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 (www.kworkpublishing.com)

Maximize Service Return

Our current economy serves up many challenges; however, there’s never been a better time to take stock of your situation and get your service house in order. If you recognize the need to achieve a service return of 50%+ the best place to focus on is service productivity and staffing: labor is the largest and the most controllable service cost component you have.

There never seems to be the right time to “right-size” the service organization. When overstaffed there is always the tendency to say – “we will just grow into it” or “we will reduce staffing through normal attrition.” The problem with the first approach is if growth does occur, everyone is so comfortable with the current workload and pace that they will push for additional staffing rather than work harder and productivity will actually suffer. If the position taken is to reduce staffing through normal attrition you lose the opportunity for a planned cost reduction, and believe me, in today’s economy, turnover is at an all time low, so you may never get to where you need to be, and you will suffer a “lost opportunity”.

Here is a common observation relative to service staffing: When analysis concludes there is excess technician staffing the most frequently expressed justification is the need to maintain current service call response time levels. Response time tends to become the cloud cover for productivity issues associated with technical proficiency, resource planning, and time utilization. Obviously, when overstaffed, there are multiple productivity related processes that must be reviewed and changed to enable staffing reductions and still deliver quality service.

This year you have the perfect opportunity to right-size your service organization. Correct staffing levels are essential to controlling your costs, improving your productivity, and delivering the bottom line results you need. The key is determining how many resources you really need to support the customer base that you have while delivering quality service. If you have questions about how I can help you plan and optimize your staffing resources please contact me at woodard@strategydevelopment.org.

Don't Cut Your Prices!

I realize that we are in a poor economy and that revenue is one measurement you always want to focus on, but cutting your prices is a death spiral. And don’t give me the cash flow reason either: the cash flow statement starts with the entry for net income. Lower prices results in lower margin, which results in lower net income—all else equal.

There are a lot of reasons for the death spiral comment. One is the cultural change you will instill in your sales force. If you have spent the last decade developing the team to sell value and fight for profit using enablers such as advanced capture, document routing, or variable data , and then send the message “get the deal at all cost,” your decade of work has evaporated in six words.

Once you get your sales force accustomed to selling on price how hard will it be to switch them back to value when we exit this economic trough? I would tell you it is next to impossible.

At the company I worked at prior to Strategy Development the CEO rolled out a new pricing and compensation structure for the sales force. Since I ran the largest business unit, and the only one gaining market share, I had my finance team run some Monte Carlo Modeling on the plan to see how it was going to affect our revenue and profit. The modeling demonstrated that GP would decline by 300 to 400 basis points and, depending on the mix of business, could actually increase compensation: Lower GP with higher compensation, about the ugliest of scenarios.

The CEO and I had what I’ll term as, robust discussion on the program (I always took delivering my results seriously). After this robust discussion we came to the conclusion that we had two distinct philosophies on strategy, and I left. Since it was a public company I could follow the results. The next quarter equipment GP decreased year over year by 430 basis points and the Wall Street Analyst annihilated the CEO on the earnings call. Even though it was a topic of discussion every quarter thereafter, the GP never recovered. That company spun out until it was ultimately acquired at what looked like a bargain, a significant discount, relative to other public companies acquired in the space.

The point is not that the modeling my team produced was accurate—who cares because I failed in delivering the message so that it would be heard—but that even with extreme focus and three years of opportunity that company could never get their margins back up. Don’t cut your prices!

So what actions should you take? Make well planned and strategic investments in sales and fund those investments by optimizing your service operations and your back office operations. Exiting the current economic trough in a position of strength is one big reason to focus on these two areas but another looming issue is that your new competitors—the VARs and print management companies stealthily entering your space—have G&A in the mid to high single digits. Most BTA channel companies have G&A in the high teens to low twenty percent area. Set your five year plan now to get G&A to less than 10% and to maximize service returns.

The next couple of entries will focus on how to accomplish these goals.