European office supplies market

News & Events 2008-05-28

Like so many other industries, office supplies has been through a significant period of consolidation of businesses across manufacturing, wholesale and retail, which has changed the shape of the market. The independent and smaller players in the market have faced the hardest of times due to the growing pressure of price deflation that has resulted from the increased competition. A few brand names stand out, but with fewer vendors to manage for quality and price, office products in general have become much more commoditized.

The market is under further pressure with the rise of e-auctions as a popular purchasing strategy for large businesses and government offices. These are very commodity and price driven, with contracts raised for fixed prices and service level agreements (SLAs) for an extensive range of products, often below cost price. Such low prices can be offered because of the volumes and suppliers hope to recover profits through long term market moves and increased overseas sourcing. While providing high volumes for high cost networks, suppliers have to be aware that they can also lose significant volumes of business in one go. All these issues place particular pressure on retaining profitability through the supply chain. Longer inventory lead time from overseas sourcing creates the opportunity for a more efficient and profitable supply chain, but requires a high level of certainty with regards to long term demand.

With this continued trend toward lower margins and increasing price pressure, companies are looking to gain back margins by finding new ways to improve and expand their businesses; either through consolidation, partnering with an alliance, or becoming a multi-channel player. Only the office products suppliers that can adapt to this change and meet it head on will ultimately succeed. Distributors and wholesalers also need to meet the challenge of the various channels to market, which are different from the retail end of the market. They need to provide catalogues, wholesale/dealer purchasing groups, business-to-business channels and business-to-consumer solutions. Companies must strive to make the whole end to end ordering and delivery process simple, flexible, effortless and reliable. In effect, the experience for both end-user customers and dealers has to focus on creating loyalty in a commoditized world.

The market itself is growing slowly in Europe. For example, in the UK, the stationery market for 2006 was worth 270 billion euros, showing growth of just 4.3 percent since 2002. This growth does not match the UK’s own gross domestic product growth and competitive pressures are the main reason for price rises being kept to a minimum as well as deflationary pressure on product pricing.

The total market size for all office products, including stationery, electronic products and office furniture in 2006 was approximately EUR 9.1 billion for the UK, EUR 7.7 billion for France and EUR 11.2 billion for Germany.

The fragmented, multi-cultural nature of the European market has also created its own problems that office supplies companies have had to overcome. The individual country markets are relatively small, and purchasing groups have formed across nations and channels to increase the buying power of the various channels and companies operating in the market. The European Office Supplies Alliance (EOSA) and Business Products Group International (BPGI) are two significant purchasing organizations that have formed in Europe.

The role of purchasing groups

To avoid losing business to the large retailers and contract stationers, smaller independent dealers are either consolidating or partnering with dealer groups such as EOSA or BPGI. This consolidation is fundamental for small and medium-sized dealers to remain competitive in the European market. As part of a larger force, they are in a better position to take advantage of greater marketing initiatives and can gain margin benefits from the increased purchasing volumes that otherwise they could simply not achieve.

While a great deal of consolidation is anticipated for the future, larger, more well-established dealers may resist these types of alliances, and develop a strategy that allows them to compete in their own right.

Dealers throughout Europe are also facing competition from the major supermarket retailers that can use selective low pricing as a weapon to increase consumers to its stores, a tactic that supermarket giants have employed to good effect for many other product lines. With supermarkets continuously increasing their range of office products, it is becoming more and more difficult for other channels to compete. Small retailers in particular are feeling the effects. Supermarkets combine strong product offerings with great promotion and, of course, offer the ultimate one-stop-shop solution.

Collaboration helps the smaller players fight back, with France in particular leading the way in terms of buying groups with almost all of its independent dealers already part of a group that gives them enough power to purchase directly from the manufacturers, which enables them to compete more effectively with the big retailers.

The wholesaler or distributor’s role is integral to the independent office dealer’s business. Without a successful, vibrant and imaginative distribution channel, independent dealers would find it much harder to compete effectively. To this end, many of the dealer groups in Europe today have established their own warehousing and logistics operations to meet their own specific requirements and provide world class logistics service levels. However, the cost to deliver this and to ensure supply chain flexibility is now a major challenge.

Furthermore, as consolidation continues in the wholesale stationer trade, it is the dealers that benefit from consistent supply, better pricing structures and minimal inventories because many more direct to customer services are being provided via the wholesaler. Despite the growth that has occurred in other channels such as contract stationers, major retailers, and online trading channels, the dealer groups have preserved a strong position in the stationery and electronic office supplies market in Europe, particularly in the UK, where the sales and customer service relationship is vital.

