen fast – he has to

Integrating two competitors is hard enough at the best of times. Having to do it during a period of strategic change makes it doubly difficult, but that’s what Office Depot CEO Roland Smith now has to do.

That’s probably why the CEO selection committee went for someone with Smith’s background: an ex-army officer and pilot, a mountain climber and a seasoned corporate turnaround and integration CEO following spells at Delhaize, Wendy’s, American Golf Corporation and AMF Bowling. The 59-year-old has been appointed on a lucrative three-year contract worth in excess of $35 million including bonuses and stock options. This includes an initial $2 million bonus for selecting the company’s headquarters, and making “progress” on selecting the senior management team and developing the 2014 budget by 31 December, a sum he will now presumably collect following the decision to select Boca Raton as the head office and the news of the leadership team set-up at the end of December.

That carrot might go some way towards explaining the timing of the headquarters and senior management

announcements, but they were key decisions that needed to be made fast in order to determine what happens next in terms of which executives from the former Depot and ‘Max entities stay or go. With the senior team heavily weighted in favor of the ‘old’ Depot, it would only seem natural that they will select managers they already know (which is what Smith did in choosing Steve Hare as his CFO) and it would appear that things are panning out like that, according to industry sources.

Contract and retail VPs have already been selected, OPI understands, and things are moving more quickly than might have been thought. That, of course, will mean several hundred seasoned OP reps coming onto the job market, something which the independent dealer community is already looking to take advantage of.

What’s in store for retail?Up to 500 stores could close as Depot and ‘Max integrate their retail operations

One big question mark that hung over the Depot/’Max merger when the transaction was announced was what would happen with the combined retail network. The estimated $400 million-$600 million in merger synergies didn’t include any retail consolidation numbers as the two companies were still competing with each other ahead of regulatory approval for the transaction.

Responding to a request for information from OPI in early January, Office Depot said that no decision had been made regarding the retail side of the business, but it’s sure to be a hot topic as it could have a major impact on profits. Here’s why:

Using full-year 2012 figures, the combined Depot/’Max retail footprint in the US consists of 1,963 stores (1,112 Office Depot and 851 OfficeMax) with total sales of $7.5 billion. This averages out at about $3.8 million in sales per store. Estimates from the analyst community have put the number of possible store

closures at anything between 300-500 – up to 25% of the total – which could represent as much as $1.9 billion in sales. Where will those sales go?

In a client note last year, Credit Suisse analyst Gary Balter estimated that a third of these ‘lost’ sales would be picked up by other Depot or ‘Max stores, a third by Staples and a third would go to online resellers. He argued that with the incremental volume flowing in at a profit margin of 25%, this would mean a significant bottom line gain – almost $160 million – for the new Office Depot. Of course, Staples and other competitors stand to benefit, too.

The above maths obviously assumes stable retail sales, which is something

that clearly hasn’t been the case in recent years. A

look at Office Depot’s comparable store sales for the past eight years show 47 consecutive quarters without any same-store growth: 46

quarters of declines and just

one flat quarter. This

means that comparable sales have fallen by a total of about 35% since the end of 2006, while total US retail sales at Depot and ‘Max combined (including the impact of store closures) fell from $10.9 billion in 2006 to $7.8 billion in 2012. At the same time, combined retail operating profit (including OfficeMax’s stores in Mexico) fell from $560 million to just $82 million, and turning around profitability in the stores is going to be a huge challenge.

One consequence of the planned merger was that Office Depot reined in retail investments last year. It had begun to open a limited number of smaller format stores but put this program on hold as it reduced capital expenditures. OfficeMax of course had a similar downsizing strategy with its ‘Business Solutions Center’ concept but, again, this only represents a handful of stores and is not enough to make a significant impact on the overall result.

It will be interesting to see what Office Depot comes up with in terms of a retail strategy. We may not have that long to wait, with full-year results set for 25 February and the investment community surely expecting some answers by then. ★


FEATURETECHNOLOGY

THERE has been a tremendous

amount of press recently discussing the importance of e-commerce, mobile capability and back-office functionality. According to the Custora High-Growth E-Commerce Index, 2013 Black Friday was unique as almost 40% of all online shopping was done on mobile devices. This trend will continue in 2014 as more consumers are empowered to use their phones and tablets to shop anytime, anywhere.

Your customers have likely been comparing your e-commerce capabilities against some of the big box competitors – your capabilities are probably better in some areas and markedly behind in others. The bottom line is you’ve been evaluating your system’s capabilities and are considering whether it makes sense to finally make the move.

