Monday, March 30, 2009

Sea Change For the Copier Dealer

For years making a healthy profit has been a fairly easy formula for the principal of a copier dealership: Increase your unit placements, provide high quality customer service, and reap the benefits of the profitable aftermarket stream (defined as supplies, service and parts). Actually, it is a model similar to many, car dealerships being one that comes immediately to mind. Hold that example as we progress through this article.

This model of success was formulated during the late seventies and throughout the eighties as the industry flourished with technological advancements, product extensions, and year over year increases in units sold.

Many times the dealer channel has been told that there was a Sea Change occurring. First, companies like Alco (eventually IKON) and Danka were acquiring the independent dealer channel with the promise of leveraging efficiencies of scale. Some dealers wondered how they were going to compete against these behemoths. That fear never materialized as the Goliaths impaired themselves with poorly executed strategies.

Next, the transition to digital was going to be the tar pit of the copier dealership as network companies controlled the network. Remember the saying; whoever controlled the network controlled the output? Then came production units and the pundits who said that dealerships could never understand the space or afford the investment to be successful. This led to those that said the direct operations would be the death of the copier dealer. In reality, those direct operations that were not run to produce profit seem to be hurting the manufacturers themselves, but that is another subject.

I am confident that the Sea Change I am referring to is not a mirage: Year over year unit sales are declining—and rapidly. As detailed in a ChannelWeb article (see previous post) , Gartner reported that year over year fourth quarter shipments of copiers and printers in the professional segment, as opposed to consumer segment, declined by 25.3%. I saw a report by another research firm—included in a presentation so I am not quoting it since I did not see the original—that showed 2008 copier unit placements decreased 200,000 from 2007 and a projection that they would decrease by another 190,000 units in 2009. Placements were projected to decrease from 1,355,000 in 2007 to 963,000 in 2009. In case you are curious color was down year over year and projected to fall again and overall units were forecasted at 813,000 in 2012.

The dealer community has adapted to the roll-up years, the transition from analog to digital, into the color world, the proliferation of direct operations and the product extensions into the production space. And many of the dealerships around the country will adapt to the dramatic decrease in unit sales. The same can be said of the manufacturers: Many will adapt.

The other side of that equation is that there are quite a few that will not adapt. On the manufacturer side—and this has been said for years by many industry players but I think the time has finally arrived—there is simply too much distribution.

So back to that car dealership comparison; when we were buying 15 million + cars it was hard for a dealership or manufacturer to make a fatal mistake. Manufacturers produced inferior products and wasted billions of dollars in a multitude of areas. Car dealers were happy as the manufacturers drove traffic into their showrooms through big incentives. Then, unit sales fell 30% or more in a short period of time (sound familiar), the manufacturers cut back on incentives they could no longer afford to fund, and car dealerships (and soon it seems manufacturers) begin to fail.

The copier industry has a long and rewarding future for those dealerships that plan well. The second half of that statement is very important. If the predictions are accurate copier placements will decrease by 40% over the period 2007 – 2012. Combined with lower average unit selling price, the proliferation of printer based MFDs, and A4 units replacing A3 and you have a significantly lower revenue stream. Offsetting those decreases are color pages and capturing the prints made on the printers—print management or MPS. I believe the latter is a significantly larger revenue stream than the former.

But dealerships will also need to address high general and administrative expenses. At Strategy Development we believe that dealerships need to strive for a 10% G&A within the next five years. Our operations consulting practice is helping dealers put the plans in place to achieve that goal. We also believe that you need to maximize the return on aftermarket; our service consulting practice is helping dealerships achieve that goal. Our MPS practice has helped scores of dealerships launch successful print management initiatives; a must have to thrive in the future. And finally, and most important, you need a solid plan that ties together all of the aforementioned moving parts so that you are one of the dealerships that thrive through the Sea Change.

Get your plan in place, execute, and thrive!

This piece was also published in Document Solutions Daily (

Sunday, March 29, 2009

Printer Market 4Q 2008: News That Isn't Fit To Print

ChannelWeb's publication of Gartner's placement statistics for printers and copiers is sobering, although not surprising. The economny--which as of late actually seems to be improving--may be driving the lower hardware investment, but my guess is that the process changes implemented to operate with fewer devices will be maintained by many of the companies when the economy starts to grow. Executives that manage budgets, the CIOs, CFOs, and Chief Procurement Officers (CPO) have now set a new, and lower, bar for output device expense.

