Recession Slams Office Suppliers

Months before Sept. 11, companies had already started trimming staffs and cutting expenses. Perhaps no market niche is feeling the effects of the economic slowdown as directly as the office furniture and supplies market.

“White-collar unemployment has been pressuring sales of office products and catalog growth,” observes Dan Binder, retail analyst for New York-based investment research firm Buckingham Research Group. “It’s not as if office products catalogers can jump into selling auto parts or something. Their success is directly tied to the economy.”

To wit: The $11.6 billion superstore giant Office Depot, which owns $3.6 billion cataloger Viking Office Products, suffered a 9% companywide sales decrease for the first nine months of 2001, compared to the same period of 2000. In comparison, Office Depot had enjoyed a 13% sales gain for the first nine months of 2000 compared to the same period in 1999. Even prior to Sept. 11, its year-over-year sales were down 4%-5%.

The $134 million National Business Furniture, a multititle marketer of office furniture, has fared even worse. “Sales are down 10%-15% this year,” says president/CEO George Mosher. “They started declining in February” and dropped sharply in September.

Mosher points out that the company’s sales decrease could have been worse. But having bought online marketer Officefurniture.com and $3 million office furniture cataloger Frank Eastern earlier in the year, “we used some of their sales to balance out” the National Business Furniture declines, he says.

Not all office supplies marketers are down from last year. The $2.95 billion catalog/Internet/contract sales division of $10.7 billion retailer Staples, which includes the Quill catalog, enjoyed double-digit sales growth through Sept. 10. But since Sept. 11, “we saw our growth go down,” says Quill president/CEO Larry Morse. “We’ve been fortunate that we’ve seen sales come back since, though not as strong as we had hoped.”

Reacting to the slowdown

To maintain profits despite sliding sales, National Business Furniture is mailing more to customers and doing less prospecting. Catalog circulation for 2001 and 2002 is “definitely down,” Mosher says. “We’re trying to learn from Officefurniture.com and use it to feed National Business Furniture’s Website through links,” he says, adding that the company is doing only “a limited amount of e-mail to customers.”

Quill’s efforts to shore up sales on the domestic front are more aggressive. The cataloger has expanded its product line by 300 SKUs during the past year. In July, it mailed a 1,000-page catalog, its largest ever, “to be as much of a definitive source as we can,” Morse says. “We’ve found that expanding our catalog each of the past two years has helped our sales,” even though overall circulation has been flat.

As far as sluggish sales of office furniture, Morse believes that “the business will come back.” Over the past year, Quill has trained a group of specialists whom customers can phone to help organize big jobs. To promote the service, Quill has established an outbound telemarketing campaign and sent customers single-piece mailers.

While Morse says that Quill hasn’t embarked on any sort of post-Sept. 11 “action plan,” the company has stepped up the frequency of its promotional e-mail from once a month to once a week. “We’ve targeted our best customers, because we know what they buy on a continual basis,” Morse says, “and they’re very receptive to it.”

Office Depot’s Viking is looking farther afield to boost its business. “Office Depot has made strong headway on the international front, which is one way the catalog can grow above the industry average,” Binder of Buckingham Research Group says. Although Office Depot and its Viking catalog haven’t expanded into new foreign markets during the past year, the company did move into a larger, 320,000-sq.-ft. London warehouse in August to accommodate greater growth in the United Kingdom.

The company has stores or catalogs in Mexico, France, Israel, Poland, Germany, Australia, Hungary, Thailand, Colombia, and the U.K., among other locations. And overseas sales increased 7% for the first nine months of 2001 over the same period in 2000.

Domestically, however, office furniture and supplies catalogers shouldn’t expect a quick return to better numbers. “I don’t see the economy picking up in the next 12 months,” says Margaret Whelan, associate director of equity research for New York-based investment bank UBS Warburg. “There isn’t a lot of pent-up demand now for office furniture, which is a mature industry. A lot of West Coast tech companies are selling off their furniture, and East Coast firms are downsizing and consolidating, so the demand’s not there now.”

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