In considering whether it is time to replace your system, there are some key areas that you should explore in determining whether your technology is in need of enhancement or replacement.

1. Are your business and/or customers moving toward mobile? You’ve seen the reports surrounding mobile commerce – and if you’re not considering mobile’s impact already you had better start. As more and more businesses incorporate mobile devices into their landscape, the ability to address the specific needs of these devices will become relevant. If your current system provider does not have a mobile plan, it is time to look elsewhere.

Is it time for a new computer system?

What questions should independent dealers ask before deciding on a new computer system? TJ Crayne makes some suggestions that should help with the decision

2. Can your system integrate with third-party systems? There is an emphasis to use ‘best-in-class’ software when addressing specific business needs. The ability to easily incorporate and integrate these packages into your system is important. Systems with a firewall around them that will not allow you to pick your system’s capabilities are an indication that things are going to be difficult.

3. Will you be adding locations or product categories that overburden your capability? The ability to address ‘endless aisles’ of product selection for your customers is becoming more important every day in the distribution marketplace. Systems or business policies that restrict your ability to enter these marketplaces don’t just impact bottom line – they impact your ability to grow and scale your business.

4. What grade would you give your current provider? Now consider this question with a grain of salt. In all of my years in the industry, there are few customers that jump up and down and get excited talking about their current system provider. Having said that, you have probably talked to some peers who told you that their new system provider is worse than their old system provider.

Like all things, take everything into consideration when evaluating your system and potential replacements. The key is talking to other users of the potential system – not just the references that your potential system provider provides. Talk to other

users and get the real story of the good news and the not-so-good news.

5. Is your system significantly behind on software releases and patches? If it has been a while since a major release, that’s a big deal. Technology is changing faster than ever. If you haven’t seen an update in a few years, your competitors probably have. And that means you’re getting left behind.

Face it – technology is important in your ability to go to market. Don’t get in a sword fight with a dull blade!

6. Will your next system upgrade cost more than your original system? This is an interesting question, because if you bought your system 15 years ago there is going to be some sticker shock as you explore new options. But if you bought your system three years ago and the new upgrade path is comparable to a new system in terms of dollars and learning curve, you really need to look at options and your real cost of ownership.

Investing capital in a new computer system is a huge decision. Make sure you do the right due diligence and leverage resources that are in our marketplace to help you make the right decision. There are a lot of options and the right one for your business can make all the difference in the future.

TJ Crayne is President of PTC Consulting, a consulting practice that helps companies create and execute strategic initiatives with an emphasis on leveraging technology. ★


INTERVIEW CODY PHIPPS

United we stand

Following on from November’s OPI magazine, more from our interview with United Stationers’ Cody Phipps

AT the end of September, OPI met up with United

Stationers CEO Cody Phipps in Chicago for a frank and wide-ranging interview that dealt with the latest developments at the wholesaler and the challenges facing the office supplies channel. Space constraints meant that not all of that interview could be included in the Big Interview that appeared in the November issue of OPI magazine.

Here, in what is until now unpublished material, Phipps discusses – among other things – adjacent categories, the health of the independent dealer channel, third-party software providers (3PVs) and the possibility of United expanding outside North America.

OPI: You said that [previous CEO] Dick Gochnauer and yourself complemented each other while you were COO. Who’s the other half of the management duo that provides this balance today?Cody Phipps: Probably the most valuable lesson I learned through the whole CEO succession was to understand what your own strengths and weaknesses are. I have a team that complements me in that they cover for some of the things that maybe I’m not so good at. Our CFO Todd Shelton is a very detail-oriented guy – a bottoms-up thinker – and he and I complement each other because I’m more top down.

Meanwhile, a guy like Tim Connolly [President of Operations and Logistics], who is just a fantastic people leader, really brings the culture side and helps me understand the pulse of the organization and how to move forward. The rest of my senior team all bring their own talents and I’m not ashamed to ask them for help.

OPI: The fastest growing part of your business is industrial supplies and that was through acquisition. Do you envisage any further acquisitions in existing or even additional categories?CP: We bought ORS several years ago as a platform acquisition and we grew that nicely – organically – over a few years.Then, in the third quarter of last year, we bought a company called OKI, which boosted our revenues in the industrial space by 40%.

We’re very much following the same playbook that we followed with the Lagasse jan/san business where we made a platform acquisition, we took it nationwide, added professional marketing and all the services of our distribution platform, and now e-commerce capabilities. And we grew that nicely over about a 15-year period; about 50% of the growth was organic and 50% was through acquisition, and that’s pretty much the same playbook we see in industrial.

