BANDING TOGETHER Office products superstores are threatening the area's mom and pop operations. But 25-year-old Portia Pusey has united small stores as they fight back.

THE BALTIMORE SUN

As the news whipped among the gathering of office products retailers, fingers stopped worrying plastic foam cups filled with soda pop, and eyes looked up from note- and scribble-filled pads:

The Office Stop chain of "superstores" had filed for Chapter 7 bankruptcy two days before, meaning that its three Baltimore-area stores would be liquidated.

"That's good news," said Joyce Lortz, owner of Printron Office Products and the host of the meeting at her store in Parkville. "And a customer just came in and said he was just up at Office Stop and the shelves were empty -- had to come here to pick up what he needed."

Mom and pop office supply stores -- often described as sleepy and passive -- are in an awkward state of transition in Baltimore and around the nation.

Much of the upheaval stems from increasing waves of competition from price-cutting superstores, a 6-year-old concept that made its first appearance in Baltimore only 18 months ago. The superstores are grabbing huge chunks of revenue from an industry that has grown to more than $70 billion a year nationwide. And, they're aiming at the same small business customers as independent office supply stores.

That scenario has been played out before: small neighborhood stores with little competition are confronted by a huge, well-financed corporation specializing in their industry and offering lower prices. Most notably, it happened among toy and hardware retailers with "category killers" like Toys R Us and Home Depot.

Now that it has hit home, the trend has given Baltimore-area office supply dealers -- which number well over 100 -- a case of the jitters. Several have had to layoff workers, rearrange product mix and scale back operations that were small to begin with.

Hence, Ms. Lortz's excitement at the demise of Office Stop, a superstore that has a location in Towson uncomfortably close to her Printron store.

Still, analysts describe Texas-based Office Stop's financial malaise as the result of poor management -- not an indication of a general weakness in the new megastore industry. Perhaps that explains why the Office Stop news created only a brief moment of levity among the retailers at the meeting last month.

Not all independent dealers will be as lucky as Ms. Lortz to have a superstore go belly-up just around the corner. They still have Staples and Office Depot -- with four locations in the area and plans for more -- to worry about.

In the long run, the only way for mom and pop dealers to remain prosperous is to change the way they do business. To that end, area retailers have created Traditional Office Product Dealers, a 17-merchant group designed to jointly purchase, advertise and promote products. And to swap stories on survival tactics at meetings such as the one held in May at Printron Office Products.

Portia Pusey put that meeting back on track with an -- "OK, let's hear the radio spot."

Ms. Pusey, a 25-year-old Loyola College graduate who began working full-time for her parents' Regester Office Supply in Parkville four years ago, sparked the creation of the TOP Dealers group. She had heard horror stories about the small, Philadelphia-area office products dealers who had met the "superstore monster" four years back.

Last year alone, four dealers closed in Philadelphia and another six consolidated their operations with others. Many blamed fierce competition from superstores and the recession.

That statistic scared Ms. Pusey. It scared her so much that she forgot her fear of public speaking -- the one that makes her bite her nails back to nubs and break out into a cold sweat -- and stood up during a meeting of the Baltimore Office Products Association with an idea last fall.

She didn't want the Philadelphia horror story to travel 106 miles south to Baltimore.

"We were all terrified about what happened in Pennsylvania. We decided that the only way for us to survive was to band together," Ms. Pusey said.

Thus, in November, TOP was born. For $200 a month, TOP dealers join forces to buy advertising. They use their collective volume to negotiate better prices from the four main wholesalers in Baltimore: Fountain Pen Supply, S. P. Richards, Stationers Distributing and United Stationers.

And they are working toward starting a TOP credit card, because small dealers have problems getting paid by customers suffering from the recession. A credit card will allow dealers to be paid promptly from a credit agency, which then deals with delinquent customers.

The association also creates a forum for dealers to talk to each other about the business. They trade secrets about what fax paper works best and which wholesaler offers the best deals.

Although these guys are competitors themselves -- vying after the same small business market in a relatively small geographical area -- they have taken an attitude of "My brother against my cousin."

"I was a little hesitant before because I didn't know any of the dealers," said Joan Besket, co-owner of Century Office Supply in Cockeysville with her husband Joseph. "Now I do, and I realize we are all going through a lot of the same problems and we can help one another. I don't feel so alone."

The main thing TOP dealers want to do is lower prices, because it is on price -- not service -- that they feel they are beaten by the superstores.

"We still deliver things for free and we carry so many more products, but they beat us on things people have to shop around for, because they buy a lot of it," said Robert G. Riesner, owner of The Village Office Supply Co. in Cockeysville.

His store has seen a drop-off in the sale of copier and computer paper and file folders -- products the superstores undercut his prices by as much as 70 percent.

How?

The concept behind superstores is a no-frills approach to merchandising similar to the Price Club. Superstores offer a limited supply of merchandise -- anywhere from 600 to 3,000 of the most popular items such as facsimile paper, file folders and copier paper -- at rock-bottom prices. Nearly everything else, such as delivery and special orders, usually costs extra.

