Who s My Competition in the Office Products Channel

Who’s My Competition in the Office Products Channel? Presented by David J Pydlek Integrated Supply Consultants LLC

Why Develop a Business Products Vertical Market? l l l Business products is currently a $270 B industry! All combined power channel entities (Office. Max, Depot, Staples, Corp. Ex) constitute 16% ($43. 8 B of approximate $270 B) of market share in North America It’s still a fragmented industry l l l Mass merchants Drug & food retail chains Government Integrated suppliers Manufacturers direct E-Commerce distributors Integrated Supply Consultants, ISC

Office Products Channel: Market Facts l *The fastest growing on-line product category in sales was office products l $10. 3 B on-line OP sales in 2005 (15% of total sales) l l l Total sales among top 500 was $68. 9 B The category accounts for 2. 2% merchants among top 500 on-line retailers Top 500 internet retailers experience 60% sales growth on-line in this category! *Source: Internet Retailer Top 500 Guide Integrated Supply Consultants, ISC

OP Channel Fast Facts l 2005 total office products industry sales estimated at $270 B overall l l Retail portion estimated @ $205. 9 B l l Includes electronics Projected growth of ~4 -5% per year for the next 5 years *Private label is growing aggressively l >30% of sales are targets for all players *Source: The Stockwell Report Integrated Supply Consultants, ISC

*2005 Total Sales Revenue ($B) Among Big 4 Company 2005 2004 2003 CAGR 19982005 Office. Max $9. 1 ^$8. 8 $4. 0 2. 26% Burhmann/ Corporate Express $4. 3 $3. 9 $3. 7 1. 1% Staples $16. 1 $14. 4 $13. 1 9. 51% Office Depot $14. 3 $13. 6 $12. 3 4. 04% Grand Totals: $43. 8 $40. 8 $33. 1 *Source: Company reports and analysts projections; includes international sales ^Actually saw a overall sales decline due to divestiture of paper businesses Integrated Supply Consultants, ISC

*Fast OP Channel Facts: Internet Retailer “Consumers have responded to the new technology-driven service, thrusting office supplies retailers Office Depot Inc. ; Quill’s parent, Staples Inc. ; Office. Max Inc. and CDW Corp. into the top 10 largest online retailers, according to the 2006 edition of the Internet Retailer Top 500 Guide to Retail Web Sites. ” *Internet Retailer Integrated Supply Consultants, ISC

*Quotes from Internet Retailer “Indeed, fulfillment has emerged for multi-channel retailers in general as one of the keys to overall success. In a study of retail fulfillment practices last year by Aberdeen Group, more than 70% of retailers said they considered it “very or extremely important” to meet customer expectations for multi-channel purchasing and delivery options. But while order fulfillment has become front and center among the concerns of many retailers—a far cry from the early days of the Internet—its cost for many merchants is rising. Aberdeen found that 46% of retailers expect order fulfillment costs to rise over the next two years, 29% expect no change and only 25% expect their fulfillment costs to decrease. ” *Internet Retailer Integrated Supply Consultants, ISC

*3 year Trends Among Big 3 2005 2004 2003 % Sales Change 2005 2004 2003 Channel Share % Staples 11. 29 9. 61 13. 67 40. 7 39. 2 43. 7 Office Depot 5. 27 9. 76 8. 82 36. 1 36. 8 41. 0 Office Max 3. 46 NA (3. 27) 23. 2 24. 0 15. 3 *Source: Company reports, analyst’s estimates and DSN Retailing Today research Integrated Supply Consultants, ISC

*Op Private Label Trends Company Staples Office Depot Office. Max Private Label Sales ($B) 2. 9 2005 % of Total 2004 % of Total % Change 04 -05 18 15 34. 2 2. 5 18 15 24. 4 1. 7 19 16 22. 8 6. 1 Integrated Supply Consultants, ISC *Source: Company reports; Industry Analysis