The imaging business is still a great business. Make sure you have a plan in place to leverage this new environment. The link below will take you to ChannelWeb's article on the Gartner stats:;jsessionid=ICR4AUYE2SGMMQSNDLPCKH0CJUNN2JVN?cid=VARBusinessFeed

Monday, March 2, 2009

What CEO’s Want From CIO’s

According to Information Week's Global CIO unit:

1) Create new products
2) Create new revenues
3) Deepen the company’s engagement with customers
4) Conserve cash, liberate trapped cash, and understand implications of cash flow
5) Create and enforce global standards for processes and applications
6) Unlock new ways to find, deliver, and assess higher value information
7) Reverse the 80:20 glut to make the first six possible
8) Create massively transparent organizations with all metrics focused on business value

Doesn't that list scream for print management? Numbers 4 and 5 are addressed with an MPS agreement. Number 6 benefits because you free up IT support time to work on higher value projects. The 80:20 glut references 80% of money spent in support and only 20% on innovation. MPS will cut their support expense over time. Number 8 will be addressed with quarterly account reviews.

I am not suggesting print management is the cure to all of IT's problems, or a major contributor to any of the eight focus areas. But it does help the CIO close the gap in the CEO's goals.

Sunday, March 1, 2009

How Much Will The Copier Industry Change?

Significantly, if you pay attention to the research companies! I recently read a research report that indicated that mono copier based MFD placements had declined from 1.1 million in 2007 to 900,000 in 2008 and will decline another 20% in 2009. This analysis showed mono copier based MFD placements in the low 500,000s by 2012 (in case you missed it that is less than half of the 2007 placements). Think the answer is a shift to color? Not according to this report that showed color placements fairly static, rising from 250,000 in 2007 to 292,000 in 2012, after initially falling in 2008 and 2009. Nice percentage increase but only 40,000 units.

So a research group and their crystal ball are suggesting a “sea change” in the copier industry! Maybe they are wrong; it certainly would not be the first time. Maybe they are only half accurate and the industry will decline from 900,000 mono placements (let’s give them credit for accuracy on an event that already occurred, 2008) to 750,000, and color will remain under 300 thousand units. What will the industry look like when total placements decline from approximately 1.35 million in 2007 to 1 million in 2012? That is a 30% decline in placements. I would keep in mind they are stating that will occur this year, so they would have to be really far off in their predictions.

Let’s throw in the shift to A4 copier based units. Regardless of your desire, over the long term A4 will replace many A3 units at a lower average unit selling price (AUSP). Since we still have the same major copier manufacturers today as we did last year we clearly have a production over capacity issue: There are more factories pumping out more copiers than can be absorbed by end users. Over capacity—as any economist will tell you—leads to lower prices (the old supply and demand theorem). So you have a couple of dynamics suggesting AUSP will continue to decline.

Don’t jump off that ledge just yet! How do you deal with this news? In a word, “PLAN” for it. It wouldn’t surprise me if one or more copier manufacturer merged operations or was acquired by another manufacturer; in this situation operations being defined as technology and channel (dealers). It also wouldn’t surprise me if we had 50% fewer dealers by 2012. Fewer product placements will result in less distribution, either planned or unplanned. This is another fact to discuss with your economist friend.

So PLAN on being one of the thriving survivors!

Put together a strategic business plan that models out the change over the next five years. Launch and perfect a print management program. After all, where do you think some of that decline in copier placements is going? Yes, to printers! Not all of it as printer placements are also declining but there is a shift. And, all of that additional aftermarket revenue coming out of the printer fleet has the potential to more than offset the decline in copier hardware revenue—at a higher profit margin.

Focus on productivity in all departments. Lower equipment AUSP will translate into lower gross profit dollars, even if you maintain your gross profit percentage. Optimize operations so you can operate your back office with high customer service and low cost: Focus to processes and automation. Maximize your return on service. Drive improvements in all areas year over year: Stay focused and maintain a high intensity level.

You don’t want to be one of the “unplanned exits” from the industry and by planning now not only will insure your place in history but you will insure a high profit business. Copiers and printers are not going away, they are just fading slightly. It will remain a great business for those with a plan!