Office Products: statistical overview

Like so many other catalog markets, the office products field is tough to track. Incorporating sellers of general business paper products and stationery, business forms, machinery, office furniture, and general office items such as staplers, staples, clips, and pens, this market is diverse – and highly competitive. On the next nine pages, we take a hard look at this segment, analyzing the overall U.S. office products market, the trends shaping the business, and the role of office products catalogers now and into the future.

Before launching into statistics and analyses, a clarification: For the purpose of this special market sector report, Catalog Age defines the market as including office products commodities such as paper, furniture, and pens; business forms; and business machines, such as photocopiers, calculators, and faxes. We do not include the computer hardware and software market.

Using this definition, the size of the market (measured in manufacturers’ shipments), according to the Business Products Industry Association (BPIA), was nearly $88 billion in 1998 (see chart, below). This is a jump of nearly 8% from shipments of office products in 1997.

Another estimate of the size of the overall office products market portrays it as an even larger segment: In a recent research report, New York-based investment and research firm Sanford C. Bernstein & Co. estimates the value of business machines, forms, office supplies, and office furniture as $113 billion in 1997, and $125 billion in 1998.

Regardless of whose estimate you use, there is no doubt this is a sizable market, whose growth has been driven primarily by the rise in new office construction (see chart below), the continued transition from a manufacturing- to a service-centered business economy, and the corresponding boom in white-collar employment (which has, according to the Bureau of Labor Statistics, grown from 58.3 million workers in 1993 to nearly 66 million people in 1998 – again, see chart, this page).

The emergence of the small and home office (SOHO) market has also been a boon to the office product industry. According to BPIA’s study, “Introduction to the Office Products Industry,” small businesses (those with fewer than 100 employees) account for a whopping 98% of all U.S. firms today, and they employ more than 55% of the nation’s work force. In addition, there are currently between 35 million and 40 million home offices in the United States. SOHOs, in fact, are credited with creating two-thirds of all new jobs in the U.S.

As a result of all these factors, “the office products industry at large has seen some good growth in recent years of 8%-10%,” says Dan Binder, retail analyst for the New York-based investment banking firm Brown Brothers Harriman. And the future, Binder says, looks just as positive. “As long as America stays well employed, that growth can be maintained in future years at the same level.”

When looked at by product category, the future of the office products market is mixed, however. The largest portion of this business, the commodity-driven supplies sector, which includes standard office necessities such as pencils and erasers, paper and clips, staples and staplers, should remain healthy – with growth in the double digits – based on the expectations of continued growth in small and service-oriented businesses.

The next-highest segment in terms of annual growth is office machinery. Shipments of office machinery are expected to continue to grow at around 7%-8% annually for the next few years. By contrast, furniture should grow at much lower levels. BPIA’s “Introduction to the Office Products Industry” report estimates that in 1998, domestic office furniture manufacturers shipped about $12 billion of new furniture product, and sold more than $1 billion of used office furniture – figures that were only 1% higher than in 1997.

And as the BPIA’s report points out, “in recent years capacity [in the supplies and furniture industries] has grown faster than sales. As a result, growth depends upon gaining market share. As is common when growth in capacity outstrips growth in demand, competition intensifies, and prices and margins fall.” The result? A continuing consolidation in these markets.

As for the paper-related segments of the office products industry, growth will be modest in the next few years (see chart at the bottom of this page), though the business forms market will remain flat. The growing trend of companies of all sizes creating their business forms inhouse with specialized computer software is resulting in a continuous decline in the forms market overall.

Since the mid-1990s, mail order sellers of office products have benefited from the growth of the service industries and the boom in small/midsize businesses. And as shown by BPIA’s estimates of percentages of manufacturers’ shipments to reseller types, mail order marketers have increasingly been competing more with the retail “superstores” than with each other. (See our trends article, page 70.)

The escalating competition in the office products market has forced catalogers during the past decade to step up their service, improve loyalty efforts, and cut prices. It has also resulted in a number of office products catalogers being acquired or merging with “mega-retailers” – in effect, creating mega-cataloger/retailers. The retail and mail order channels have consequently been more difficult to separate and compare. But it is worth noting that Staples (which bought office supplies cataloger Quill Corp. in May ’98) and Office Depot (which purchased cataloger Viking Office Products in August ’98) attributed only 69% and 57%, respectively, of their total 1998 sales to their stores, due primarily to their mail order acquisitions.

In general, the mail order channel has experienced relatively little growth in terms of market share when presented as a percentage of manufacturers’ shipments of office products (see chart, previous page). But when one views catalogers’ total sales of office products, annual growth in the market sector has been very respectable. The chart pictured on this page (below, left) shows that according to Catalog Age estimates, office products catalogers experienced double-digit sales growth in the mid-1990s, slowing to 7%-9% growth through 1998.

As with so many markets today, the really dramatic growth in office products sales will come via the Internet, rather than the mail order channel. According to Forrester Research, e-commerce revenue for paper and office products will climb at heady annual rates – more than 118% on average for the next five years. Forrester estimates that Internet sales of paper and office products will climb from $2.9 billion in 1999 to more than $65 billion by 2003. Indeed, with the recent painful increases in the cost of paper and the pending postal rate hike, it’s a safe bet that office products catalogers will increasingly be pushing their customers to make more of their purchases from the electronic, not the print, channel.

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