If there's any consensus among office products resellers it would probably be that the business outlook is tough. Most are experiencing loss of base revenue and profits in a mature market that, while still over $200 billion in annual retail dollars, has started a slow, and now inevitable, decline. There have been many consolidations in the industry that continue to impact the competitive environment and alter the conditions for conducting business. These changes have created serious challenges for the vast majority of resellers.
Many old school, analog business practices are becoming increasingly obsolete as the new digital order continues to rapidly mature and learning how to implement digital strategies has become necessary to survive.
There are three key factors impacting the base business of an office products reseller:
1. Market shrink
Resellers cannot control the size of the office products market. It's shrinking and will continue to do so.
2. Customer Churn
Customer churn in the office products industry is becoming more of an issue as previously loyal customers research alternatives online and buy elsewhere, frequently before the current supplier is even aware a threat to the business exists.
3. Average Sell Prices
As competitive threats emerge, prices are lowered to try and retain business thereby reducing the top line as well as compressing margins. Oftentimes, in the ink and toner business, it may be that mix also comes into play as pricing pressure leads to conversions from OEM to aftermarket brands at significantly lower prices.
What does this mean?
A dealership with $1M in revenues faces the loss of 15% of its top line to market shrink and price compression over the next four years. Then, to compound this, it's likely to face an additional loss of 20%, over the same four-year time frame, due to customer churn. These factors combine for a potential revenue loss of 35%. For a $5M dealer then that's a loss of $1.75M, for a $10M dealer that's a loss of $3.5M.
What is the structural impact?
As the smaller and weaker dealers encounter these conditions they are forced to exit the business. The fortunate ones sell, the less fortunate (weakest) have to give up and close down. The strongest buy the weakest, perhaps temporarily protecting their top line but, in so doing, disguising the fundamental market trends of shrink, churn, mix, and price. Unless these factors are dealt with, then, ultimately, they also will be forced to confront a sale or close down.
What are the options?
Although resellers have no influence over the market size, they do have the potential to influence churn, mix, and average sell prices. However, without deploying digital strategies, it becomes increasingly difficult to prevent these elements from spiraling out of control.
Today, the typical independent office products reseller has a weak digital presence. This means they have no website traffic and no coordinated social media strategy for traffic development and conversion of that traffic to leads, using forms and gated content.
In deploying a a content-rich, educational website alongside a comprehensive inbound digital strategy, inclusive of email marketing, social audience development and blogging, it becomes possible to attract relevant traffic and to convert a portion of that traffic to leads. Eventually a portion of these leads may be converted to customers.
It's not an overnight process and it's certainly not a silver-bullet solution. It takes hard work and it takes a level of digital sophistication not often found in the office products reseller community. However, for those that start down this path and are able to stay the course, it becomes feasible to overcome organic decline, capture market share, and profitably grow a business as the digital assets (social and email audience) are leveraged over time.
If you're interested to see how your office products reseller business may be affected by these factors, then try our industry specific calculators to plug in your numbers and see how your base business is likely to be affected over time.