DAYTON, Ohio -- The school, home and office category, which yields high gross margins on dollars invested, is seriously under-utilized by most supermarkets, according to a study published by the School & Home Office Products Association here. SHOPA will hold its fourth trade show this week Thursday through Saturday in New Orleans, where more than 8,000 retail buyers, including leading supermarket chains, distributors and manufacturers, are expected to attend and preview products for the 1995 season.
The study, titled "Strategic Overview & Distribution Trends Report -- School, Home & Office Products Industry," was released earlier this year. It was conducted by the Center for Applied Research, Philadelphia.
It's SHOPA's first education project on the $60 billion industry, and the first major study that examines the entire school, home and office products industry, said Byron "Rex" Miller, president of SHOPA.
The report focuses on trends taking place within the mass market retail and commercial office distribution channels. Data for the study was collected from 66 manufacturers who reported dollar shipments to 11 trade channels for 16 product categories.
Important to the food industry is how it compares with other mass market retailers, particularly the discount channel, in merchandising the category.
Discount stores had the largest dollar share of school, home and office supplies shipped to retailers, capturing a 13% market share. This was followed by office superstores with 12%, a format that has significantly affected the office products area. Drug stores had 6% of the market, and food stores came in with 3%, behind wholesale club stores that had a 5% share. The remainder of shipments went to the commercial office segment and other distributors. "Mass retailers have maximized the opportunity, and they have grown and established in the minds of the shopper that they are a source for school, home and office supplies. Food has lagged way behind in their understanding and their commitment to grow core general merchandise categories," said Miller.
Supermarkets have the advantage over other retail channels in terms of number of outlets, 230,000 stores, compared with 10,000 discount stores and 55,000 drug stores, and frequency of shoppers, who find it convenient to purchase nonfood products at supermarkets, he said.
Given these facts, it appears supermarkets provide the ideal arena to merchandise school, home and office products, and should be poised to take advantage of the increased growth the category offers, Miller said.
But statistics show that supermarkets average more than 17,000 stockkeeping units, of which 2,800 are general merchandise. Of these, less than 300 are school and office products that yield high returns. Sales of stationery and greeting cards average 46.6% gross margins, well above the average for general merchandise categories, according to the study.
Supermarkets are producing less than 1% of their sales revenues in a category in which "back-to-school is second only to Christmas in terms of event size in all of retailing," Miller pointed out.
"How can a channel of distribution that obviously enjoys having so many more outlets, and services so many more consumers, have a 3% share of the market in this industry?" he asked. "It's lopsided, and out of control. They [supermarkets] are not even looking at the category as closely as they should."
According to Miller, there are two drivers that will have a significant effect on industry growth and provide all retailers with opportunities for profitable sales.
"By the year 2003, the student population will grow to 54.2 million enrolled in schools through grades K to 12. This is a record count for our country. These consumers will directly fuel and increase consumption of educational-based products and supplies," Miller noted.
The second most important driver is the trend of more people working at home, outside the conventional workplace. Miller said currently there are approximately 40 million home offices and that number is expected to increase in the future.
Other social forces that will create additional demand for the category are the need for people to organize their more complicated lives, the trend of adults pursuing life-long learning opportunities, the fact that people with less time to correspond will purchase more greeting cards, and the need for quality-time activities for children that will increase demand for arts and crafts products.
He said the industry will continue to expand because of continuing growth in associated product categories that align themselves to the school, home and office industry. This includes general electronic products and computer consumables and supplies.
One of the biggest challenges facing retailers will be how well they can anticipate and adapt to changes taking place in the category.
"How quickly will technology change basic products? When does a child quit carrying a three-ring binder to school and replace it with a Newton [pen-based computer], and at what time frame will that occur? These changes are occurring so rapidly. If you're a retailer, you'll be either leading the changes, or you'll be following them," Miller said.
Enhancing the shopping experience for school and office supplies by creating a destination, a mini office superstore within a store, should be considered as a merchandising option to developing the category, Miller explained.
"Growth is not going to be through new stores because we've got too much retail space now. It is the shopping experience that will be critical to growth," he added.
Until now food industry executives have been resistant to change and have been reluctant to focus their merchandising on profitable nonfood categories like stationery, Miller said.
"Many times the willingness to look at change within the business is beyond the buyers' control. Instead the control rests with middle and upper management," he explained.
Too often food retailers' attention has been drawn to where their volume and tonnage is. It's the "where's the beef" mentality that has kept profitable categories such as school and office products from growing within the food channel, Miller added.
"However, [supermarket] profit doesn't come from toilet paper, potatoes or hamburgers. Instead their profit comes from general merchandise, where outlets experience 14% to 16% of total store sales from the category generating approximately 60% of their pretax profits," Miller pointed out.
Miller said, however, he believes the Efficient Consumer Response movement will force supermarkets to rethink the way they merchandise more profitable nonfood categories. He also hopes it will eliminate practices such as slotting allowances that he believes deter product growth.
"If companies truly embrace ECR, they will have to develop strategic alliances with key manufacturers to do business more effectively, thus eliminating barriers to efficiency. There's got to be honesty and a dialogue to start this process."
The ECR concept has invaded the school-office industry. In September, SHOPA announced a multiyear strategic alliance with Nielsen North America, Northbrook, Ill., to provide information services to the association's membership, encompassing research on selected categories, and to issue specific industry analyses, specialized marketing information services and member support, education and training, trade show participation and data support.
This week, during the show, Nielsen will issue an education "wake-up" call to SHOPA members through a seminar on category management, and sharing of critical scan data and trend information.
The SHOPA show provides a marketplace to discuss plans and consummate strategies for the category for next year.
It also provides a venue to uncover new opportunities, growth areas and critical new products that bring vitality to the department, said Miller.
"The industry is quite different today than it was just a few years ago. This industry like most others is consumer-driven. With an increase in shopping options and the demand for quality, value-added products, consumers don't have to accept what is being offered at any one retail outlet," said Miller.
In merchandising school, home and office products, supermarkets can maximize their opportunity by satisfying their customers' needs in a product category that can help them recoup their shrinking margins.
According to Miller, the SHOPA show helps bring the industry together by providing the forum to see the products that can help retailers of all types improve their bottom line.
