Hall of Shame
that have negatively impacted
the OPS marketplace
20 Mar'11 (Completed)
The greater Office Productivity Services (OPS) marketplace is one of the largest and fastest growing in the world. Most players are positive, but is worth reflecting on some of the negative forces that divert market focus.
1. Odland’s ‘ODgate Scandal’ saga (Office Depot - 2005 to date)
Depot was #1 OP reseller in the world when Bruce Nelson in 2005, was replaced by Steve Odland as CEO. After a 2 year honeymoon period when market capitalization surged to $15Bn, the cracks in Odland’s charade soon began to show.
Odland employed his usual cost cutting methods to boost profitability, but then the wheels fell off and his true colours shone through. Fraudulent and systematic overcharging reached epidemic proportions in the US Communities and other government agencies e.g. GA, NC, CA, MI, TX and FL costing taxpayers multi-$millions annually. The ODGate scandal is now the subject of a federal investigation by the Department of Justice.
Meanwhile, the company shed 11000 workers; savaged its sales force; outsourced core customer service; emptied retail stores; dropped the invaluable Viking brand (bought for $2Bn+); bought and murdered Allied Office Supplies; and hired a most inept and unethical president nicknamed Deputy Dog Schmidt alias Steve BullSchmidt.
The result sales fell from $15.5Bn in 2007 to current 2011 forecast of $10Bn; profitability has been decimated, market capitalization fell from $12Bn in 2007 to $0.5Bn in 2010. Odland was fired in October 2010 but Schmidt is hanging on by a thread.
The biggest scandal in OPS history will not end until the last of the perpetrators is banished. Depot is unsellable under its current leadership. A white knight with a powerful OPS track record is needed urgently
2. Max marginalization years (OfficeMax - 2005-2010)
One of the most admired contract stationers in the US, Boise Cascade merged with Max in 2004 and chose the OfficeMax brand to go to market with the multichannel brand.
After much respected Chris Milliken stepped down as CEO, retailer Sam Duncan took over in 2005. Thereafter, what followed can only be only be described as Duncan’s dull downward spiral as sales plunged from a high of $9.1Bn to the current rate of $7Bn.
Duncan recruited another clueless retailer Sam Martin as COO and together their ‘Turnaround Plan’ destroyed the heart and soul of a once great company. 6000 people exited including store and RDC closures, plus the destruction of a highly effective contract sales team now performing well for independents.
The result of Max’ travails has been the destruction of its market capitalization from $4Bn down to $0.5Bn in 2010. Duncan retired at the start of this year and Ravi Saligram, the ex-Aramark executive with business services experience has taken over and the direction could be more positive?
3. TriMega tribulation years (2009-2011)
The TriMega buying group’s golden period was when ISGroup imploded after its fateful decision to invest in its own RDC facilities back in 2003. ISGroup lost up to 500 of its 700 members, 200+ of which switched to TriMega increasing membership to 400+.
Boosted by increased rebate revenues TriMega began to dominate the US dealer group market. ISGroup was reeling from the losses which undoubtedly enhanced the confidence of the TriMega board and its executive.
Power can play tricks and corrupt strategic thinking and lead to over confidence. In recent years the larger members became unsettled and felt that their specific needs were not being met. Dave Guernsey left the group and started Pinnacle Group aimed at appealing to dealers with $20m+ in sales. Over the past 2 years 13 major members with aggregated sales of $500m have left the group with more in the pipeline.
Apparently these setbacks did not affect the confidence of its executive. In 2009, TriMega moved to form a strategic partnership with wholesaler SPRichards even though 400 of its now near 600+ members were first call with United Stationers. Effectively, this served as a resignation notice to its membership of BPGI… transferring its purchasing volume to aggregate with SPR.
Shortly after its ‘SpriMega’ announcement it released plans to create a PointNationwide national accounts program with the support of SPR and the introduction of a new private label brand called BS (Business Source). Effectively, this created a ‘hunting licence’ for SPR to approach the first call United members with attractive prebate offers to switch to SP.
The latest information we have is that this internecine attack against United has yielded little joy; the PointNationwide program has yet to fly and the national accounts software is not in place yet; and the BS brand development has stalled.
Meanwhile, the leaner IS Group had switched its focus to provide greater support for its members with sales and marketing programs the result of which won the largest US office supplies contract, the $500m US Communities contract from Office Depot. As a result over 60 members switched allegiance from TriMega to ISGroup reducing membership to 500+.
Next, a few weeks ago, out of the blue, TriMega announced the acquisition of an embryonic etailer called SMARTXpress, not a member of TriMega, but run by a close friend of CEO Charlie Cleary, the ex-United marketing VP, Mark Hampton.
The strange rationale for a dealer group to acquire a national competitor of its now reduced 500+ membership was access a ‘web browser or B2C’ market that dealers were not interested in? Apparently, members can buy multiple shares at $2500 each and convert SMARTXpress accounts to their own portfolio at a later date?
