--- title: SP Richards Merger & The Independent Office Products Reseller! description: Independent office products resellers difficulties in transitioning from analog to digital combined with the threat posed by the SP Richards Merger. Combined with the increasing threat of the OEM's leveraging technology to go-direct to the consumer bypassing traditional reseller channels. --- [![Digitol Services](https://info.digitolservices.com/hs-fs/hubfs/Digitol%20%26%20E%26S%20Co-Branding%20Logo.png?width=131&height=64&name=Digitol%20%26%20E%26S%20Co-Branding%20Logo.png "Digitol Services")](https://www.EandSsolutions.com) - [Home](https://eandssolutions.com) - [About Us](https://eandssolutions.com/about-us/) - [About Us](https://eandssolutions.com/about-us/) - [Endorsements](https://eandssolutions.com/about-us/endorsements/) - [Privacy Policy](https://eandssolutions.com/about-us/privacy-policy/) - [Expertise](https://eandssolutions.com/expertise/) - [Business](https://eandssolutions.com/business/) - [Finance](https://eandssolutions.com/business/finance/) - [Planning & Strategy](https://eandssolutions.com/business/business-planning/) - [Operations Management](https://eandssolutions.com/business/operations-management/) - [Supply Chain](https://eandssolutions.com/business/supply-chain-for-small-business/) - [Intellectual Property](https://eandssolutions.com/business/intellectual-property/) - [Mergers and Acquisitions](http://eandssolutions.com/business/mergers-and-acquisitions/) - [Sales & Marketing](https://eandssolutions.com/sales-marketing/) - [CRM](https://eandssolutions.com/sales-marketing/crm/) - [E-commerce](https://eandssolutions.com/sales-marketing/e-commerce/) - [Digital Marketing](https://eandssolutions.com/sales-marketing/digital-marketing/) - [Social Media Strategy](https://eandssolutions.com/sales-marketing/social-media-strategy/) - [Sales Channel Development](https://eandssolutions.com/sales-marketing/sales-channel-development/) - [Technology](http://eandssolutions.com/technology/) - [IT Systems](https://eandssolutions.com/technology/it-systems/) - [Software Development](https://eandssolutions.com/technology/software/) - [Digitol](https://eandssolutions.com/digitol-solution/) - [Free Tools](https://eandssolutions.com/free-tools/) - [Blog](http://blog.eandssolutions.com/blog) - [Contact Us](http://blog.eandssolutions.com/contact) Search … Search ![keyboard2.jpg](https://info.digitolservices.com/hs-fs/hubfs/ExecutiveStrategicSolutions_Sep2016/Layout/keyboard2.jpg?width=1280&name=keyboard2.jpg "keyboard2.jpg") # The Great Office Supplies Caper ## SP Richards Merger & The Independent Office Products Reseller! by [Ian M. Elliott](https://info.digitolservices.com/blog/author/ian-m-elliott) | 7/25/17 7:58 AM Find me on: [Facebook](https://www.facebook.com/pages/Executive-Strategic-Solutions/235034643185168) [LinkedIn](https://www.linkedin.com/in/elliottian) [Twitter](https://twitter.com/elliott_ian) - [Tweet](https://twitter.com/share) I have previously written about the [independent office products reseller and the $20 billion growth opportunity](https://info.eandssolutions.com/mergers-and-acquisitions-a-twenty-billion-dollar-growth-opportunity), an opportunity that can only be taken advantage of by those who embrace information technology to build their online presence and to improve their value proposition. A key part of my message has been directed toward the futility of diving into the "Red Ocean" of rock-bottom internet pricing versus competing in the "Blue Ocean" of high-priced OEM and Tier-1 aftermarket cartridges, sold to businesses through resellers such as Office Depot, Staples, and other "Big-Box" outlets. It may sound simple, start your digital business transformation and, after a lot of work, all will be well! But, what may this scenario miss and does the plight of the independent office products reseller need a deeper investigation? Is it inadequate to present an argument they’re simply being left behind as the world converts from analog to digital? **The threats facing office products resellers are clear for most to see:** - [Mature and shrinking market.](https://info.digitolservices.com/office-products-resellers-churn-shrink-and-price-compression) - Consolidation - fewer players remain and, those that do, have more power. - The threat of intellectual property litigation and the presence of illegal cartridge "clones". - The [cartel-like structure that's evolved in the office products industry](https://blog.eandssolutions.com/blog/in-plain-sight-an-ink-and-toner-cartel-or-not) and how it effectively controls market share and pricing. - The digital challenges facing independent resellers