Research and strategic planning gave this office product and solutions retailer a new way to do business. If a company told you it could reduce your SKUs by 70%, give back more than 10% of your linear footage, and grow your business by 20%, all at the same time, would that be enough to turn your head?OfficeMax hopes so, and after the successful partnership it developed with national grocer Safeway, the office products and solutions provider developed a five-year plan to make it happen.
Approximately a year and a half ago, OfficeMax was presented with the opportunity to take over and manage the office products section of Safeway stores. After reviewing the grocer’s customer base, office supply strategy, and what it was trying to accomplish as a company, OfficeMax used its industry expertise and grew the business, reduced the SKUs, reduced the linear space needed, and make the department more productive.
“Based on the success of that coupled with what we were hearing from other resellers about buying our private label products, we developed a five-year plan around new channel development,” said Ryan Vero, executive vice president and CMO.
Before discussing OfficeMax’s five-year plan, it’s important to understand the work that came before it. A number of years ago, the retailer conducted a research project to understand its business and individual customers’ mindsets. The result was not surprising: people wanted more from the office product industry, and they weren’t happy with what they were getting.
Rather than trying to ascertain what each customer demographic wanted, OfficeMax started at the top and looked at what its most critical and demanding customer wanted. “Most of our customers were generally happy, but one specific segment said they wanted more,” said Vero. “Working women have the highest expectations, so we used them to set the bar.”
Internally, the company called the manifestation of working women “Eve” and set out on a multi-pronged strategy to address her needs, including what its stores look like, how it presents products, how it goes to market, the products it carries, the services it provides, and how to recruit, train, and retain its associates.
“We used word-of-mouth research, which is a formula-driven way of scoring the various categories,” said Vero. “We found men didn’t express the need for something different, but they appreciated when they had new options. Essentially, because Eve sets the bar so high, by fulfilling her needs, we will satisfy other shoppers as well.”
As a result of its research, OfficeMax made changes to its entire platform. Stores have less of a warehouse look and feel and have more of an inviting retail atmosphere. The company also brought in more than a dozen premium private label brands that brought with them the innovation, style, and design Eve was asking for.
Because most manufacturers weren’t doing the research for new products, OfficeMax took matters into its own hands to understand how people felt about the products that were available in the traditional office product industry. In addition to a general malaise about the business, the company discovered most consumers have a very low level of loyalty to brands.
When making a presentation to an association of office product suppliers, Vero took the opportunity to break down the state of private label innovation in the office product industry. “I told them customers are clearly letting us know they want us to do something, and we’re not,” he said. “I let them know that if they weren’t going to innovate, we were going to because our customers were demanding it.”
OfficeMax built an army of professionals with CPG backgrounds. The team spent time in people’s homes, small business offices, and big businesses to understand how people interact with their products and to find opportunities to innovate. One of the first lines of product the company developed was a premium private-branded line of writing instruments.
“We saw a great frustration in the office around whiteboard markers and the tray that’s on a whiteboard, or not on a whiteboard in some cases,” said Vero. “We developed a set of dry-erase markers under the TUL brand name with a magnet embedded, so you can now stick the markers right to the board. It’s just a very simple innovation, but incredibly powerful when it gets into the hands of the consumer.”
Today, OfficeMax has 16 premium private brands under management. In the fourth quarter of 2009, the company stated that its private label brands achieved a sales penetration of 29% in relevant product categories, almost double of what it was in 2005. Now, in addition to satisfying the needs of its individual customers, the company has a product offering that other retailers and resellers want to buy.
Earlier this year, OfficeMax presented its five-year plan to Wall Street analysts and outlined some of the transformational initiatives it was embarking on to combat a shaky economy and the fact that companies were cutting back on their office product spending.
“Our business has taken a sales hit,” said Vero. “We’ve done a very effective job as an organization managing the downturn, but now we believe it’s time for us to focus our energy and attention on growing our business.”
One growth initiative is new channel development, a two-pronged strategy that includes managing the category for another retailer, as in the case with Safeway. The other strategy is selling the products to retailers that aren’t interested in having OfficeMax manage the whole office product category. The resale initiative has opened doors for the company both domestically and internationally.
“We’ve built relationships with international and domestic resellers and retailers to buy our products,” Vero said. “Building up this product portfolio and selling it to other retailers and resellers has become a major initiative for our organization, as has category managing the office products aisle at other retailers.”
Another piece of the five-year plan is offering integrated solutions that align with OfficeMax’s B2B business and focus on transforming the relationship the company has with customers into one based on customer advocacy. Although paper and toner sales used to be a major part of the company’s B2B offering, times are changing.
“Companies are looking at ways to get assets off of their books, reduce their exposure, and become more efficient,” said Vero. “It’s not often that a supplier will come in and say, ‘I know I sell you a lot of paper and toner, and your people print single-side color and toner prints, and that’s good for me today, but it’s not good for the environment or both of us in the long term, so we’re going to help you print less, and that will be good for us.’”
OfficeMax’s managed print solution offers companies technical support to help them develop best practices that will lead to less printing. And because the company is, in Vero’s words, vendor neutral, its salespeople are not incentivized to sell hardware like others that compete in this space.
The company’s impressed print services offer businesses closed-door print facilities, Internet-based document management solutions, and product delivery for those jobs that are outsourced to OfficeMax. Vero said the company has already seen a lot of enthusiasm for this new channel strategy, even among retailers that would normally view OfficeMax as a competitor.
His working hypothesis is that for the last decade, businesses focused a lot of energy on outsourcing non-core elements of their business, but as retailers, they intuitively thought the buying and selling of any products should remain inhouse.
“We’re now at a point where you look at what you do as a retailer and you say your core competency is on this part of what you buy and sell but maybe not these other parts,” said Vero. “If someone else can do it more effectively than you, you should be outsourcing it.”