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A new office supply game.

An Old Industry Learns The Staples Of Staying Competitive

If Attorney General Winston Bryant's $100,000 shopping spree is any indication, central Arkansas office furniture and supply dealers should be having a good year.

But when Office Depot and Office Warehouse came to Little Rock earlier this year, some predicted the demise of traditional office suppliers.

Guess what?

Many of the traditional businesses have faced the competition and are still standing.

"They do a blitz when they enter the market," says Wayne Hogan, who owns Galaxy Office Furniture at Little Rock with his wife, Lynda. "Our floor traffic died down for a couple of months. But it's back now."

Hogan says friends in the industry at Dallas warned him it would happen that way.

The supercenters' move into Little Rock grabbed attention and headlines (Arkansas Business, June 3). But, according to most suppliers, customers checked out the glitz and returned.

That is not to imply the publicly held chains are doing poorly. But industry observers see them serving a different -- perhaps even a new -- market.

"You can't deny the fact people are buying there," says Hogan, who started Galaxy.

Galaxy specializes in quality used office furniture. The store has more than 40,000 SF of floor space at the visible downtown corner of East Markham and Cumberland streets.

Hogan and others believe the supercenters are defining a new market segment. That segment includes smaller businesses and the growing home office market.

"There has been a redefinition of the market," says Adriane Pray, a co-owner of Chair-Tech Manufacturing & Supply Inc. at Benton.

The office chair manufacturer, which has been in business since 1979, employs more than 20 people.

Pray uses a retailing analogy.

"Dillard's is not going to go out of business, but neither is Puff's $12 Zoo," she says.

She adds that most of her company's dealers, located primarily in the Southwest, began in the budget market. As their clientele became more sophisticated, products were upgraded.

"It made us realize we had stepped away from the lower end |of the market~," Pray says.

Jim Dailey, president and chief executive officer of Dailey's Office Furniture & Supplies at Little Rock, said in June his business was insulated from the supercenters because it is heavily weighted toward furniture.

Dailey says the landmark downtown store had its best August ever. Advertised as being "in the big yellow building," Dailey's has been in business since 1938.

So the furniture dealers survived the entry of the office supercenters into the central Arkansas market.

But what about businesses that focus on paper clips and computer paper?

Sharpening The Competition

"Our business is stronger than ever," says Lynn Pettus, owner of Pettus Office World in west Little Rock.

At first glance, Pettus' location does not look enviable. But he's not complaining.

Office World is just down the street from Office Depot on West Markham Street. Office Depot entered the market eight months after Pettus opened his store.

Still, Pettus says he doubled his business from 1990 to 1991.

Pettus attributes his business' success to several factors, including offering service the supercenters can't match and joining a buying group to lower costs.

"Service is still the key," Pettus says.

He has customers who call and ask for "those ribbons for that machine I have."

They get the right product. And it is delivered free.

"On average, a company spends 1 percent of its revenues on office supplies," Pettus says. "But it's not just about price."

Pettus says 95 percent of his sales go "out the back door."

Only 5 percent is walk-in business.

Customers may do as little business as $100 per month or as much as $4,000 per month with Office World.

Pettus' buying group, National Office Buyers, has allowed his five-employee store to buy on the scale of a $60-million operation.

"It has put us in line with some of the bigger contract companies," he says.

The buying group also helps members with marketing. For example, it produces sales fliers at little cost.

Four Arkansas office suppliers belong to the same group as Pettus' store. Other members are in Pine Bluff, Batesville and Russellville. Between them, they can "cluster order" items and divide the orders once they arrive.

Despite the presence of Office Depot, Pettus says his margins haven't dropped. That's because he is using better buying techniques.

Pettus says the supercenters "super discount" 20 to 30 items, but he believes traditional dealers can compete on others.

The Big Boys

How are the supercenters doing locally?

The two companies won't say, but it is estimated each needs to do more than $5 million per year in sales.

Tod Hatfield, manager of Little Rock's Office Warehouse, says only that his store's sales are on schedule.

As for Office Warehouse's location in the University Plaza Shopping Center, Hatfield says, "We were a little suspect at first, but it has worked out well."

Hatfield says the store now emphasizes big-ticket items such as furniture and computers. That, of course, goes against the industry's perception of superstores.

The Virginia Beach, Va.-based company went over-the-counter May 14, the same day it opened its Little Rock store.

In what proved to be one of the worst initial public offerings of the year, the stock came out at $14.50 per share and now is selling at about $8.50 per share.

Office Depot, whose stock has fared better, had $903 million in sales in 1990, up from $34 million in 1987.

At last count, Office Depot had 190 stores, compared with 32 for Office Warehouse.

Traditionally, mom-and-pop office supply stores have averaged a 35 percent gross margin. The new suppliers operate on a 24 percent gross margin.

The National Office Products Association estimates the traditional margin has fallen due to the competition from supercenters.

The concept behind the supercenters is this: Traditional retailers offer good service and a large selection. They also offer high prices.

Warehouses offer limited selection and limited service. They also offer low prices.

Supercenters claim to offer good service, a large selection and low prices.

Some shoppers have found service at the Little Rock supercenters to be spotty, however.

According to NOPA, there is a more than $80-billion market at stake nationally and a $124-million market in central Arkansas.

Several months after the supercenters arrived in Little Rock, traditional office suppliers continue to search for their new niche in that $124-million market.
COPYRIGHT 1991 Journal Publishing, Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1991 Gale, Cengage Learning. All rights reserved.

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Title Annotation:prospects for Little Rock, Arkansas' office furniture and supply dealers
Author:Ford, Kelly
Publication:Arkansas Business
Date:Oct 7, 1991
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