I want you to think back in time, let’s say 35 years or so. You’re working for a typewriter company. The future looks rosy—typewriters are everywhere, and every company has a number of them, so demand for your service is steady. The future seems bright.
An announcement is made by a company that makes inkjet printers that are not office devices at all—they’re introducing a new product: the HP LaserJet. Your reaction might be “so what?” Just another fad, and people will always need a good typewriter.
You could have moved your business in that direction, or maybe you had the opportunity to go into the copier business and thought “who cares?” Just another fad, they’re too hard to service and people will always need their typewriters.
Then one day you look around, and the typewriter business is dead, nobody needs one, and nobody wants to buy a good one. The service business is non-existent.
The Current Environment
The current dealership model for copier dealers is facing a similar fate. The external forces in the business environment are facing dangers as real as the laser printer was to the typewriter, and just as hidden.
Let’s talk about the changes in the market, as well as things you should consider while you still have a business.
Consolidation
One very real danger is that smaller dealers, as well as the markets they service, are being snapped up by larger dealers such as:
- Marco
- Visual Edge
- POA
- Novatech
Collectively these dealers are acquiring small dealers every week. Marco is on pace to become a $500M dealer soon. The others are moving that direction as well.
Staples/DEX
This merger may be the most-significant risk to small and mid-sized dealers. You might be in a smaller market and feel that you’re safe from the outside because of your market.
If you have a Staples in town, you have DEX in town—and they will be working to steal your client base. It will take them a while to get things sorted out, but they will eventually disrupt your market.
What Happens
When any of the major players show up in your town, they will be offering a wide portfolio of products and services. They are all well run and very efficient at the important aspects of the business. Because of the economy of scale, they will change the pricing in your market as well as the customer expectations.
Competition and Declining Margins
Even without a major player in your market, the trend in our industry is for the competition to continue driving the pricing down. The belief is that to win the deal, we have to have the lowest price. The sad thing is that most businesses keep following this trend; it is reminiscent of lemmings marching over a cliff to their death.
In most companies, the expectation is that service will continue to be the cash cow, generating the majority of the profit. The model expects service to generate 52% GP. If the page price continues to decline, then they expect service to cut the costs to maintain the margin. The result is a devastating effect on the service department.
Since payroll represents the largest expense in the department, the declining revenue makes it difficult to increase wages, and so the pay does not keep up with what technicians would earn in other industries. While this may not motivate long-term technicians to leave, it hurts morale.
The lagging pay for the service department has another effect that is more important in the long run—it is increasingly difficult to attract the talent you need for the future. The supply of technical college students and trained military technicians grows smaller, and the remaining pool is not, and will not, be willing to work for substandard pay.
Aging Workforce
Many dealerships have tenured technicians, and while having experienced techs is invaluable to the service process and customer support, it poses a challenge as well. In some dealerships, the majority of the technical team is approaching retirement age, requiring the manager to start looking for their replacements.
Something that often gets overlooked is the total cost of getting a new technician up to a fully competent level. When you factor in the reduced productivity in the initial stages of their career, the cost could exceed $75,000.
Future Challenges
The existing challenges are easy to identify and quantify. The real dangers are the challenges that are coming, some of which we can identify now.
Inkjet
All of the manufacturers are using inkjet technology in the new high-volume devices. Most seem to be working it into their plans for the future office devices as well. Canon, HP, and Epson all have mid-range devices that are suitable for the office. Recent sales reporting indicates that they are grabbing an increasing amount of the print volume and new-device market.
Many of the ink devices entering the market are designed for the end user to service and have very little, if any, scheduled maintenance. Some come with standard warranties that extend up to 36 months. It is true that ink devices use less energy and produce less waste, which is very good for the environment, but that makes it difficult to generate the recurring revenue our business model depends on.
Declining Volume
Industry research shows that in most segments of the market, page volume is either stagnant or declining. What limited growth there is comes from the production print area. As printers are moving from analog presses to digital presses, there is still some growth for our industry.
A second notable shift is a reduction in the A3-sized pages printed by clients. Most clients print entirely on A4 paper sizes, yet the sales team wants to sell the bigger A3 devices rather than the more-appropriate A4 device.
Changing Business Model
If you are paying attention to the articles and videos published recently, you find that many of the experts are talking non-stop about new billing models. Most of them involve flat-rate billing in one form or another replacing the existing CPC model we use now, which we base all of our financial benchmarks on.
Most of the talk today is around the concept of something as a service. The industry pundits use acronyms like Device as a Service (DaaS) or Imaging Device as a Service (IDaaS) to describe a flat-rate price for the client. This suits many clients because they don’t care about the device; they want the results. These types of agreements can be either positive or negative for the service department depending on the terms and conditions.
Unknown technology
Just like connected devices and laser printers disrupted typewriters, history indicates that at some point, technology will shift so the current devices are no longer as important. What may challenge our business? None of us know the answer to that question, but we should plan for and expect that disruption.
Next month, I’ll discuss what the future holds for opportunities.