This clumsy and distorted thinking misses a huge point. Many dealers would welcome a small 4 person business spending an average of $7000 annually. Surely, TriMega should be helping its members create a better CRM/emarketing and webstore experience rather building a competing force?
Finally, we understand that TriMega has moved to push ISGroup out of the BPGI international consortium? Apparently, they view them as a competitor, which of course all BPGI members potentially have been from the outset. You could not make this stuff up!
These strategic missteps have come to characterize the TriMega executive’s decision making. TriMega desperately needs to gain real market success for its members and not get involved in wars with other groups, its members and wholesalers.
4. UK wholesaler woes (2006-2010)
When the excellent long serving Spicers CEO Bill Armstrong retired at the end of 2005 it seemed to signal a crazy period of uncertainty in the UK wholesaling scene with both #1 Spicers and #2, Kingfield’s (renamed VOW in 2008) behaviour having a negative effect on independent dealers’ development in the marketplace.
First, Rob Vale, the ex-Lyreco/Office Depot director was appointed CEO at Spicers and whilst he expanded its competitiveness in IT supplies and continued the European development, many key dealers were disenchanted. It seemed that his executive appointments were not making a positive impression with dealers.
Many were attracted to the concentrated overtures from Kingfield CEO Alan Barclay. We estimate that dealers with over £80m in aggregated sales moved over to Kingfield.
Unbelievably, soon after these conversions, Kingfield merged with ISA wholesale to form VOW; direct IT supply operators Supplies Team and Caboodle were added to form the Vasanta Group. Amazingly, highly respected, Alan Barclay moved upstairs to chairman and exited day to day executive responsibilities.
Ex-chairman Richard Martin (pic above) was appointed VOW CEO with ex-ISA executive Ian Sinclair took over as MD. The partnership was a disaster and caused sales to tumble. All Barclay’s good work was undone as the group came under severe financial pressure. New investors came to rescue and effectively bailed them out by getting the bask loans quarterized.
Martin and Sinclair exited and Barclay temporarily reinstated in a holding role. Since then ex-Spicers FD Robert Baldrey was appointed as Vasanta Group CEO and things seem to have stabilized.
Meanwhile, over at Spicers, Vale moved on to Staples in 2009 to be replaced by retailer George Adams. Adams completely revamped the leadership team making a number of professional appointments from outside the industry. Meanwhile, the highly regarded, new Spicers UK MD Alan Ball, has made some key executive changes in readiness for market growth.
Unfortunately, uncertainty again returned to Spicers when Adams left suddenly last October, with rumours that owners DSSmith was readying Spicers for sale and as result throwing development projects on the back burner.
5. Corrosion Express (2000’s)
The strategy behind the formation and growth of Corporate Express (CXP) was a single source business supplies system for global customers. It was formed and led by Jirka Rysavy, based in Boulder, Colorado.
It grew rapidly during the 90’s under the guidance of founder Rysavy’s CEO Bob King in the US up to $4.5Bn, primarily through 200 small dealer acquisitions, including the bankrupt US Office Products in 2001. Some of the other large dealers were Summit and Complete in the US, and Universal in the UK,
In 1999, Burhmann Tetterode (BT) acquired CXP and adopted the brand. Frans Koffrie (pic right) a long-term BT executive took over the reins of the combined office products companies with senior managers like Mark Hoffman, Dave Grove, Rick Toppin and Jay Mutschler also involved.
The effect of Koffrie’s leadership was to confuse shareholders, customers and employees alike. Little organic growth was achieved from any of its acquisitions and profitability was static and low. Koffrie was ousted in 2007 after serious sales force problems in the US and integration difficulties in Europe.
Koffrie characterized CXP’s confused state. The sales force was costly, achieved low transaction values and tiny margins. It swallowed up acquisitions that diverted attention away from its poor organic growth performance. Strangely, Peter Ventress, who succeeded Koffrie, continued the confused approach disguising its real decline
CXP sales were $7Bn before it was sold to Staples in June 2008 for a rich $4.8Bn.
2. The BIGPIG and Europa era (1997 and 2000’s)
Wholesalers were not in vogue during the 90’s with several buying groups flexing their muscles and trying to replicate a parallel service on commodity products like papers, ink, toner and stationery supplies.
BPGI was formed in 1997 as a group of groups to maximize global purchasing power. Today it has 21 member groups in 24 countries with 39 vendor agreements and boasts $14.5Bn in user sales from its 3664 dealers. Jim Preston is the current CEO, pic left)
It is based on a compliance model leveraging dealers to switch from current suppliers to maximize the benefit to the supporting vendor. The market growth benefit to vendors apart from switching from another vendor has been marginal. Therein, lies the weakness as it is a pure buying power play with no emphasis or commitment to grow sales in the marketplace.
It perpetuates a destructive buying focus rather than investing in dealers’ ability to compete in the marketplace with sales force development, CRM, emarketing and webstore development. As a result dealers have lost ground against the bigbox’s until they themselves hit the self-destruct button.
Coincident with BPGI, Europa Office, a UK based commodity wholesaling operation (brainchild of Hugh Sear pic right)started and ran through to 2006. The clear goal was to compete with the wholesalers. Again the effect was to divert dealers’ attention away from their effectiveness in the marketplace and create another middleman not adding value.