The difference is the market is bigger and it’s more fragmented, so we think the value of the wholesale model is very strong in the industrial space. So to answer your question directly, yes, over time we do see more acquisitions and we tend to put them in two buckets: either tuck-ins like OKI or additional platforms, categories or adjacencies that we think fit our model.

OPI: What adjacent categories are you looking at?

CP: There’s work going on right now on that, but some of the things we’ve looked at are cutting tools, pipe valve fittings, wire and cable. And again, when we look at these products we’re looking at where the value is of the wholesale model. And then we’re casting that up against our overall strategy, which is to be the leading supplier of digitally sourced business essentials. And what we mean by business essentials is everyday consumed items whether it’s in office

products, janitorial and breakroom or industrial – it’s those products that get consumed every day in the workplace, whether it’s a white-collar or a blue-collar business environment.

OPI: One major piece of research that United did in the past couple of years was about the ‘empowered user’ and I know a lot of people around the world have been very interested in that. Just how is that going to impact your independent reseller base?CP: I think it goes back to the millennial generation that’s coming into the workforce and that’s grown up searching for everything online, going to the common search engines that we all know. And when these people enter Corporate America it’s just their natural tendency to do what they’ve always done.

So what we’ve seen in some of our research is that they’re quite willing to go online and buy outside the

“People have sung the death march of the independents

for a long time and it’s never come to fruition”


INTERVIEWUNITED STATIONERS

traditional contracts. Sometimes that is against corporate philosophy, but I think their view is: “Well, if I can save money and it’s seamless and cheap, why not?” That trend is here to stay and what that says to us is that we’ve got to help people understand that independents can play in that realm too; that they’re there and they can have web capabilities, and that they’re local players with even higher service. I think that’s a challenge that our industry faces and certainly the independents face.

OPI: Just how well positioned do you think the independent dealer channel is here in the US to face this new future?CP: One thing I’ve learned as I lap ten years in the industry is to never count out the independent dealer channel. They are a scrappy bunch; they are entrepreneurs; their livelihoods depend on them being successful and they’re at the street level every day with customers looking for new opportunities. People have sung the death march of the independents for a long time and it’s never come to fruition. I think you could argue that through this prolonged recession the independents have fared better than even some of the big players.

So we think the independent resellers’ future is bright, but we do believe the landscape is changing, business models are changing and those that are going to be successful are those that adapt to that. They need to position themselves to be a player online, sell their value – that local, high-touch service – broaden the marketplace, broaden what they sell and be capital smart as we call it. Think about if you can really afford to warehouse and stock all those products the same way you used to or if you should use the fulfilment capabilities of your partner, in this case United.

We see a lot of those dynamics coming into play, but I would not be someone who would count out the independents. In fact, they’re changing us. We’re now talking internally about the need to be customer agile because our customers are agile; they’re entrepreneurs and they’re very agile. So one of the mantras we’re picking up is we want our organization to be customer agile and when we say that we really have the independents in mind.

OPI: It’s not just the independents that you supply. What about the other channels such as mass market, Amazon and other online retailers? What dynamics do you see there in terms of growth and success?CP: Again, there’s clear evidence that all the products are moving online through digitization and there’s a shift of buying behavior to online. So we think big e-commerce players are now becoming players in this industry and the traditional superstores are feeling the pressure of that shift in demand.

And we look at that as a player in the middle – as you know, we call our strategy ‘Winning From


INTERVIEW CODY PHIPPS

the Middle’. We supply everybody – independents, superstores, e-commerce players – so we’ve never been in a position to choose the winners. I believe that with the digitization of these products and with the increasing shifts towards e-commerce, there are new channels emerging, new customers that want to buy and sell these products and I think we’re incredibly well-positioned for that.

OPI: Has the commotion died down around a wholesaler owning a solutions provider following your acquisition of MBS Dev?CP: I think so. If I go back, it was grounded in our belief that our independent resellers need to become successful online, so we made very significant investments; some of them worked out and some of them did not.

When we made the move with MBS Dev, it was that same belief that we can’t turn over the keys to our future on something as important as e-commerce. We decided that we needed to have a front-row seat and build our own capabilities. Our strong desire in all of this was to be able to collaborate with the other 3PVs to drive the reseller population to be effective online. We’re trying to work through that.

I admit it’s been difficult because we own a software company now and in some ways customers are going to choose that software over others, but at the end of the day our strong interest is in raising the watermark for all independents and finding a collaborative solution with the existing 3PVs. But we’re not going to turn over important keys to our future and we believe those capabilities are important keys.

