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Fax machines, computers and the no. 2 pencil.

Office Product Merchants Take Different Approaches Toward Meeting Needs Of Clientele In $75 Billion Industry

That No. 2 pencil you've been rolling between your fingers is part of a $75 billion industry.

The office products industry has seen both peaks and valleys since the early 1980s, during which IBM Corp. introduced the personal computer to the business industry.

Needless to say, the PC has revolutionized the office products trade, but there remains a need for those irreplaceable remnants of eras gone by.

Like the No. 2 pencil.

Supplies accounted for about $21 billion of the $75 billion spent by businesses on office products last year. Another $30 billion went toward personal computers, $8 billion for office furniture and the remaining $11.5 billion was spent on office machines such as calculators, copiers and facsimile machines.

The National Office Products Association is projecting a minimum of growth in the 1990s, a result of the national recession. Sales in 1992 are expected to increase no more than 2 percent, according to Anne Griffith, research coordinator for NOPA, a trade organization based in Alexandria, Va.

"The white-collar nature of this recession has been real hard on this industry," says Griffith, who attributes the slow growth in office product sales partly to corporate cutbacks. The cutbacks eventually lead to a reduction of low- and mid-level office personnel, the individuals who use the majority of office products.

Office furniture sales are expected to be hurt the worst, Griffith says. They should drop 4 percent in 1992, while supplies and office machinery are expected to increase by only 2 percent over 1991.

So where does that leave the mid-sized distributor trying to survive in what is becoming a very competitive market?

Pricing is everything when it comes to office products, and distributors of every size must examine total costs before settling on customer agreements.

Paying For A Pencil

For example, take the simple No. 2 pencil. The pencil that costs the consumer 10 cents eventually winds up costing a great deal more once all factors of purchasing are considered.

Take a 10-cent pencil.

Add 2.6 cents for personnel costs.

Add 3.2 cents in order-creation costs, 1.7 cents for accounts payable processing costs and 2 cents for handling and distribution charges.

Add another .5 cents for inventory investment and floor space costs.

That 10-cent pencil now costs 20 cents, twice the selling price the consumer had anticipated.

Those hidden costs are what office product suppliers are trying to help businesses overcome in an effort to promote an industry that has seen the hand-crank adding machine replaced by the calculator, the typewriter replaced by the laptop computer.

Lonnie Patterson, district manager for Buschart Office Products of Little Rock, recognizes office products as "one of those necessary nuisances" every business must deal with.

But with the help of Buschart, Patterson says, office products need not be a costly nuisance.

"We become partners with them in helping them cut costs," says Patterson, citing expenses such as a simple purchase order. Once typed, that purchase order can cost anywhere from $19-$50 in man hours.

Patterson's company attempts to help corporations reduce those costs.

"If you can save them money, then you become very valuable in their eyes," he says.

Patterson has seen a growing decline in retail sales of office products since he first opened Downtown Office Supply on Main Street more than two decades ago.

He sold his business in July 1991 to the corporation now known as BT Buschart, a Netherlands-based distributing giant.

As retail sales dropped, Downtown Office Supply, and eventually Buschart, began to concentrate on wholesale services, with an emphasis on customer service. That emphasis includes conducting a great deal on a trust basis without written contracts.

"We're committed to them and they can stop it at any time," says Patterson of his customers. "We have different systems for different companies. What bonds us is doing what we said we'd do."

The warehouse Buschart occupies is a former AT&T facility on West Eighth Street. It doesn't allow for any walk-in trade, but Patterson says it is only a matter of time before all suppliers adopt the same distribution system.

With a sales staff of eight and another warehouse in Fort Smith, Buschart is capable of meeting the needs of any business in central or northwest Arkansas within a day's time.

In an attempt to project a better corporate image and expand office furniture trade, Patterson says Buschart may rent space in the Riverdale area of Little Rock with the intent of creating an upscale furniture display area.

Patterson expects to make the move into what he terms a working showroom in March 1993.

Volume Vs. Variety

While Buschart is content to serve the larger businesses, national chains are concentrating on the needs of the smaller traders.

Retail chains such as Florida's Office Depot, which has a location in Little Rock, BizMart of Texas or Sam's Club, a subsidiary of Wal-Mart Stores Inc., cannot offer the volume of products other smaller stores can.

Where stores such as Buschart may have as many as 30,000 stock-keeping units (SKU) available, a Sam's Club will have no more than 3,500 SKUs in the store, a small proportion of that made up of office products.

"In our office supply area, we're not going to have nearly the variety an office product store has," says Trey Baker, a Sam's Club spokesman.

The fact that Sam's sells its products, copy paper, pens, rubber bands, etc., in such large configurations makes it attractive to the small businessman. So attractive, Baker adds, that many store owners come into Sam's to purchase office supplies in large multipacks that they then turn around and sell individually.

"What we do have is a highly focused number of items," Baker says.

Those items include software and traditional items such as chairs and filing cabinets. Larger items, such as executive desks, can be ordered, he adds.

"We're there for the small businessmen and they realize the savings they can get from us day in and day out," Baker says.

With a proliferation of stores offering office products, the established dealers are seeking ways to compete against the larger operations.

"There aren't many dealers in the country that will buy on the volume that they buy," says Jim Dailey, president and chief executive officer of Dailey's Office Furniture.

According to its motto, Dailey's has been offering "everything for the office since 1939."

One of the few Little Rock office product merchants still dealing on a retail basis, Dailey has seen his business expand beyond what he calls the "bread and butter of the industry."

Typewriter ribbons, legal pads, and paper clips remain the staples of the business and the biggest source of revenue for larger stores. In order to compete with the warehouse clubs and so-called "superstores," Dailey has shifted his efforts toward the sale of furniture -- specifically, refurbished models.

"The dealer either changes, goes out of business or suffers in margin," says Dailey, a former president of NOPA.

To avoid either of the latter two, Dailey opted for the first choice. He has expanded the company's furniture business to include used furniture, turning the third floor of his downtown warehouse into a refurbishing center.

By repainting or re-upholstering the items, Dailey is able to sell them at prices 50-60 percent cheaper than new items.

"We decided it was an area we were comfortable with," says Dailey.

He deals with brokers across the South in an effort to acquire furniture from companies that have merged or gone out of business.

Dailey also is focusing on the sale of ergonomic support furniture in an attempt to stay one step ahead of the competition.

Eronomic furniture is designed to coordinate the design of devices and physical working conditions with the capacities and requirements of employees. Computer work stations with adjustable work surfaces, office chairs with armrests and seats that raise and lower to meet the worker's physical needs fall into this category.

As the office products industry grows and evolves, so must the merchants involved in it. Twenty years ago, a copier was a luxury and the fax machine could be found only on designers' drawing boards.

These days, both office tools are virtual requirements of any business with hopes of success.

Dailey sees little chance of his industry being obsolete as it continues to adjust to the climate of the business world.

"We're going to continue to upgrade, to sell the hard-to-find items," he says. "We have to realize we're a service business.

"There will always be something else that will come along to replace a product that has reached maturity or obsolescence."
COPYRIGHT 1992 Journal Publishing, Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1992 Gale, Cengage Learning. All rights reserved.

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Title Annotation:office products industry
Author:Taylor, Tim
Publication:Arkansas Business
Article Type:Industry Overview
Date:Oct 12, 1992
Words:1447
Previous Article:Heir apparent.
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