Channel consolidation due to changing buying habits
By Staff -- Purchasing, 5/20/1999
Gone are the days when purchasing managers ordered typewriter ribbons and correction fluid from local office-supplies dealers. Today, office-supplies purchases comprise orders for personal computers, software, and toner cartridges. These shifts in buying patterns occurring as a result of changes in the way office workers perform their jobs are working to further consolidate channels of supply.So finds new research published by the Business Products Industry Association in Alexandria, Va., the 1998 Office Supplies Distribution Trends Report.
"Office supplies manufacturers' shipments to such resellers as superstores, contract dealers, and mail-order houses are growing at the expense of small dealers and contract stationers," says Rita Eidelman, research manager.
New work styles and the application of new technology create demand for new products and make obsolete traditional products, explains the research. "As industry participants change their mix of products, services, promotion, and price in efforts to differentiate themselves from their competitors, distribution channels will continue to evolve."
The great diversity of products--paper and writing instruments, filing supplies and binders, diskettes and media storage units, mailroom supplies, writing tablets and marker boards, repositionable notes, and toner cartridges--used in offices today makes it difficult to define the office-supplies industry.
What is usually referred to as the office-supplies industry is, according to the report, a grouping of products designed to support office-worker productivity that are distributed through a network of wholesalers, mass merchants, warehouse clubs, superstores, mail-order houses, and contract, commercial, and retail office products dealers.
Although at $35.7 billion the industry is still expanding, growth rates have declined from the booming years of the 1970s and early 1980s. For many players, office supplies have become a market share game in which some firms prosper at the expense of others.
In addition to slower growth, industry participants have had to deal with major shifts in distribution patterns. During the 1980s, new reseller formats have brought power retailing to the office-supplies industry. Superstores, warehouse clubs, and the mass market have grown at the expense of the small and medium-size independent dealer.
In recent years, contract stationers and wholesalers also have sought to capitalize on the potential advantages of scale and scope through a series of mergers and acquisitions. Now, there are two national wholesalers and fewer than 10 national contract stationers and mail-order dealers.
As consolidation among resellers concentrated more power in the hands of a few, the balance of bargaining power shifted from manufacturers to resellers. To help mitigate the effects of this shift of power, many manufacturers engaged in a series of mergers and acquisitions designed to give them the economies of scale needed to level the playing field. Throughout the late 1980s and early 1990s, the pace of consolidation among supplies manufacturers increased dramatically. Today, the 20 largest manufacturers and the 20 largest resellers control more than 70% of the market for office supplies.
Ten years ago, manufacturers' shipments of office supplies to small/midsize dealers represented 14% of the total market, according to the research. In 1997, shipments to independent dealers made up roughly 2.1% of total shipments.
In 1989, shipments to superstores accounted for 0.3% of the total market; today, this figure is 23.8%, reads the report. Shipments to large dealers was 21.9%; today, this figure is 19.5%. Here's how each segment of the market is faring:
* Wholesalers. Playing a prominent role in the distribution of office supplies, wholesalers received about 17.1% of supplies manufacturers' shipments in 1997. Wholesalers, which carry up to 25,000 supplies, furniture, machines, and computer hardware and software SKUs (stock-keeping unit), resell these products to traditional retail and commercial/contract dealers. Supplies make up about 60% of full-line wholesalers' sales and furniture about 15%, with the balance spread among the other product categories.
* Office products superstores. Once established as strong retailers serving the small-office/home-office (soho) market, superstores began to develop business models designed to serve larger customers. In an effort to serve midsize customers (20-100 office workers), Office Depot, Staples, and OfficeMax have opened direct-marketing business units offering free next-day delivery on phone or fax orders that exceed a minimum order size. Superstores fill orders through regional distribution centers.
The soho market accounts for most of superstore retail walk-in trade. In fact, more than 80% of retail sales are to small business (less than 20 office workers) or to the home-office market, with the remainder going to consumers purchasing for personal use.
Large customers (more than 100 workers) historically have been served by a fragmented array of local and regional contract stationers. To serve this segment, Office Depot in 1993 and Staples in 1994 began to acquire established contract stationers. While superstores have invested heavily to develop direct delivery and contract/commercial divisions, they continue to generate the majority of their revenues from their retail divisions.
Superstores have grown at an extremely rapid pace, finds the bpia study. In 1986, supplies manufacturers shipped about 0.3% of their dollar volume to superstores. Today, their share of manufacturer shipments volume is more than 23%.
* Large commercial/contract dealers usually do business with accounts that buy large quantities of office supplies through a contract purchasing system wherein the dealer gives a very high level of service and low prices in return for a large volume of business. In addition to providing competitive prices on high-usage items, contract dealers agree to provide customers with a stockless inventory system, information about purchase and use patterns on a regular basis, and special services designed to facilitate ordering and payment. They sell through outside sales people and operate large distribution centers in major markets. In 1997, this type of dealer accounted for 19.5% of all supplies manufacturer shipments.
* Small and midsize dealers sell office and school supplies, office furniture, and machines. They typically target smaller businesses and home office and school markets. They use outside salespeople to reach midsize businesses. This type of dealer accounts for the largest number of dealers in the office products industry. There are about 6,200 of these dealers in the U.S. today, which is about half the total just six years ago. In 1997, they accounted for 5.9% of domestic office supplies manufacturer shipments.
* Mail-order firms specialize in selling office supplies, furniture, machines, and computer hardware and software through catalogs mailed to potential customers. The market is primarily small businesses, home users, and individuals within larger companies who make discretionary purchases for themselves or their departments. Mail orders accounted for 3.3% of domestic office supplies manufacturer shipments in 1997.
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