What I can say though, is that by making those investments, yes we stirred up the industry a little bit, but everybody raised their game as a result of that and that’s a positive thing for us, our customers and the industry.

OPI: Did it surprise you that Red Cheetah was acquired by ECi and not SP Richards?CP: No, I was not surprised by that.

OPI: To what extent can any 3PV help the dealers get close to Staples, given that they’re already the world’s second-largest e-commerce reseller and have recently announced more massive investments to accelerate their digital capabilities?CP: Well, I think that notion of accelerating is here to stay and I can tell you that with players like Staples, Grainger and Amazon pouring huge amounts of capital into increasing their capabilities, we really see that as the table stakes to the industry.

The way we’ve thought about it is that we don’t have to be right where they are, but we can’t lose sight of their tail lights. And our belief is that we can provide scaled e-commerce solutions, we can partner with independents and we can get them to be very confident online sellers. This, in combination with their high-touch service and local presence, is a winning solution, particularly for the small to medium business segment. We believe we’ve got evidence that this still works, but the bar’s being raised every day by some of the leading players out there.

OPI: So you’ll be chucking a whole lot more money at the problem?CP: I never use the words “chucking a whole lot of money”, but we will be investing in important capabilities for our future. How’s that?

OPI: Spoken like a former consultant and a public company CEO.

Perfect! In our 2010 Big Interview we touched on the possibility of United expanding outside North America. What are your thoughts on that now? CP: I believe we’ve got a really good domestic strategy that focuses on strengthening our core by the actions I’ve already described, and then diversifying our business model into these other categories and channels that offer better growth.

The wrap-around services to enable that could, I believe, provide a platform for expansion overseas and into Europe at some point. But that’s not a front burner for us right now and I don’t see it in the next four years or so. Could it be on the horizon? It could and I would be excited about that.

OKI, our recent industrial acquisition, has a small presence in Dubai and Canada, and we have always had a presence in Mexico. So at some point, we will probably execute this strategy in other parts of the world; it’s just not a priority for us right now.

OPI: Do you have any ongoing relationships with the European wholesaler community, and to what extent do they help you shape your decision-making here? CP: We’ve spent some time with those folks and we’ve shared ideas. We don’t see a real direct collaboration model right now with the wholesalers in Europe, but there’s a pretty healthy sharing of ideas back and forth and they certainly face a lot of the same issues that we do.

So I’m hopeful that down the road there might even be more collaboration between us. ★

“Our strong interest is in raising the watermark for all independents and finding a collaborative solution with

the existing 3PVs”


SPECIAL FEATURETOM SCHINKEL

SOONER or later all business

owners and entrepreneurs must address the issue of selling their company. To a neutral third party, this sounds like a relatively mundane

subject, but for owners who

have invested all or

most of their adult lives in their

Selling your business:

A three-hurdle marathon

companies, it is a highly charged and emotional issue. In my own experience, owners’ thinking about the process is often poorly developed. In the absence of an overall, clearly defined game plan, they have a tendency to make ad-hoc decisions and improvise as they go along. Quite often, this turns out to be expensive and disappointing.

To provide some clarity about the process, a better way to think about ownership transition issues is to think of the sales process as a ‘three-hurdle marathon’. Each hurdle requires different skill sets. And properly executed, each hurdle logically dovetails into the next one.

Get ready for the saleThe first hurdle is getting the company ready for a sale. This requires steps and decisions that sometimes go against the grain of habits an owner has cultivated over many years.

For example, not infrequently, investment in streamlining

business processes is lagging behind; bookkeeping and accounting practices are less than transparent. Fixing these points to make a company’s situation more transparent to a buyer is a very good investment that can pay off handsomely when it’s time to sell.

Assemble the expertsThe second hurdle is the actual selling process itself. This, again, requires careful planning and involves assembling a team of experts that may very well be different from the ones the owner has surrounded him/herself with to this point. For example, in today’s international and global M&A marketplace, it can be greatly beneficial to a seller if the selling process includes exposure to international buyers.

Better yet, a discreet, private international auction is

increasingly considered the way forward for any

company in the mid-market for M&A. However, this requires expertise that is typically not readily available from within the seller’s existing network of advisors such as attorneys and accountants.

What next?The third hurdle is for the owner to decide what to do after the liquidity

moment has passed, ie how to invest the money and what to do with the rest of his or her life.

