Key success factors of industry analysis

Key Success Factors Portion Of An Industry Analysis Report That Will Be Provided

Research: This section probably does not require additional research. Instead you should reflect back on all that you have already learned about this industry. Before a team member starts writing this section, make sure the input of all other members from their research for their sections is taken into consideration. Analyze, synthesize, and evaluate what you have learned.

· What are the 3-4 key success factors that have the strongest relationship with success and profitability?

· Do these KSFs vary by segment, if there are segments in the industry?

· How are these KSFs likely to vary over time?

· What are the implications of this evolution?

Team: University of Cool Friends

Industry Analysis Report

Office Supply in the U.S.

(Names in alphabetical order here)

Executive Summary

The objective of this report is to present our study of the office supplies industry that we have analyzed and to produce a report of it. Industries as a whole will experience ups and downs throughout their lifetime. There is a magnitude of dominant features that are playing a role in the decline of revenue and growth that we have identified and will be presenting. Major competitors like Office Depot Inc. and Staples Inc. are facing difficulty differentiating themselves from each other and generic stores that sell similar versions of their products at a lower price like e-commerce stores. Through the use of Porter’s Five Forces it was also identified how the threat of new entrants, and substitution of products/services is affecting the industry. Through the growth of technology more things are able to be done online which is requiring less supplies in person. Trends in the general environment are noticeably evident as well with an economic perspective showing that the decline of annual revenue within the industry to be causing employment within the industry to drop as well.

Introduction

The office supply industry is a multi billion dollar industry that is currently undergoing a transformation that is forcing the industry to evolve. Customer demands, technological shifts, and falling demand for traditional office supplies are some of the causes of this transformation. Increasing competition along with the reduction of prices is another factor that the industry is being faced with. Even Covid-19 has recently impacted the office supply industry as well with less face to face meetings and more meetings held virtually via zoom, microsoft teams, etc. With all of these meetings and communication going from in person to virtual there is not as much of a need for office supplies.

Industry’s Dominant Features

The purpose of the office supply industry is to provide consumers with reliable office supplies, school supplies, and stationery. Currently, the U.S. office supply sector has a market size, measured by revenue, of 11.8 billion dollars and a total of 6,394 businesses. Over the last five years it has experienced a downward trend with decreasing revenue and negative growth. Industry revenue has dropped at 6.4 % annual rate and a negative growth rate of 4.3%. ((Pradhan, 2020). This decline is attributed to increased digitalization, greater external competition, and decreased customer favor with traditional brick-and-mortar office supply stores.

Due to its slow growth rate, the office supply industry is considered to be in the declining stage of its life cycle. Over the next 10 years, the number of industry operators is expected to decrease at an annualized rate of 7.6% to total 4,685 companies ((Pradhan, 2020). This decline has been accelerated by the obsolescence of core office products. Office supply products typically do not experience technological changes or changes in utility or design. They are considered to be very static products and are only purchased for replacement purposes. Thus, product demand cannot be stimulated substantially beyond the simple needs of the population. This lackluster product demand has forced many small operators to merge or be acquired by their larger competitors, leaving few giant retailers in the industry.

As there are only a few larger retailers left in the industry, market share concentration is very high. In fact, it is so concentrated that the top two competitors, Staples Inc and Office Depot Inc, account for 72.9% of total revenue in 2020 ((Pradhan, 2020). When it comes to market share, Staples has 38.4%, Office Depot has 34.4%, and small, privately owned stores make up the remaining 27.2%. As there is a great deal of internal and external competition, total industry competition is considered to be medium and increasing. This increased competition is because each company has a similar product range and targets the same customer base. To differentiate themselves, internal competitors focus on creating specialized products that offer additional benefits to their consumers. These niche products also stand out against external competitors who offer generic products at a lower price.

Typically, these top competitors benefit from economies of scale in advertising, manufacturing, and brand awareness. This allows them to set competitive prices while still gaining a profit. The lack of product differentiation makes brand name products stand out against the generic products. Thus, the larger, more well known companies are able to offer lower prices than their small and medium sized competitors who lack the resources to manufacture their own products. In addition to brand awareness, they also focus their advertising on three broad markets: households, businesses, and schools. The business market is the largest as it accounts for 55.9% of total revenue (Pradhan, 2020). Therefore, it is the primary focus when it comes to advertisement, supply chain, and promotion.

