To get a better sense of what’s happening on the aftermarket side of the office imaging industry of late, we contacted representatives of some of the leading supplies companies, including Luke Goldberg of MSE, Monte White of Supplies Network, Gary Willert of LMI, Eric Martin of Clover Technology, Jim Loparich of Pinnacle Sales, Eric Katz of Metrofuser, James Meyers of National Copy Cartridge, and Bob Willmes of Supplies Wholesalers. They share what’s hot, what areas of the business are cooling off, key programs and initiatives announced this year, and highlight the trends that will impact their businesses in 2015.
Luke Goldberg
What products are currently flying out the door for you?
Goldberg: MSE continues to offer a high level of differentiation that is abundantly displayed in higher yield, higher speed, and color applications. For example, this year we introduced the market’s highest yield options under our MPS engineered sub brand for color when we introduced extended yield options for the 3525 and m551 printers with 50+ percent more yield. As MPS continues to accelerate, our MPS product line is gaining traction, as more and more dealers aren’t just seeking lower CPP but also the security of a high quality product. Overall, color continues to grow for us even as the industry has stagnated due to quality challenges. Today, MSE and our dealer partners enjoy north of 40 percent color penetration whereas the industry average still hovers below 10 percent. This is a testament to our hallmark technological advancements such as our SCS technology and the many other patents and protocols that comprise our advanced color technologies.
Gary Willert
Willert: Our color product is growing and the other product line doing extremely well is remanufactured printers.
Katz: The most popular HP models (4250 and 4015) continue to be big sellers. Transfer kits for the newer and some older models are always popular. In printer sales, we find that the old workhorses – the 4250 and 4350 – are still favorites among our customers.
White: We continue to see growth in high-capacity product that has a lower cost per page and fits into MPS. The growth of color plays into that as well. Some of the advances MSE has made with the higher yield color products have had pretty good market adoption and we expect to see more of that activity in the future. Resellers are generally looking at whatever path they can find to get a lower page cost and the aftermarket addresses a lot of that.
Martin: The ever changing dynamic between the OEMs, the aftermarket, resellers, and end-users continues to be the hottest topic in the market in Clover’s opinion. It’s clear that the consistent year- over-year growth that defined the early years of the imaging supplies market has largely ended, and obtaining new customers has become more difficult and more costly in the more value-minded marketplace that has established itself since the economic collapse of 2008. In response, both the OEMs and the aftermarket have had to increase their focus on defending their existing customer bases.
Meyers: Color. The focus for NCC over the past two years since acquisition has been growth and most of our growth is coming from our color products.
Are there any product segments or SKUs that are slowing down or becoming more difficult to offer?
Goldberg: Not really; we all know that at the OEM level standalone mono is no longer a growth area, but since MSE offers a true OEM alternative product we can grow it organically at the expense of the OEM even if the overall pie isn’t growing. In addition, on October 1 HP introduced a new price hike on legacy items that affect many main line mono and color SKUs that are still in play. Brother also announced similar price increases in September on main line mono items. We believe that this might also cause a boost in sales for these older items as dealers seek refuge from these increases and from declining OEM margins.
Willert: The 4000s and 8100s certainly are falling off [because of obsolescence]. We still sell quite a few of those, but no doubt it is diminishing.
Katz: Some of the older models, like the HP 8100/8150 have parts that become un-repairable if certain frames are bent or pieces are broken. When the market was flooded with these machines, it was easier to find parts to rebuild, but as these machines approach end of life, it’s often a challenge to be able to meet demand.
Monte White
White: I don’t think I can comment on reman; the manufacturers can probably give you greater context. I will say that I’ve seen some activity and greater diversification with non-HP engine products. The aftermarket is focusing more on Brother engines, Samsung engines, and other manufacturers because the HP market is saturated and fairly commoditized.
In addition, we feel it’s also important to note that there is still a significant opportunity for growth in the imaging supplies market. The OEMs still dominate the market both in terms of unit sales and revenue, and there is a tremendous opportunity for market-share growth by converting OEM consumers to more cost effective, with high quality, IP-cleared aftermarket supplies.
Loparich: Lexmark has made it challenging with their legal requirements so it has scared some suppliers and dealers, but we have remanufactured product that meets all legal requirements, including BSD models.
What trend or trends will have the biggest impact on your business in 2015?