Many entrepreneurs are not ‘retiring types’ and tend to look for new business opportunities as soon as the

Company owners need to develop a more systematic approach to selling their business, according to Tom Schinkel


SPECIAL FEATURETOM SCHINKEL

PREPARING FOR THE SALE

THE SALE AFTER THE SALE

1-3 YEARS 3-9 MONTHS NO TIME RESTRAINTS

Fine-tune the business model

Internal business processes

Capitalize on the tools of the digital age

Business valuation using different

scenarios

Investment banking

Activities: - the offering memorandum

- identify prospective acquirers

- roll-out to the market

‘Inventing’ a new life

Income requirements

Capital gains estate plan

Finance & accounting

Systems & functionalities

Discreet, private ‘auction’

Cross-border process

Corporate recordsCoordination of interests among

stakeholders

Information technologyPrerequisites:- transparency- keep it simple

- speak with one voice

New business initiatives

Strategic positioning for growth of top and

bottom lineSell-side due diligence

Completion of goals & objectives

Fully-functioning and committed

management team

Business experts of different stripes

M&A adviser/investment banker

Lawyer(s) and accountant(s) with M&A

expertise

Corporate tax issues

Wealth management expertise

Tom Schinkel is a certified M&A advisor, who works with owners and senior executives of mid-market businesses on issues such as adapting to the digital age and acquiring or divesting businesses. He does this through coaching, individual consulting, writing, training, meeting facilitation and conference speaking. He works and lives in Boston, Massachusetts. He can be reached via email at [email protected] or on the phone at (617)-818-8783. Web: www.thomasschinkel.com

ink is dry on the purchase and sale agreement. Others become passive investors or angel investors. Wealth management expertise comes in handy to make sure that the nest egg is safe and sound for the future and future generations. The complex process of transitioning out of an established business requires careful consideration of three different processes.

Different skill setsIn summary, the process of preparing a company for a sale requires different skill sets from the one that follows the actual sale of the firm. Once this is accomplished, a new phase with different challenges emerges. And here too mobilizing different skill sets can greatly help the owner in his/her quest for security on the one hand, and new opportunities in the market on the other. ★


CATEGORY DATANPD

Office Supplies by Sales ChannelTotal Office Supplies $10.7 billion (Jan-Oct 2013)

Sales channel

■ Commercial

■ Bricks and mortar stores

■ E-commerce

$7.4 billion

$2.7 billion

$668.2 million

Y-Y change: 0.6%

Y-Y change: -2.7%

Y-Y change: 5.7%

Notebook Computers$10.4 billion

-3.0%

Writing Instruments$2.2 billion

-0.4% Office Paper$2.1 billion

-3.3%Filing & File Storage

$421.6 million-1.8%

Dated Products$1.1 billion

-0.1%

Inkjet Cartridges$3.7 billion

-3.0%

Laser Toner$1.2 billion

-2.0%

NPD reports declining sales

Research firm provides OPI with office supplies and back-to-school data

IT will come as little surprise that NPD’s point-of-sale tracking service reported a decline in US office

product sales in the first nine months of 2013.The research firm tracked almost $11 billion in sales

from January-October last year, with an overall decrease of 1.4% driven by declines at brick-and-mortar retail stores.

“The office supplies categories have shown steady declines throughout 2013 and with the back-to-school season down 2% in retail dollars, sales didn’t rebound,” says NPD’s Office Supplies President Lora Morsovillo.

The e-commerce channel continues to show growth, even in traditional categories. However, the 6% year-on-year improvement over the first nine months of 2013 represented a slowdown in the growth rate compared to the previous year. E-commerce still represents only about 8.3% of total office supplies sales, so the 6% improvement is not enough to offset the overall decline.

Morsovillo adds that growth categories such as tapes and adhesives are being driven by fashion, design and crafting elements.

NPD coverage

Bricks and mortar: Chain retail businesses with a store front that mainly cater to consumers and

small businesses.

E-commerce: Purchases made on the internet through brick-and-mortar retailer websites (referred to as retailer.com) or through pure e-tailers that don’t have a physical store (referred to as pureplay.com) and do not require a pre-arranged contract. This channel was designed to cover the top office supply e-commerce

websites.

Commercial: Comprised of contract stationers which include direct marketers of primarily office products, with a secondary focus on

technology products via catalog, e-commerce and phone, and which principally target mid-size to Fortune 100 businesses.

This channel also includes independent office product dealers that sell office supply products directly to

businesses of all sizes, particularly small and medium-sized businesses.