Superstores can offer such low prices because they cut out traditional middlemen who buy from manufacturers and sell to mom and pop stores. Analysts say the distributor connection accounts for about a 100 percent markup between the factory and the consumer. Without it, superstores can slash prices sharply, usually anywhere from 15 percent to 70 percent off regular dealers' prices.

The first office superstore in the country opened six years ago in Boston. But the concept did not come to the Baltimore area until January 1990 with the opening of Office Stop on Eastern Avenue.

In April, Baltimore became the latest battleground between the industry's two largest and best-managed chains, when Staples established a foothold with an 18,200-square-foot store in Pikesville and added a South Baltimore store later in the month.

Newton, Mass.-based Staples is scheduled to open two additional stores here by 1992, one in North Baltimore and the other in Catonsville. Industry leader Office Depot, based in Boca Raton, Fla., has two stores in the Baltimore area -- in Catonsville and Glen Burnie.

Glenn Davis, owner of Glen Burnie Stationers, has been hit hard by the new competition. An Office Depot opened around the corner, and Price Club, which also sells office supplies at a discount, is nearby. And just as Mr. Davis felt some competition easing with the closing of Office Stop's Glen Burnie store, Leedmark -- a multiproduct store in Glen Burnie -- opened a few weeks ago.

"I've gone from $750,000 in gross sales a few years ago to $500,000 in gross sales now," Mr. Davis said, adding that he attributes 50 percent of the drop to the economy and 50 percent to superstores.

"Some are buying less, but the ones who don't come in anymore at all I attribute to the competition," he said.

Glen Burnie Stationers has had to lay off five employees over the last year because of the drop in business and now is down to three full-timers plus a part-time truck driver.

Mr. Davis would like to join the TOP Dealers association, but he can't afford the $200-a-month fee. "I'm even smaller than the rest of those guys," he said.

But he has started implementing a few changes in his business to help him survive.

He has added art supplies, drafting equipment and ordered a supply of greeting cards and business cards to sell.

Mr. Davis and other office dealers said they thought they could rely on free delivery to keep their customer base.

But many small businesses find that driving to a superstore to buy supplies is a small inconvenience in view of the large savings on those products.

"I'm changing our product mix to get away from what the superstores are carrying," Mr. Davis said, adding that his changes have helped the store remain profitable despite the rough times.

"Dealers are going to have to find a niche. And the niche will not be price. The superstores have the market on that," said Bo Cheadle, an analyst who follows the office supply industry for Montgomery Securities.

Mr. Cheadle says that aside from establishing niches, location is important -- relocating to a space that used to be a convenience store, for instance, with lots of parking. Small retailers also must cross-train employees.

"Every one of our people has three or four jobs," said Mr. Davis of Glen Burnie Stationers. "They learn ordering and wait on customers and learn accounts receivable."

Industry experts say a trade group like TOP is a good way for dealers to organize and to solve problems, but the members shouldn't become too dependent on them because their energy level can fizzle with time.

"It's an ego type of thing. You have second- or third-generation management in this business -- they used to drive a delivery truck and they've risen through the ranks and know every facet of the business," said a prominent area wholesaler who asked not to be identified because of his business relationship with several office stores around the country.

"Put five or six guys in a room together with that kind of profile and they are all going to have different opinions. The coalition tends to loosen up a little bit."

Ms. Pusey says she thinks the knowledge in the group will actually help TOP survive. "It could be from our lack of advertising experience that we fail," she said. "But it won't be because of our lack in trying and our commitment in talking and listening to what each other has to say."

TOP has already run into a few problems. At first, wholesalers only told the retailers two weeks in advance which products to promote in their advertisements. That meant TOP had to rush to produce ads and order products.

"It made the dealers want to put off promoting the products until the following month so they'd have more time to get ready," Ms. Pusey said, adding that the problem was solved last week. "Wholesalers are now giving the stores 60-day advance notice."

Meanwhile, superstores, as if sensing a kind of peasant uprising, have already begun trying to change their image from a cash-and-carry operation to one that is more service-oriented. Staples has begun to emphasize next-day delivery and to better train sales clerks, said Peter Miller, a company spokesman.

Staples has also started marketing to attract business customers who have more than 20 employees. If they are successful, local independents will have to begin worrying about superstores cutting in on the commercial side of the business, in addition to the retail side.

"If you had asked me a couple of months ago if the superstores were cutting into the commercial end of my business, I would have said no," said Dale McKenna, co-owner of DGM Enterprises in Linthicum.

"But today, I just offered to give a woman a 36 percent discount on a fax machine and she said she could get it for $400 less than that from Staples. That's $242 less than I can get it from a wholesaler. That's a little disheartening," he said.

Examples like that tell mom and pop dealers they will have to work hard and fast to keep their foothold in the office supply market.

"The next 18 to 24 months," says Buz Baetz, owner of Fountain Pen Supply in Timonium, "are really going to show who's going to be around and who's not."

Copyright © 2019, The Baltimore Sun, a Baltimore Sun Media Group publication | Place an Ad
41°