Thankfully, UK wholesalers responded with competitive ‘commodity pallet prices’ that enhanced their single source proposition, lowering cost to serve and the diversionary effect on dealers’ market concentration.
3. The LeDecky liquidation years at USOP (1994 -1998)
Ex-Harvard graduate Jon Ledecky was a smart and charming guy. He created an acquisition roll-up vehicle called US Office Products. The original plan was to grow and create an eastern states powerhouse under the USOP brand.
The proposition to acquisition candidates was 50% cash and 50% shares in USOP (or a variation thereof). Sounded attractive if there had been a genuine investment in integrating the marketing approach, creating some financial structure, whilst retaining the local entrepreneurs service attitude.
Over 240 companies were purchased in a 4 year period up until 1998. In spite of heavy injections of cash the company filed for Chapter 11 in May 2001 owing $1.1Bn and was taken over by Corporate Express.
In the UK, USOP take over of much admired Dudley was a disaster. They turned into a mini-USOP in the UK, set up a new DC and logistics systems all at once causing a painful collapse.
Yes some dealers made a killing if they sold their shares before July 1996, but many were seduced by the big vision and lost a life’s work of an overambitious roll-up plan.
4. The RDC run on IS Group (2004)
John Kreidel (pic right), CEO of the largest US, 600+ member strong, dealer group, Independent Stationers Group (ISG) was a frequent visitor to the UK and was impressed with the Europa commodity warehousing and logistics model run by fellow BPGI members.
In May 2004 ISG launched 3 RDC’s in California, Indianapolis and Pennsylvania. In addition, it invested in the purchase of an IT supplies wholesaler Express…all with the funds of the group…effectively from manufacturers’ rebates.
Warehousing and logistics were outsourced to Exel and Meridian. It was a car crash waiting to happen as Europa had become in the UK. Again, it was a compliance model not a market model.
ISG’s buy-side strategy immediately pitched it against the members most important partners the wholesalers. There was suspicion about wholesalers…uncompetitive pricing, bigbox support and direct dealings etc.
Rather than leverage the group strength to persuade wholesalers to sharpen its cost-to-serve model and positively assist with their single source strategies, ISG created an internecine war against wholesalers. The result over 400 members exited…200+ moved to TriMega doubling its membership.
Kreidel exited quickly and Mike Gentile (pic left) took the reins and quickly outsourced the RDC operations to Synnex, the IT wholesaler, a partnership that worked effectively from the outset. This heralded the group's new focus on helping dealers to better sell and market trhir services.
However, it still was one giant step away for dealers wishing to provide seamless single source service from wholesaler through to customer desktop. That step was taken in 2010 when ISGroup partnered with United to provide the seamless low-cost single source delivery service envisioned back in 2003.
Collaborative partnerships beat competitive power games every time.
5. FedEx: the Kinko killers
(2004 to date)
Fedex the transportation giant was already collaborating with Kinko’s print stores by providing mailing services to 100+ of its 1200 stores, when it decided to pay $2.4Bn in cash to acquire the company.
In the 7 years since sales have declined at a compound rate of 5% annually. Changes of leadership and changes of brand name havew highlighted the incompetence of a world-class company that strayed from its core competence.
Kinko’s was a catchy, memorable brand that grew up as a print and binding service for students, authors, start-ups, entrepreneurs and road warriors. It was a personal destination publishing service.
Changing the name to FedEx Office, made it sound like a soulless mail room operation run by dispassionate hired help. It’s certainly not a destination store.
Meanwhile, Staples has stepped up its Copy & Print standalone centres and made the service more prominent in each of its stores. OfficeMax and Office Depot have followed suit. All have mailing services offers with UPS or FedEx, and a more attractive shopping experience.
Paying $2.4Bn in cash to destroy an iconic brand in the interests of retaining corporate identity…crazy.
6. The merger murders: 2 + 2 = 3 or less (Forever)
Finally, probably the most destructive force in the marketplace is the propensity to make ill considered and poorly executed acquisitions.
The Kinko’s/FedEx was an outstanding example of value destruction; so too were the CXP and USOP roll-up years discussed above.
There are so many more…consider these:
- Boise Cascade attempted roll up in the UK
- Boise acquisition of OfficeMax and the value destruction by the Duncan years (discussed above)
- Office Depot’s murderous merger of Allied Office Products
- Office Depot’s vanquishing of the Viking brand
- Esselte’s value destruction of the Leitz brand
- Acco’s destruction of Nobo, GBC and many others
It was not all gloom and doom on the M&A front. There were some excellent operators that achieved added value. These included:
- Oyez-Straker Group (Jeff Whiteway CEO, right) – over 30+ dealers
- Danwood Group – over 20 + in recent years
- Staples – Prime and CXP although not without distractions
- United and SPRichards have made strategic additions in recent years without apparent pain.
- Newell Rubbermaid’s acquisition of Dymo
- Office2office – over 10 acquisitions