Goldberg: There is certainly a climate of fear that has been perpetuated in the global imaging aftermarket as a result of rigorous IP actions and the impact of low-cost, low-quality new compatible products. On the IP front, this might be a challenge that ultimately creates greater alignment between the legitimate aftermarket (that respects OEM IP and that remanufactures spent OEM cores as allowed by the repair doctrine) and OEMs. We saw signals of this in 2014 with cooperation between the ITC here in the U.S. and OEMs and ETIRA in the EU. Low-cost infringing products are equally deleterious to the legitimate remanufacturing aftermarket and OEMs alike, and hopefully this will foster greater dialogue and cooperation.
Willert: The remanufactured printer side is going to have a huge impact as it relates to improving the bottom line of our dealers. I think it’s going to take off and have a huge impact as more dealers figure out how to fit it into existing or new contracts.
Erik Katz
Katz: This is not an industry trend, but the effect of major carriers transitioning to a dimensional weight billing model is something that will have a significant effect on our business. We are working hard to minimize and compact our box sizes so that the impact is minimal.
Willmes: The continued end user adoption of MPS. Since 2005 the adoption rate was slow; now, in my opinion, it’s reached a tipping point. You have the copier and printer OEMs offering programs to capture that loyalty and end user, and you have machine dealers and straight MPS dealers that are now getting scale and don’t even have to offer the machine or provide local service. They’re learning how to connect with service providers, so they can offer a national MPS solution. In the next year or two, MPS will gain adoption and for Supplies Wholesalers to grow, we have to align ourselves with that channel.
White: The changes that HP made last November and this coming November will continue to have a big impact on the reseller market. As a distributor who’s almost sole business is in the printing space, that’s been disruptive to our business. That’s not necessarily a secret. That will cause greater disruption this coming November when they move resellers to qualified.
There will be acquisition and consolidation activity in the aftermarket and we’re waiting to see what’s happening with Clover and MSE. Both have historically been good partners for us and as a larger entity will continue to be a great partner. We’re waiting to see how some of the other acquisition and consolidation activity will play out in the market.
Eric Martin
Martin: The increase in infringement suits and other legal actions by the OEMs, [the introduction of] business tools to secure a competitive advantage, the continued focus on product development and innovation to slow down the aftermarket, and the evolution of MPS-centric strategies are key drivers to future OEM success, and therefore represent both the biggest challenges and most important opportunities Clover faces. Of these, the most significant is the increased focus by OEMs on enforcing their intellectual property rights. Clover is in full support of this, as it helps to rid the industry of patent infringing products.
Clover’s ability to anticipate these opportunities and challenges and to develop proactive strategies to address them remains a key driver in Clover’s success as well as in the success of our reseller partners.
Meyers: The continued growth in the MPS segment will be a focus for us. Also, change in the way GSA contracts for goods is something we’re watching closely.
Jim Loparich
Loparich: Specialty remanufacturing of all brands of OEM drums.
What was the most significant program, intiative, or offering you introduced in 2014?
Goldberg: We rolled out MPS engineered color which as stated above offers the highest quality and highest yield options in the market today. In addition, we are looking to greatly diversify our product offering and in October we will be rolling out a line of higher quality, postal ink aftermarket cartridges that will offer great margin opportunities for our dealers.
Katz: The launch of our MPSClass Printer line was a major initiative for us. We used our knowledge from building parts and printers to select what we believe are the best models in their respective categories – color, monochrome and multifunction. The printers are chosen based on a number of criteria and we feel our remanufactured models offer our dealers the best shot at maximum profitability in an MPS environment.
Bob Willmes
Willmes: A big initiative for us in 2014, and we will expand upon it in 2015, is interfacing our ERP with the dealer’s ERPs. Whether it’s the ECi platforms, and we integrate with most of those, or an ecommerce e-tailer who wants to send us an XML file every day from his shopping cart system, it’s just seamless integration. That’s important. It eliminates errors and lowers costs.
White: There are two product areas that have been successful for us this year. Printers are clearly an avenue where we’re seeing substantial growth and we will continue to see growth there in the future. And parts; there’s been a disruption in the parts business and more resellers that are in MPS are managing their own service and looking for consolidation. We need to look at parts and hardware as a consolidation of spend angle for the resellers that we do business with. If they can aggregate their spend with us, we can provide similar product and price benefits buying them from us vs. X, I think that’s an added value we can bring to the table and we’ve seen some success with that.
Meyers: In 2014 many of our new offerings included extended yield options that offer a more compelling price/cost per page than OEM alternatives. We also have extended our color catalog significantly in 2014.
Loparich: Integrating our ERP system to e-Automate with regard to Pinnacle dealer invoices. That’s saving dealers hours daily closing out sales orders, tracking, and customer invoicing, especially for drop-shipping. This is in addition to our front-end integrated PO capture from dealers. We have automated and integrated the entire loop on the ordering process.
