Independent office products and supplies resellers have been on the defensive for a long time. Entrepreneurs who started out 25-30 years ago as laser and then ink, took over the office imaging industry, figuring out the only way to participate was to recover used toner and ink cartridges, and then to offer a value proposition based on refilled cartridges, was the height of entrepreneurial spirit.
Of course, times have changed and few of these entrepreneurs are still remanufacturing cartridges. The technology challenges to do so are formidable, the range of products in the market are vast, and there's no consumer tolerance for poor quality. Today, the only way to survive in the aftermarket is to rely on the remaining larger scale manufacturers who have the resources to invest in research and development, intellectual property, sophisticated quality controls and their own partnerships with high-quality component suppliers.
The industry has consolidated and continues to do so at what seems an ever-increasing rate. The OEM business model continues to rely on low-priced hardware and high-priced supplies and, with an annualized global market of around $50 billion for ink and toner, the fight for market share and a portion of the profit dollars is intense.
However, despite all the hurdles facing the smaller independent office products resellers, the OEMs, and the traditional distribution channels are vulnerable. OEM operating margins are relatively slim and the two main retailers and B2B contract stationers (Office Depot and Staples) are burdened with the expenses of excess retail space and leases that may only be terminated through last resort bankruptcy proceedings and other downsizing measures.
Hewlett Packard has split into two separate businesses with HP, Inc. now focused on PCs and printers. Overall HP, Inc. reported a strong fiscal 2016 Q3 back on August 24. However, the main driver of its performance was strong PC sales while its printer division lagged seriously behind. Given that printer supplies generate the majority of HP's earnings this could become a serious problem.
When a company of HP's stature is then motivated to shoot itself in the foot, and to risk a global backlash by triggering a firmware update to disable third-party ink cartridges, you have to ask yourself if this was motivated to prop up market share on a vital part of its business, or to simply send out a reminder that aftermarket products cannot be relied upon - in this case, for their own self-serving reasons!
Either way, it looks like an act of desperation to risk the brand with such a misstep that, in turn, quickly led to a humiliating public apology and climb down.
With net income in the range of 6% or so, and a disproportionate share of this income coming from ink and toner, HP, Inc. doesn't have much room for a protracted fight for market share based on price. Instead, other tactics, perhaps like those just described, may be expected to be increasingly used to try and prop up their sales.
Many know an OEM cartridge sold at $100 probably doesn't cost more than $10 or so to manufacture. High-quality aftermarket alternatives are widely available at half the OEM price while cartridges of less well-known origin may be purchased online for $10 or less.
HP, Inc's. planned acquisition of Samsung and the Ninestar / Apex acquisition of Lexmark, means the current owners of around 70% of the printer hardware market are distracted with massive global acquisitions and all the inevitable integration issues associated with them.
For savvy independent office products and supplies resellers, these conditions represent opportunities for growth. In focusing on their local markets, leveraging their relationships in those markets and promoting their value proposition, it's possible to win market share from the big-box retailers / contract stationers and from their OEM partners.
Why not check out our free eBook with a comprehensive assessment of the office products industry and the opportunities to develop significant sales growth in a challenging environment despite the ongoing consolidation of a mature industry.