The final and most important factor is technological advancement. New technological products like tablets, computers, and smartphones have made many office products useless to the functions of modern business. Additionally, the growth of ecommerce has undermined demand and decreased the industry’s sales. E-commerce stores offer lower prices and convenience to the consumers. Overall, the decreased demand for office supplies from brick-and-mortar establishments caused by online competition and rising internet penetration will likely hasten the industry's decline. (Pradhan, 2020).

Porter’s Five Forces

Intensity of Competitive Rivalry in the Industry

The concentration of the Office Supply industry is very high, Staples and Office Depot being the two substantial leaders of the industry, according to IBIS World (Pradhan, 2020). Staples and Office Depot generated 72.9% of the industry revenue in the year of 2020 (Pradhan, 2020). The prices can be driven down by the competition between Staples and Office Depot, as well as the other small businesses that make up the rest of the market share (Porter, 2015). Upon researching prices and offerings from both Staples and Office Depot, it was discovered that while Staples has better revenue, Office Depot has cheaper prices generally. This can impact the state of competition for the industry.

As stated previously, the concentration of the industry is currently high, but it is actually declining due to the overall drop in revenue throughout the industry as a whole (Pradhan, 2020). We will continue to see the shift to decline as time progresses. This force illustrates that in regards to competitiveness of the industry, entering the Office Supply business is not attractive and revenues will continue to drop.

Threat of Substitute Products or Services

With the increase of digitization and ever-progressing technology, the Office Supplies Stores industry is encountering significant threats when it comes to substitute products and services. With COVID-19, as well as before, the need for office supply companies to adapt to the online world has become increasingly important. Due to the change in the way people work and what supplies are now used in the business world, the industry has declined significantly over the last five years (Pradhan, 2020). Two notable industries that incur a threat to the Office Supply industry are the Database, Storage and Backup Software publishing industry and the Computer Manufacturing industry (Cook, 2020).

Office supply stores sell things such as storage hard drives, which are easily replaced by applications like Dropbox, Canto Dam, and Google Drive. Physical paper and writing utensils are also being less and less needed as people now keep most things on file digitally. According to IBIS World, the competition between Office Supply stores and places such as supercenters and discount stores is increasing and will become more of a conflict as time moves forward (Pradhan, 2020). Another significant consideration is the threat of e-commerce to the industry, as customers often do prefer the convenience of shopping from home and having supplies delivered to them (Pradhan, 2020).

The overall strength of this force for the Office Supply industry is high, as there are a multitude of substitute products and softwares. The impact of the threats of substitute products and services make this industry unattractive and unfavorable, especially as technology continues to move away from the practical use of traditional office supplies.

Threat of New Entrants

The threat of new entrants and barriers to entry are medium and steady, according to IBIS World (Pradhan, 2020). The most significant cost in this industry is the cost of obtaining the goods from wholesalers, but regardless, the capital expenditures are somewhat low in contrast to other types of retail industries (Pradhan, 2020). There are no licensing requirements which also makes it easier for new entrants to the industry (TRUiC, 2020).

Another threat to entry in this industry is changing conditions. This can include a multitude of things, but the continuation of every day business tasks being completed through technology as stated in the previous section is a prominent factor. Changing conditions include the change in laws and environmental changes as well, which can have a significant impact on the Office Supply industry (Porter, 2015).

Despite this, there are also some elements that make entering this industry more challenging. There is significant competition and the component of market awareness, and this can make one more wary of entering the industry (TRUiC, 2020). The Overall strength of force for this in the Office Supply industry is medium.

The Power of Buyers

Due to the wide array of buyers in the office supply industry here in the United States, buyer power for the industry as a whole is rather moderate. Despite the industry being dominated primarily by two large corporations; low-cost switching, low-product differentiation, and high price sensitivity all play a role in increasing the power of buyers. According to Marketline Analysis, with buyers varying in size from everyday household consumers, to large scale local and regional businesses, the power of buyers is primarily determined by the quantity of their needs and their ability to find readily available lower cost options ( ). Buyers with a larger demand in the office supply industry usually have increased buying power and oftentimes will look elsewhere for their office supply needs to avoid paying retail prices offered by big-box stores such as Staples and Office Supply.