*Burhmann/ Corp. Ex Facts l l l Smallest of the big players $4. 4 B 2005 NA sales 20. 4% overall sales growth l l 3 Divisions: Australia, North America, Europe l l *Source: 2005 annual report Integrated Supply Consultants, ISC 9% organic growth No retail Corporate Express private label represents 25% of total sales

Corporate Express NA (cont’d) l l 68% of sales comes through E-Way “One. Shop. Express” l l l One order, one invoice, one payment over multiple product lines 40, 000 One. Shop. Express orders processed in 2005 Biggest threat to T. O. P. S. single supply chain solution (still not as comprehensive) *Corp. Ex: 18. 3 Brand Power Rating (only one to decrease over last 3 consecutive years as reported by Core. Brand) Use salesforce. com to manage sales team Integrated Supply Consultants, ISC

*Office Depot Facts l North American Business Solutions Division produces 30% of overall sales l l $4. 2 B internet sales (#2 overall) l l 21% of total revenue ~30% GP l l 46% is retail 25. 6% operating expenses $273 M net earnings Integrated Supply Consultants, ISC *2005 annual report

Office Depot (cont’d) l Viking mail order went away l l l Only in Europe Private labels include Office Depot, Foray, Ativa, Christopher Lowell *Brand power ratings are highest for OD @ 54. 7% *Reported by Core. Brand Integrated Supply Consultants, ISC

Office Depot Websites l l l l l State-of-the art public Internet sites: www. vikingop. com www. officedepot. ca in Canada www. techdepot. com www. officetechcenter. com www. janitation. com www. computers 4 sure. com www. solutions 4 sure. com www. school. com http: //bsdnet. officedepot. com Integrated Supply Consultants, ISC

Office. Max l l l Primary customer: Fortune 500 Companies Contract segment represents $45. 7 M with 21. 9 % GP l 9. 4% increase 19. 7% operating costs Same store retail sales flat l Store closings in unprofitable markets * (#6 overall) l 29% of total US sales Integrated Supply Consultants, ISC *source: 2005 annual report and Internet Retailer

Office. Max Facts (con’t) l l *Office. Max Brand Power Rating: 51. 2 Office. Max Impress launched November 2006 l Re-branding of Document management solutions *Reported by Core. Brand Integrated Supply Consultants, ISC

*Staples Facts l l #1 OP company Projected 2006 $16. 08 B l l North American Delivery = 3 business units l l l *source: 2005 annual report Integrated Supply Consultants, ISC 28. 5%GP Staples Business Delivery Quill Staples National Advantage/ Staples Business Advantage 11. 3% 1 year sales growth $3. 8 B online sales 2005 (#3 overall) l l 24% of total sales 27% increase over 2004

Staples Facts (cont’d) l Staples. Link is the B 2 B online ordering program l l 70% of contract sales expected to come through Staples. Link. com B 2 B website ’ 06 Use Web. Sphere Commerce version 5. 4 l *Staples: 52. 4 Brand Power Rating l Stock approximately 13, 000 items *Reported by Core. Brand Integrated Supply Consultants, ISC

Key to Success: A True Integrated Purchase Order for all Services Integrated Supply Consultants, ISC

e. Quantum Integrated PO Integrated Supply Consultants, ISC

Kramer-Smilko Integrated PO Integrated Supply Consultants, ISC

Focus for the Distributor Sales Team l You have an excellent single source, supply chain solution with your Forms & Print legacy system l l l Highlight & market your private label l l Market proactively to your end user Demo to your customer on their PC and save as Favorite E. g. Innovera, Universal and Alera Use stockless model and ride on fulfillment partner’s low operating costs to serve your customer Market fulfillment excellence Market the fact you sell the category as part of your service solution portfolio Integrated Supply Consultants, ISC

Conclusions & How to Compete? l l l Have an e-commerce solution Have a viable private label to compete (e. g. Innovera, Universal) Leverage low operating costs (assume distributor partner’s operating costs) l l l Brand your company (how do your customers know you? ) Market excellent fulfillment capabilities l l Don’t re-create the wheel and add operating costs Make the ordinary extraordinary Margins are high enough to make money l Use a variable margin matrix Integrated Supply Consultants, ISC