MDM spoke with United Stationers CEO Dick Gochnauer recently about the company’s move into the industrial sector as well as the role it plays as a master distributor. In Part II of this interview, Gochnauer addresses private label, recruiting and retaining employees and data-sharing.
MDM: How is United Stationers preparing for a potential economic slowdown in the next year?
Dick Gochnauer: I have less concern over industrial, foodservice and JanSan. In the office products space, we are seeing a slowdown. We saw it starting to occur in 2007. We figured it was coming and it did. We are prepared if the economic slowdown continues in 2008. We are planning to get growth but know that it may be more challenging. The good news in the office products industry is that a bad year is a flat to slightly down growth rate. We don’t have dramatic swings.
MDM: What is your strategy in private label?
DG: You can’t avoid addressing a need the end user has. They are demanding some options in private label, and if you don’t fulfill it someone else will.
On the office products side, the dealers compete with the large national dealers, Staples, OfficeMax, Office Depot, and Corporate Express. Because most of those dealers have a retail presence, they got into private label early. If the dealer can’t match that, they will lose that business because they can’t offer what the end consumer is looking for.
I don’t ever see it becoming a dominant part of our business. We started a few years ago at 8 percent and now are up to about 13 percent, so it is growing. Large national dealers claim to be at 20% to 30% of sales today. I don’t know if I ever see that the channels we sell through will be in those percentage numbers.
… What will happen is that the third and fourth brands lose share. The first and second brands -the 3Ms and Hewlett-Packards of the world -do just fine. That’s what tends to happen.
It’s a complicated deal because you have to become like a manufacturer. You have to gear up for it, you don’t have return privileges, and it’s a longer lead time so your inventory investment is greater. If the quality is not right, you have the liability. There are a lot of issues with private label for a distributor or a wholesaler, so you should not go down that road lightly.
At our office in Asia, a large percentage of our staff is in quality assurance. In manufacturing plants, you have to monitor quality very closely because you’re putting your name on it. You have to be very careful. Private brands have higher margins, but they also have higher costs. We’re not there because strategically we have to be there, it’s because the customers tell us we have to be there.
MDM: Do you have any plans to expand internationally, beyond North America? United Stationers is currently just in the U.S. and Mexico.
DG: We don’t have the cyclicality issue in office products like they do in building materials. There is no reason to be abroad to counter the cycles here. There are best practices to share, but no economies of scale.
Even though you’re buying Hewlett-Packard products, you buy them differently in each country. There is not much leverage from suppliers. We never found the risks and investments to go internationally make much sense for our business. We instead thought it would make sense for us to move into the industrial space here rather than into office products in Germany.
MDM: How is United Stationers working to recruit and retain better employees?
DG: It’s a big challenge for everybody and a bigger challenge for our dealer customers. We just launched an initiative recently to help our dealers hire and train sales teams. For many years, we have been providing general sales training for our customers.
To grow, they need to continue to bring in and attract salespeople. Some of our dealers are very effective at it, and they are growing. It is probably one of the key issues small businesses face.
At our level, we have the advantage of being a Fortune 500 company, and it’s easier to attract talent. Smaller businesses don’t have the economies of scale, and that’s where we see a bigger problem.
MDM: What is your take on the value of sharing data with channel partners?
DG: You have to be very careful with the data. If you are in a sharing mode with your distributor, they have to have confidence and trust that information will not get out and help a manufacturer go around them or another competitor go after their customer base.
By being a pure wholesaler, we are in a position to earn that trust. Whereas if we were competing by going around them at the same time, it would be much more difficult to share the data.
There are real advantages to the distributor to do so. We can help them put together marketing campaigns. Based on the data, we can segment the market for them and develop promotions that work. That can be a benefit to the distributor.
If you want to compete against larger competitors who are vertically integrated, you have to get more sophisticated. It’s very difficult for a small business to do that.
MDM: Do you share data with manufacturers?
DG: At the present time we don’t, simply because we haven’t mined that data.
It is not stored in such a way that we can mine it. Down the road with dealer permission, you could collect the purchase information and store that information so that it can be mined in order to create campaigns on dealers’behalf, as well as share high level information with the manufacturer.
What you wouldn’t share with the manufacturer is the name of Susie on the third floor who ordered the product. They don’t need to know that. They do need to know whether it’s a law firm or a manufacturing plant and that you bought this much and why.
MDM: Managing data has become more important for small and big businesses alike.
DG: It’s not a small deal. The size of the data warehouse required is huge. The ability to mine and protect the data is another degree of sophistication.