The role of office products

The sheer volume of products that companies require to do business is staggering. Staples, pins, pens, pencils, paper, folders, files, computers, printers, inks and toners, presentation boards, projectors, desks, chairs, dustbins… the list goes on for ever. And the staggering array of choice for many of these items is similarly endless. In addition the need for specific or value added services, such as assembly, print management and Vendor Managed Inventory (VMI) is driving a new phase in the industry development. It is increasingly overlapping with electronic products, packaging and paper merchants industries. In fact just about anything the customer wants in the office, the industry is looking to provide. This reflects the one stop shop concept as well as the increasing role of delivery efficiency while keeping down cost. This is a prime driver for the industry, both in Europe and the US.

Real people use office products, therefore much of the selection is based on individual wants and desires. There is an increasingly broad diversity of office workers, particularly as many peoples’ offices are also their homes. The individual’s personal preferences vary considerably and have an important impact on buying decisions. Customers often want to buy everything they need in one simple delivery from stationery to coffee and toiletries to lawnmowers. They can source and compare all these products very easily using the internet, but above all they want the high levels of security, service and customer care. There is also significant product price volatility. For example, the EOS market and the ease of price comparison creates the need to provide more than just a product at the lowest price.

It is becoming clear that personal priorities are making a comeback, perhaps because lower cost manufacturing make a greater variety of low cost products more feasible. This is creating a backlash against standard choices as customers increasingly search for alternatives. Office products suppliers have to be aware that innovative products are available and customers will find them. If they want to keep their customers, they have to make sure they can meet these demands. If they can’t – someone else surely will.

Office products suppliers have to develop a more personalized approach to their customer relationships. Buyers increasingly know what they want and won’t accept unavailability - they will simply shop elsewhere. On-line eCommerce systems, with detailed catalogues and powerful search capabilities are essential. Industry bodies, such as BOSS in the UK and NOPA in the US have already developed specific messaging formats, such as opXML, in order to help the market move forward with ecommerce through the use of consistent working standards.

Also important is a powerful Customer Relationship Management system that can effectively manage the communications to and from the customer. Ensuring they are targeted with appropriate marketing and also handled with professionalism right the way through the purchasing process.

Whether supplying standard items, such as pencils and ring binders, right through to more advanced products like lighting and projectors, the key to succeeding in this market is effective communications, product availability and rapid on time delivery. Buyers need to be made aware of the important facts for each product and how they are relevant to their businesses. Manufacturers are re-visiting standard old products in order to offer more creative ways to use them. Individuals are improving their personal workspace so buyers are actively looking for better ways to work with their suppliers. They are no longer satisfied with the standard and suppliers have to adapt.

The digital age drives presentation choice

Most document management in the workplace today is electronic. However, this explosion of the digital doesn’t seem to have had much effect on the need for the physical. Users now have infinite choice and capability in the design and production of their documents. The creative freedom of modern software gives users a strong sense of ownership so they expect to have the same degree of control and a menu of choices for the binding, tilting and distribution of the document.

Similarly with letters and other standard mailings: users expect to be able to make choices and personally control the document. Sales managers who agonize over the precise formatting and color choices for the fields in their spreadsheets take equal care in the choice of presentation binder and cover sheets. Administrative professionals who format and design critical manuals and letters expect to have worthy options for mailing the news or the reference disk. All this puts greater demands on the supplier to provide choice, availability and quality.
Office workers with a computer generally do much more for themselves than they used to. This means that have a much closer relationship with day to day office products, and therefore a much greater say in the purchasing of them. People want to stand out from the crowd and if this means a slightly different color ring binder, then that’s what it has to be. Despite corporate purchasing agreements and even government contracts, the purchasing authority for office products is increasingly resting within local offices and departments. Most administrators and buyers can get whatever they want – they know it’s out there and they know how to find it. The challenge for the office products supplier is to be there when the customer needs them and to make it easy to order and do business with them long after the purchasing is over.

Market drivers

Consolidation to smaller number of main players, both regional and global
Formation of corporate supply contracts
Increased demand for personal choice
New creative versions of standard products
Buyers are becoming even more demanding for new products and services
Range, price and cost to serve
Maximize availability with minimized inventory Greater need for communication with customers