Office Products Category Sales (Jan-Oct 2013)


CATEGORY DATANPD

-6

-5

-4

-3

-2

-1

0

1

2

3

4

5

6

7

8

July 2013 August 2013 September 2013

Channel■ Office superstore

■ E-commerce

■ Other retail stores

30.2%

63.6%

6.2%

Sales change vs 2012: -3.9%

Sales change vs 2012: -1.6%

Sales change vs 2012: 6.2%

BTS 2013: % dollar growth vs 2012

BTS 2013 market shareBack-to-school sales slip

Figures from the NPD Weekly Retail Tracking Service show total 2013 back-to-school spend in the US was down 1.9% on 2012 at $3.39 billion for the 13 weeks to 5 October.

The biggest fall, says NPD, was at office superstores where a 3.9% sales decline was reported. Other retail store sales slipped 1.6%.

NPD Office Supplies President Lora Morsovillo says: “One bright spot was e-commerce [up 6.2% by value], but it’s such a small piece of the overall pie.”

The OP superstores market share also declined, with their share standing at 30.2% in 2013 versus 30.8% last year. But it is a piece of the pie that is still worth $1.02 billion.

“We saw a lot of activity in the office superstores to differentiate their offerings, particularly celebrity endorsements,” says Morsovillo.

However, she adds that choosing the right celebrity was a tricky balancing act. “There were mixed successes on sell-through and it’s really striking when a product’s hot.”

(%)

Channel■ Office superstore

■ E-commerce

■ Other retail stores


INTERVIEW STEVE SAKUMOTO

Channel challenges

In the second part of his OPI interview, HP’s Steve Sakumoto discusses mobile printing, big-box malaise and Amazon

STEVE Sakumoto, VP and General Manager of

Hewlett-Packard’s US Supplies Sales Organization, Printing and Personal Systems, joined the global IT giant straight out of college 33 years ago and has stayed with the OEM ever since in various sales, marketing and product development roles.After a spell away from the office

channel, he now manages the

department that handles all HP’s US ink and toner sales in every sales channel – representing more than $5 billion in annual sales and an important source of cashflow for the global

IT giant.In the

November issue of OPI, Sakumoto discussed HP’s new channel strategy for imaging supplies. Here,

in the second part of that interview, the San Diego, California-based executive gives his wider views on the print market and the office supplies channel, as well as his reaction to being named the City of Hope Spirit of Life Honoree for 2015.

OPI: You’re back in the office channel after a five-year gap. What are the biggest changes you have noticed in that time?Steve Sakumoto: Well, it has certainly been a game-changing period for a lot of the businesses that

HP is in, primarily around the area of PCs and laptops, and moving towards tablets and mobile phones.

Even in the traditional office space we are seeing consolidation of printing around fewer, larger machines. The introduction of managed print services has been a big factor and the loss of white-collar employment due to the recession has driven down paper, printing and office product consumption in general, so that’s obviously been a negative trend that we’ve had to work with.

OPI: How has HP adapted to accommodate that?SS: If you look at the 8.5” x 11” cut-sheet office printing business, that’s only a small fraction of the overall printing industry. While it has been flat to slightly negative, the rest of the industry continues to explode, so one of the key global strategies for HP has been to invest outside of that office space.

Also within the OP area, as I’ve mentioned, there’s been a shift towards mobile printing – whether it’s a tablet or phone – and HP is making a lot of investments to ensure that, from a customer perspective, it’s as easy to print from a phone or a tablet as it is from a desktop PC or laptop.

OPI: It’s still frustrating to try to print something from a mobile phone, even in places like the

“I think the woes that the big-box players in the offi ce space are facing today

are similar to every other part of the consumer world”


INTERVIEWHP

business centers of modern five-star hotels.SS: I know what you mean. The concept of printing from your smartphone or tablet to a local printer is a very basic one and, from a consumer perspective, it should be easily achievable. From a technology standpoint, however, there are a lot more layers of complexity to that and one of those layers is the wi-fi capability of the printer.

If a printer has been there for a few years and has not been replaced, it may not have the technology built in. That may be barrier number one. So it will require a change in fleet over time and we see that happening, but it’s not going to happen overnight.

The other big barrier is the user interface and how simple that is. It may be simple to do, but explaining to the consumer how to use it in an environment where there’s no labeling could be confusing, so it’s a consumer education piece we have to get through. Those are the two major factors that are holding us back.

OPI: The channel has obviously been impacted by the malaise in retail at the OP superstores and other retailers. What’s your take on the retail woes that the big boxes are having at the moment?SS: I think the woes that the big-box

players in the office space are facing today are similar to every other part of the consumer world. In the US, in particular, consumers are buying less, they’re buying more on promotion and they’re much more frugal with their dollar spend. As a result, overall spending patterns have dramatically declined.