With the recent rise in popularity of online ordering from companies like Amazon and Walmart, household consumers and businesses can now easily compare the cost of goods, thus raising price transparency and competition industry-wide. However, buyers looking for quick readily available products from their local office supply store are still subject to the products and pricing available to from the two primary players in the industry, Staples and Office Depot.

The Power of Suppliers

Supplier power in the office supply store industry within the United States is considered to be moderately low, which is primarily due to the numerous and diverse array of goods and intense competition amongst the copious suppliers. According to the Marketline, the office supply store industry operates primarily as a client driven economy with many undifferentiated products and a large number of players in the industry to choose from ( ). Players in the office supply industry oftentimes have multiple suppliers to be able to meet the demands of the many different products that they carry. In the United States, retailers put pressure on suppliers to include competitive pricing, online ordering options, 24-hour delivery, and differing payment period options ( ). When suppliers in the industry fail to meet any of these industry precedents they are oftentimes dropped by large retailers, making their return to the market fairly difficult.

Limited market growth over the past few years has also put a strain on suppliers who are now struggling to maintain steady business with the key players in the industry. With some companies now utilizing backwards integration to create in-house brands for low-cost goods, suppliers now more than ever are faced with the challenge to offer their goods at lower, more competitive prices to avoid being priced out by their own clients in the industry.

Summary of Forces and Attractiveness

The office supply store industry in the United States is experiencing, as a whole, a sharp decline in revenue and growth over the past few years. The decline in growth can be primarily attributed to the advent of online shopping and ordering of similar goods from non-traditional office-supply stores. Therefore, when conducting an overall analysis of Porter’s Five Forces, it is easy to see that the biggest threat to this industry comes from the threat of new entrants into the market and from substitute goods.

The profound impact on each of the segments within the office supply store industry via the recent technological innovations of the past decade have made a distinct change in the way the office supply market is structured. For example, the once largest segment of the consumer market, household and individuals, now only holds a 12.7% portion of the office supply market (Pradhan, 2020). This can be explained by the increase in competition by non-traditional big-box stores and the rise of price comparison and transparency that can be found by individuals using online shopping as a source for their office supply needs. This threat of new entrants into the market has left individual consumers lacking the desire to walk into the big office supply retail stores because they lack the product mix that other big-box stores and online retailers have. As for the business-related consumers, their desire to maximize cost efficiency and minimize their ecological footprint has driven many of them to substitute traditional office supplies with newer technological innovations that can replicate older processes at a fraction of the cost.

Overall, the attractiveness of the office supply store industry is currently very low and is subject to even more decline if it fails to adjust to aforementioned technological changes that have occurred in modern business.

Trends in General Environment - Pestel

Social

One focus point of the social aspect of the Pestel analysis is population health and the attitude people have toward it. The most important recent trend in this field is the current health crisis due to the COVID-19 pandemic. The crisis has critically impacted the industry for many reasons. For example, since the industry does not fall into the essential infrastructure, it must remain closed for the lockdown period the country has experienced, and this caused revenue to decline an estimate of 4.6% for the remainder of the year. (Pradhan, 2020). As a consequence of this trend, firms have adapted and responded in their own way. For instance, Office Depot released a statement on July 20th about their response to the health crisis, in which they explained some measurements they are taking to prevent spreading the disease like by offering services like curbside pickup or delivering items to customers and requiring customers to wear face masks. (“COVID-19 Response”, 2020).

Another result of the health crisis is the reduced demand. As explained in IBIS World, the main demand, which is composed of households, educational institutions, and offices, have all been also affected by it, and therefore have evolved through digitalization, remote learning, telecommuting respectively, which puts downward pressure on the demand at the industry level. (Pradhan, 2020). This is a pretty problematic forecast for the industry for the remainder of the year, and the following years will prove to be a challenge for the firm.