hampering their efforts to embrace technology, [disintermediate the big-box office products resellers](https://blog.eandssolutions.com/blog/what-do-uber-and-office-products-have-in-common) and win market share. - The [flight to the Amazon Marketplace](https://blog.eandssolutions.com/blog/amazon-marketplace-sellers-and-office-products) as resellers independent web-traffic development efforts failed. **However, there are two other threats may be less obvious:** - The role of the national wholesalers (SP Richards and Essendant) - The OEM direct selling strategies These two threats have the potential to derail independent resellers efforts to prosper in the current environment. **The National Wholesalers** In my model for Digital Transformation, I have assumed the trend toward independent resellers and the “virtual” business model continues. In leveraging technology to select products from over 100 distribution centers and 20+ manufacturers and distributors in the United States and Canada, fast, low-cost, drop-shipment of orders is possible. This eliminates the need to invest working capital into inventory or establishing reserves to cover the risks of obsolescence. However, for this strategy to work, the two national wholesalers play a vital role. The Office Products industry is about many more products than ink and toner which, on their own, can be well-served with the alternative logistics provided by the second tier of distributors such as [Supplies Wholesalers](http://www.supplieswholesalers.com/), [Arlington](https://www.arli.com/), etc. Most customers want to reduce the number of suppliers they deal with and there's little appetite for separating out the ink and toner spend with one supplier and all other office products with another. The national wholesalers stock tens of thousands of SKUs to support a vast range of office products, a range that it's inconceivable for office products resellers to independently stock. Therefore, to be in the game for winning business from Blue Ocean type customers who are more likely to be seeking single supplier, fixed price supply agreements, the role of a national wholesaler is vital. Gross margins in the wholesale business are slim and there's no doubt the two national wholesalers in the United States (Essendant and SP Richards) have been hurting. Essendant reported earnings back in February 2017, announcing a loss on a per-share basis and saw its shares fall by 40% to $14 during the day. Although (at time of writing) they’ve recovered partially to around $15, and the outlook may be starting to appear more positive, they’re still down nearly 60% on the trailing twelve-month high. The wholesalers clearly have operational issues to deal with and need to improve their margins. Of course, they’ll continue to look at reducing overhead and product cost but, they may also be taking a close look at the 3PL fees they charge for their services. Essendant and SPR provide a first-class service at competitive rates however, with potentially profound implications for independent resellers, the cost for their services could change. - Increased Minimum Order Charges - Increased Freight Charges - Increased Custom Labeling Fees > *Think about a small $20 order that used to be drop-shipped for an additional fee of $2.00 that now increases to say $8.00. An Independent Reseller, in a fixed price contract selling at $24, would face an unavoidable loss on the transaction.* Maybe Essendant or SPR will still deliver this item directly to the reseller at $20 (subject to a larger order qualifying for free freight) but, that means the item must be stocked, increasing the need for working capital and the downstream risk of obsolescence. In this scenario, the prospects for the smaller office products dealerships without the ability to fund inventory purchases would be undermined. **The OEM Direct Selling Threat** If the independent reseller's vulnerability to potential increases in the wholesalers service fees isn't enough to worry about, then think also about the ongoing implications of the OEM selling strategies. To illustrate this, I'll use Hewlett-Packard as an example. Firstly, because they're the largest, especially when considering their pending acquisition of the Samsung Printer Business and, secondly, because they've made significant changes to their distribution strategy over the last five years or so. Between 2012 and 2014, HP conducted two or three consolidations removing dealers from their authorized reseller program. The result was a more selective and tightly controlled network of resellers. Among other requirements, sales reporting conditions were imposed requiring (in some circumstances) distributors and dealers to report who they sold to, how many, and at what price. Each authorized reseller has a sales target geared to volume rebates. Miss the target and miss the rebates. We all know there isn't much margin on an OEM cartridge sale and, even with the rebate included, it's low margin business at the distributor and reseller level. Think also about the overall market decline and question if this is fully anticipated in the sales targets. Bottom line - targets may be increasing and rebates shrinking. What are the implications of missing sales targets? Most likely not "one-strike-and-out" but, consistently missing, and perhaps missing by a wide margin, may put an authorization in jeopardy. Think about all the sales information passed upstream. Could this eventually be used to cut out the reseller? Of course, it *could* be but, although we don't know it will be, the possibility it *may* represents a threat to the resellers future business with their current customers. Hewlett-Packard (along with other OEM’s) already sell direct so, what's to stop them all from expanding their initiative and eventually cutting out the office products reseller completely? The possibility of losing access to OEM brand products represents a significant threat to established independents who have spent many years building their business while staying loyal to the OEM brands. The fact that, 30+ years into this business model, the OEM's still have an 80% market share is a testament to this loyalty. Unfortunately, resellers are poorly prepared for a conversion process from OEM brand to aftermarket alternatives. Although we know consumers are prepared to accept aftermarket cartridges (as conclusively proven by the OEM and aftermarket Managed Print Services contracts) the problem is, the OEM sale is a relatively "easy" sale while the aftermarket sale is not. Conversion selling is a new skill many independents must still learn. Unfortunately, this conversion skill must be learned and executed while balancing on a tightrope between: - Missing the OEM sales target and potentially compromising an authorization status. - Transitioning to more profitable aftermarket alternatives where the supply chain will not be threatened by the requirement for reseller authorizations. **Conclusions:** The National Wholesaler vulnerability and OEM direct selling strategies are significant threats the independent resellers must deal with. One could argue they've been engineered into a corner by the most powerful participants in the office products industry, playing all the cards they can to keep the distribution of profits the way they are. One could also argue they're victims of circumstances that have randomly conspired to bring about the same result, thereby ensuring the big, established players remain firmly in control of the value chain and that only the largest of the independents will be able to stay in the game. Regardless, for those independents with enough energy to continue the fight for survival, the problems continue to get tougher and tougher to deal with. There *is* a $20 billion opportunity but opportunities of this scale are not handed out on a plate. Only those with the fortitude, skill, and ability to leverage technology to level the playing field to compete effectively will survive to take advantage. > *If you missed my eight-part series on [the office supplies aftermarket tipping point](http://blog.eandssolutions.com/blog/the-aftermarket-office-supplies-and-a-major-tipping-point-part_i), please check out the second of our series of three eBooks. It's **FREE**, and it contains a thorough examination of the future for office supplies dealerships and a path to the $20 billion growth opportunity leveraging aftermarket office supplies by independent office products resellers.* > > [![Free e-Book MERGERS & ACQUISITIONS Click Here for Access](https://no-cache.hubspot.com/cta/default/885654/e492f60b-40c4-47ac-a016-98d7aed323f4.png)](https://cta-redirect.hubspot.com/cta/redirect/885654/e492f60b-40c4-47ac-a016-98d7aed323f4) Topics: [Business Transformation](https://info.digitolservices.com/blog/topic/business-transformation), [Industry News](https://info.digitolservices.com/blog/topic/industry-news), [Small Business](https://info.digitolservices.com/blog/topic/small-business) ### Subscribe to Email Updates ## ![Digitol Logo](https://info.digitolservices.com/hs-fs/hubfs/EandS_Solutions/Blog_Images/DIGITOL_logo_HiRes.png?width=200&name=DIGITOL_logo_HiRes.png "Digitol Logo") Become a founding member of our Digital Business Transformation Service! 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