It may be one of the biggest stories of the year, but the appointment of administrators at Daisytek will create no holes in the market, according to resellers and distributors operating in the consumables and office products niche. As speculation keeps mounting over the potential sale of the outfit, questions have been raised whether the market can sustain a national distributors of office products at all.
Little over a week into the distributor’s administration, the channel is re-evaluating whether the distribution model that works so well for IT products can also be applied to other office products.
There has been no national wholesaler in office products in Australia for a number of years. This has led most office product manufacturers to set up their own warehousing infrastructure in Australia to assure distribution of their product. Wholesalers thus have to compete on very tight margins and can only differentiate themselves on service.
A marketing director for one office supplies vendor, who asked not to be named, said he was impressed with the business model Daisytek originally pitched – but knew that the biggest challenge for the distributor would be in how it communicated its value to the general market.
“Wholesalers have some advantages over selling direct, but you have to get out there and sell them,” he said. “I don’t think that was as successful as they had planned.”
The differentiating factor Daisytek would sell itself on was that most vendors only have warehousing infrastructure in a single city. If this city was Sydney, customers in Brisbane, for instance, might have to wait for two days to receive orders. With national presence Daisytek would offer same day delivery in most major cities.
Daisytek could also differentiate itself through its ability to handle multiple small orders from small business. Manufacturers are not too keen on breaking down cartons and generally sell on a minimum carton quantity, whereas wholesalers will ship and if necessary drop-ship smaller volumes of products for smaller resellers. This gives wholesalers access to the untapped regional market.
Chief executive officer of Office National, Graham Harman, said that while he was sad to see a valued business partner under difficulty, he was not sure such a distributor offered anything unique to the market.
“Their original plan was to be a one-stop shop for office and IT consumables, but they didn’t get some of the important agencies,” he said. “Even if they did get those agencies, they gained no price advantage from them.”
Without such price breaks, margins would always be tight.
Managing director of Ausjet inkjet supplies and service, Dermot Murtagh, said the market was “extremely tight” in the office consumables space. “The margins are very, very tight, so you need to keep overheads down,” he said. “But at the same time you have to carry large units – maybe two to four months of stock in your warehouse. You also need a huge range – it is inconvenient for people to need to ring a different guy for every product, as there is no benefit for your customers in chopping and changing suppliers around.”
Murtagh did not believe there was much room in the market for more wholesalers.
“This is a tough market,” he said. “The proof is in the pudding when you see how many suppliers come and go – and not just small ones, but even big ones like Daisytek.”
Both Harman and Murtagh said there are plenty of alternative options for resellers to buy the same goods elsewhere.
Some customers and suppliers will no doubt endeavour to stick with Daisytek as its administrators attempt to rectify its financial situation.
Harman said he was glad that Daisytek chose to opt for voluntary administration.
“That way, suppliers are not going to be nervous about continuing to work with them,” he said. “They are nice people and I would be very disappointed for their staff if they were to go under.”
Others industry experts are not sure if the model will ever work.
“Office products is simply not IT,” said a spokesperson for one office supplies vendor. “We have seen [Daisytek’s] model fail all around the world – there are not too many who have been able to cross over between the two very successfully.”
Neither Daisytek nor its administrator PricewaterhouseCoopers were available to comment on this story.