Economic

If we take a look at the Industry outlook, we can determine that the Office Supply in the U.S. Industry is currently in decline which is explained by factors such as more and more firms evolving towards digitalization of paperwork and the increased use of cloud services to store and manage information, and therefore reducing demand for the industry, and also the fact that the industry is facing strong competition from online and big-box retailers. (Pradhan, 2020). Finally, just as revenue is expected to decline, employment in the industry does not look good for the future, with an expected decline of 4.64% by the end of the year, and it will continue decreasing for at least until 2025. (Pradhan, 2020). Overall, the industry is expected to keep declining for the following five years, and the advances and acceptance of e-commerce challenges the future of the industry.

Strategic Group Map Analysis

There are two major players that combined make 72.8% of the total market share; these two major players are: Staples and Office Depot. This combined market share explains why there was an attempt in 2015 for the two monsters of the office supply market to merge; which eventually was going to swallow the rest of the industry if these two major players joined forces together. For that reason, the Federal Trade Commission FTC rejected an agreement that was reached for Staples to purchase Office Depot Inc. for $6.3 billion due to the anticompetitive effect that this deal would have on the industry. (IBIS, Major Players).

Staples is based in Framingham, MA; however, they are across 46 states and they currently have 1113 stores. In addition, they operate in 26 countries, and they continue to evolve into new geographical regions globally. Staples Market Share is 38.4% (IBISWorld, About). Staples operates in Asia-Pacific, Europe, North and South America.(Staples, About us).

Over the five years to fiscal 2020; Staples US industry revenue has been decreasing at an annualized rate of 4.8%; that is a decrease in value of $4.5 billion in 2020 Alone. (IBIS world, Major players). Experts are anticipating an additional loss and decrease in their revenue for 6.8%; all of this is due to the competitive market trend that is shifting consumers to purchase from online stores and Big-box retailers; which caused the demand for office supply stores to be reduced in the market.

This trend has pushed Staples to expand their online business; which by the way, the revenue from their online sales is not included in the industry. Staples has been working on creating a new market plan in order to compete with online shop suppliers such as Amazon.com Inc.

Office Depot

Based in Boca Raton, FL; Office Depot is the largest in-store retailer in the USA with 1317 stores. Their market share is 34.4%. Office Depot also operates in North America, Europe, Latin America and Asia for a total appearance in 57 countries. (IBISWorld Major). For the last 5 years to 2020; Office Depot’s industry specific revenue has been impacted significantly and expected to continue the decline by 7.4% to 4.1 billion as a result to Covid-19 and trends such as telecommuting, digitalization and emergence of large superstore retailers. (IBISWorld, Finance).

The 2020 second quarter summary that was just released by Office Depot clearly shows the decline in sales when comparing the second quarter or 2019 and second quarter of 2020 from $2588 to $2158 (in millions). They also suffered an Operating income (loss) by $456. In addition to Covid-19 impact, digitalization has reduced the demand for paper products and business shifted to online stores and big-box stores also eliminated the need for the demand for office supplies. This trend of decreased in store traffic has led to the downsizing of the company and the closing of several low contributing stores. Office Depot's size advantage has enabled it to outperform industry competitors. However, this decline in sales of products was partly offset through Office Depot's sales of services increasing 7.0% in 3Q19, an increase in line with the year to date 10.0% increase in revenues associated with subscription services copy and print activities. (IBISWorld, Finance performance).

Strategic Group Map Analysis

This Strategic Group Map analysis shows the impact that the low in store traffic on sales due to the trends that the office supply industry has had for the last 5 years. Companies that are following the trend and shifting towards online sales are catching up.

Key Success Factors

Research: This section probably does not require additional research. Instead you should reflect back on all that you have already learned about this industry. Before a team member starts writing this section, make sure the input of all other members from their research for their sections is taken into consideration. Analyze, synthesize, and evaluate what you have learned.

· What are the 3-4 key success factors that have the strongest relationship with success and profitability?

· Do these KSFs vary by segment, if there are segments in the industry?

· How are these KSFs likely to vary over time?

· What are the implications of this evolution?

Analysis - Industry’s Prospects for Long-Term Profitability

Growth Potential

The future growth potential is projected to be stagnant and unimpressive. Over the next five years, the industry will continue to decline and is expected to yield a negative growth rate. There is too much competition and not enough demand. Additionally, we can expect the demand for office supply to further decrease as technology advances. The growing popularity of e-commerce will eventually cause any remaining brick-and-mortar stores to close down. Therefore, any future growth potential looks bleak and unrealistic.