As you know, big-box retailers have high fixed costs on their big stores with things like rent and staff overheads – whether they sell $1 or $1 million through a store, the fixed costs are roughly the same. So that has had a very negative leverage effect on the whole industry.

I think what these players have to do – regardless of industry – is to downsize, get leaner, have smaller footprints, and they have to be more selective about what they offer. They also have to create a need and a sense of excitement for consumers to walk into the store, as opposed to just buying online. But I think all of the players are well-versed in that and they’re all trying to address it in some shape or form.

OPI: You mentioned online and that’s a key shift we are seeing both at the retail and B2B levels. Obviously, Amazon is the name on everybody’s lips at the moment. What’s HP’s relationship with Amazon and how do you think, as an entity, it will impact the office supplies community?SS: Amazon is one of our retail partners and we have a good relationship with them as we do with other channel players. Ultimately, it is the customer that makes a choice

about where they want to purchase from: do they want to buy in a big box; do they want to buy through a smaller office products commercial reseller; or do they want to buy online?

Our approach to this is to be able to provide products wherever the customers want to shop. So whether it’s Amazon, an OSS big-box retailer, a commercial VAR, or an office products reseller, we want to make sure that our products are there, are well-represented and that the customer can find them whenever and wherever they want.

OPI: Let’s talk about City of Hope. It’s great news that you’ll be the dinner Chair in 2014 and the 2015 Honoree. What does that mean for you as an individual and for HP as a business?SS: Well, for me personally, first of all it’s a great honor and I think for both myself and the Hewlett-Packard company, we’re honored to be recognized with this award.

Personally, it’s going to be a lot of extra work to drive the fundraising, to help spearhead a lot of the events and to act as a spokesperson, but I think part of the honor of being the dinner Chair this coming year and the honoree the following year is that participation and that sense of giving back. HP is a big part of the industry and we want to make sure that, both from a business and community standpoint, we’re also giving something back. So this is just our way of trying to participate in that.

OPI: That about wraps it up. Thank you very much. ★

“Ultimately, it is the customer that makes a choice about where they

want to purchase from”


READER VIEW MONO MACHINES

Live the brandYour brand promise means nothing if you don’t deliver, argues Mono Machines’ Kim Tollefsen

A huge issue many of today’s brands are facing is the disparity

between brand promise and the actual customer experience. This has a lot to do with the lack of connection between the brand from a managerial perspective and the company culture. It is imperative that the two intertwine in order for the brand values to be felt from the inside out.

With more and more businesses going virtual, developing your company culture and aligning it with your brand values becomes difficult. Small businesses have the distinct advantage of being able to know everyone they work with.

And even if your small business is virtual, there are three areas you can develop in order to cultivate the appropriate culture that encourages employees to deliver your brand promise to the customer: hiring, leading by example and communication.

Hire people, not paper There has been a major shift in the way companies, large or small, hire these days. Gone are the days of walking into a business looking your best and handing your résumé to a real person. E-applications and online submission forms are the new norm.

Last year my husband, wanting to move to a company with a larger growth opportunity, started searching for a new job. He must have answered the same type of questions for 15 to 20 jobs with different companies. It struck me that the same cookie cutter questions were being asked with what

appeared to be no real correlation to a company’s values.

Going through this process with my husband showed me that, although the medium of job applications has evolved into the digital world, the leading force for hiring new employees continues to focus on résumé-ready

candidates, completely missing the opportunity to put forth a brand promise.

Some say that the interview is where you ask these questions, but why wait to introduce your brand promise until the interview? What if you miss the ideal candidate because you’re looking at their on-paper skills and not their potential within your specific culture?

Ultimately, it is that potential that will shape their interactions with customers. Simon Sinek, author of the book Start with Why, offers this piece of wisdom in relation to hiring: “Great companies don’t hire skilled people and motivate them, they hire already motivated people and inspire them.”

So, what can you do to infuse some brand awareness into your hiring practices? For starters, team up with your hiring managers to create application questions that give you a clear picture of the applicant’s compatibility with your brand.

• Askforexamplesofhowtheirbeliefs/values align with your company’s.

• Giveasituationalexampleandaskwhat they would do.

• Askthemtodescribethemselvesin1-5 words.

• Mixitupandofferthemdifferentways of introducing themselves to you, which gives you a feel for them as a person (ie video, slideshow, short story, etc).

