Popular talk surrounding the print consumables market in North America has been about Clover Technologies Group as the dominant Aftermarket force, the appearance of "new-build" compatibles from Chinese manufacturers, and the ongoing legal battles waged by the OEMs against the aftermarket players.
These three events and many others, including the now-evident decline in the market size for consumables, combine to create challenging conditions for resellers of office products in the North American market and the overall office products industry outlook.
THE CURRENT MARKET STATUS
An uneasy balance has developed between the OEMs and the major aftermarket players in the primary distribution channels.
- The OEMs have a dominant market share, but the resellers make virtually no profits selling their products. Some aftermarket products (mostly Clover Group) are "tolerated" by the OEMs and form a minority market share.
- The "big-box" resellers make high margins on the sale of aftermarket products, effectively subsidizing low margins on the OEM products.
- Suppose a "big-box" reseller is tempted to push too much aftermarket product to increase overall margin dollars. In that case, it must reduce sales on original OEM brands, compromising the essential volume-related rebate dollars paid out by the OEM.
- This current balance is maintained because of the small number of companies that survive in the "big-box" channels and the market power they have.
Outside the "big-box" channels, the forces for change are waging their war online - primarily within the Amazon marketplace. For the long-term prospects of the independent dealers, this is not a healthy environment and is doing the aftermarket image, in terms of intellectual property and quality, few favors.
The massive price disparities between products sold through the "big-box" channels and those sold in the online marketplace are compelling evidence of the distorting market power that the remaining entities in the "big-box" media currently have. Brand choice is restricted, and prices are high for businesses and consumers that shop through these conventional channels. Brand choice is virtually unlimited for those that venture into the online marketplace, and prices are low – so low that the risk of poor quality is mitigated for many consumers.
Because of the current distribution arrangements and how they combine to restrict access to lower-priced alternatives, it will take a significant force to trigger any change that results in increased access to choice, lower-priced products.
The current activity in the online marketplace is unlikely to be the trigger for disruptive change. Although portals such as Amazon and eBay are effective consolidators of web traffic, no one, apart from the freight companies, is making money. Although the dealerships selling products through these portals could be future beneficiaries of change, their current activities are unlikely to be the trigger for disruptive change.
Currently, the balance of power in the complex relationships lies with the OEMs, as demonstrated by where the largest share of the margin dollars flow. However, as the OEMs continue to extend their reach, establishing closer and closer ties with the ultimate consumers of their products, the resellers must look nervously over their shoulders regarding how this may impact their future role.
The news regarding the acquisition of Static Control Components by China-based Apex Technology suggests a new force may emerge with sufficient clout to cause change. However, despite this development, disruptive change is unlikely to occur within the current "big-box" distribution channels. Placing incumbent suppliers with a new offshore manufacturer would not fundamentally alter the existing arrangement. It would only put more margin dollars into the "big-box" pockets and fail to reduce consumer prices or change existing market shares.
It will take a greater force than the emergence of a new global player in the print consumables market to become the trigger for disruptive change. Although without the Ninestar Group, change is less likely, even with it, although the "hammer may now be cocked on a loaded weapon," the trigger is still missing.
It's possible a trigger could develop with the empowerment of alternative distribution channels capable of moving aftermarket products into American businesses independently of the existing "big-box" media. A structure for this alternative distribution exists through the thousands of independent resellers in the North American marketplace. However, the lack of organization to act toward a common goal does not exist despite this structure. Until it does, it's unlikely the channel will become the trigger for disruptive change.
At this time, the independent resellers form a significant part of a challenged sales channel that's poorly equipped to overcome the power of the OEM branding message and the value proposition the "big-box" resellers offer. Their sales are stagnant or declining, and their independent e-commerce initiatives have mostly failed. As a result, many are swarming to online marketplaces such as Amazon, possibly damaging their long-term prospects.
The million-dollar question is whether it’s possible for this channel to be organized to become an effective outlet for high quality, patent-safe products that save consumers billions of dollars.
While the potential rewards for organizing the channel toward a common goal are significant, it is not an easy task, particularly in terms of who could step up and provide a conflict-free leadership role to do so. For independent North American dealerships, it's a very "American" thing regarding culture. So, even with the emergence of a well-capitalized offshore powerhouse, if it fails to understand and respect this culture, its potential to become the trigger for change is compromised because of its incompatibility.
1. Despite the continued threat of the OEMs bypassing traditional resellers, including "big-box" outlets such as Office Depot and Staples, it's unlikely they currently perceive this to be a sufficiently serious threat for them to initiate disruptive change, such as increased presence for, and marketing of, aftermarket compatible cartridges. However, should this threat continue to grow, it's possible the current situation could quickly change.
2. Despite the potential for disruptive change due to organizing a fragmented independent dealership channel, it isn't easy to see how this may happen. It will take a bold, sustained, and innovative effort to gain traction with this process.
TheIt'se likely are two main factors that the currently dominant players in the print consumables industry are counting on to preserve existing arrangements for the distorted distribution of revenue and profit dollars.