Ensuring that your new hires possess values that mesh with your brand’s spirit will help shape the appropriate culture. This, in turn, will influence the customer experience.

But what about those who are already on your team and don’t mesh? Employees who don’t believe in – or behave contrary to – your brand values are dead weight and very dangerous to your company’s well-being.

In a small business, even one person who does not believe in – or dismisses – your brand values can disrupt the equilibrium of the team. This disruption can have a negative effect on performance as well as interactions with customers. As difficult as it may be, you need to let the disbelievers go.

Lead by example To create an environment that promotes your brand spirit and inspires people to infuse brand values into their customer interactions, company leaders must commit themselves to living the brand. Living the brand means that with every communication, the brand values

“Employees who don’t believe in – or behave contrary to – your

brand values are dead weight and very dangerous to your

company’s well-being”

Kim Tollefsen


READER VIEWMONO MACHINES

must be considered, encouraged and demonstrated. Leaders must show employees how to interact with their customer base.

Ashley Konson, a brand strategy specialist who has worked with such brands as Nestlé and Walt Disney, says: “Passionate leadership of the brand starts at the top of the organization. The CEO and executive team are passionately committed to defining and nurturing the unique raison d’être, culture and capabilities of the brand and business.”

The leadership team – starting at the top – must act and interact in such a way that exemplifies the brand essence. This will permeate throughout the organization, creating an internal culture that will be felt on an external level.

So, how can the company leaders incorporate brand values into their everyday interactions? First, they must know, believe in and be passionate about what their brand stands for. Then they must exemplify the values and correlate all that they do back to those values. Here are a few tips to help: • Makebrandinformationaccessible

and understandable to employees. • Demonstratehowtoapplyvalues

in your every interaction. • Sharehowabrandpromiseapplies

to whatever you’re communicating. • Beexplicitaboutalltheabove.

Communication toolsEffective communication is critical to the development of a value-focused company culture. With so many communication tools available

format that allows people to see one another can allow them to connect on a human level. This is critical in a virtual environment where personal connections with people can be lost in the isolation of working alone.

Instant messaging is another useful tool to help keep teams and individuals in contact. Along with

face-to-face chat, tools like Skype allow for private or group chat, which helps people to feel more part of a team. This also helps to create an environment where the formation of a culture can occur.

Group chats in a virtual environment replace the over-the-cubical, in-the-breakroom, chatting-in-the-halls kinds of communication that help develop the culture in a physical workplace. Attitudes and values that can be perceived through instant message communications and in a virtual setting help to define and express the company culture.

If you want to succeed as a small, virtual business in today’s social-happy world, you’d better deliver what you promise. News travels in the tweet of an eye. Anyone with an internet connection and smart device can broadcast their opinions with a few flicks of their thumb.

In a small, virtual business, developing your company culture and aligning it with your brand values can be difficult. It is imperative, however, to delivering your brand promise to customers and avoiding death by social media. By concentrating your efforts on hiring, leading by example and communication, you can help cultivate a culture that inspires employees to live your brand and provide your customers with exactly what your brand promises.

Kim Tollefsen has been involved in sales and marketing for the past 13 years. She has been an integral part of the brand development team at MonoMachines.com and Ochimp.com, where she has helped identify and develop the company’s core values. ★

“In a virtual team, it is tools like 7Geese that allow the culture to

emerge and solidify”

today, even virtual businesses can include face-to-face and personal communication in their daily interactions.

These types of internal interactions contribute to the development of the company culture, which ultimately sets the tone for external interactions. Use of simple communication tools

such as instant messaging, conference calls and web meetings can help develop the culture within a virtual company.

One of my favorite tools out there is 7Geese.com, an internal social networking and social performance review tool. 7Geese allows you to share thoughts, ideas, successes and questions with everyone in your small business by posting comments to a running news feed (think Facebook for your company). It has proven to be a great forum where our personality as a team can shine through. In a virtual team, it is tools like 7Geese that allow the culture to emerge and solidify.

Other tools like Skype and Google Hangout allow company leaders, employees and teams to get some face time. According to an article from Wharton University of Pennsylvania, “without face-to-face, in-person contact, important pieces of communication can get lost”. It goes on to say that “with fewer chance encounters in elevators, lunchrooms and daily meetings, it becomes more

difficult to build one’s reputation, find mentors or mentor

others, or seize the chances to contribute to

other people’s welfare and success”.

Taking the time to meet with your virtual team in a

US Office Products Annual Review 2013

Documents

Transcript of US Office Products Annual Review 2013