Competitive Forces

The industry competition and concentration will increase and strengthen over time. External competition from discount department stores, supercenters, warehouse clubs, and e-commerce websites will continue to grow. The internal competitors will not be able to compete and will be forced to merge with the two industry titans: Office Depot and Staples. While both companies “have invested heavily in e-commerce and are trying to grow, they are faced with Amazon’s utter sophistication” (Schmidt 2020). This external competition will eventually become too strong and ultimately eliminate these two giants.

Sustaining/Changing Trends

The most prominent ongoing trend is digitalization. This is an ongoing trend and will ultimately change the structure of the office supply industry. This increase means that major players, like Staples and Home Depot, are going to invest more heavily in ecommerce. The shift to e-commerce will also lead to product innovation. The digital transition that is taking place “will impact how consumers purchase their supplies, and is also influencing the types of products they're buying” (Braithwaite 2020). This means office supply products will be more customer friendly and service oriented in the future.

Degree of Uncertainty

Currently, there is a high degree of uncertainty in the office supply industry. The structure of the office supply industry is undergoing a major transformation, therefore, change and uncertainty isto be expected. The threats of increasing digitization and too many substitute products and services are very severe. The major players must adapt to the changing climate immediately or they will be phased out. As the industry continues its shift towards online, we can expect more uncertainty and changes.

Attractiveness

Due to the uncertainty of the current market, the office supply is considered unattractive. There are too many external factors that are negatively affecting the office industry at this time. After applying the Porter’s Five forces model, it was determined that due to the competitiveness of the industry, the Office Supply business is not attractive and revenues will continue to drop. This high level competition and the component of market awareness would make it difficult for a new company to be successful in this industry.

Appendix

1- Pradhan, Sriya. “Major Players.” IBIS World, June 2020, my.ibisworld.com/us/en/industry/45321/major-companies.

2- Pradhan, Sriya. “About, Office supplies Industry” IBIS World, June 2020, my.ibisworld.com/us/en/industry/45321/major-companies.

3- Staples “About us” Staples website, Copyright 2020, https://www.staples.com/sbd/cre/marketing/about_us/

4- Office Depot “About us” Office Depot website, Copyright 2020,

https://investor.theodpcorp.com/events/event-details/q2-2020-office-depot-inc-earnings-conference-call

“COVID-19 Response.” Office Depot, 20 July 2020, www.officedepot.com/cm/help/office-depot-covid-19-response?cm_sp=marketing-_-covid-response_learnmore_-_-officedepot_homepage-desktop-wk41_header-option-b_9_1_0.

Braithwaite, A. (2020, February 19). Online shift accelerating, says NPD: OPI - Office Products International. Retrieved October 04, 2020, from https://www.opi.net/news/region/001-north-america/online-shift-accelerating-says-npd

Pradhan, S. (2020, June). Industry Performance. Retrieved October 3, 2020, IBIS World. Retrieved from https://my.ibisworld.com/us/en/industry/45321/industry-performance

Pradhan, S. (2020, June). Product & Market. Retrieved October 3, 2020, IBIS World. Retrieved from https://my.ibisworld.com/us/en/industry/45321/products-and-markets

Pradhan, S. (2020, June). Industry Outlook. Retrieved October 3, 2020, IBIS World. Retrieved from https://my.ibisworld.com/us/en/industry/45321/industry-outlook

Cook, D. (2020, April). Database, Storage, & Backup Software Publishing in the US. Retrieved September 23, 2020, from Ibis World.

Porter, M. (2015, May 20). How Competitive Forces Shape Strategy. Retrieved October 03, 2020, from https://hbr.org/1979/03/how-competitive-forces-shape-strategy

Pradhan, S. (2020, June). Industry at a Glance. Retrieved September 23, 2020, from Ibis World. Retrieved from https://my.ibisworld.com/us/en/iexpert/45321/iexpert

Schmidtt, S. (2020, April 27). COVID-19’s Impact on the Office Supply Market. Retrieved October 4, 2020, from https://glg.it/articles/covid-19s-impact-on-the-office-supply-market/

TRUiC. (2020, August 11). How to Start an Office Supply Store. Retrieved October 03, 2020, from https://howtostartanllc.com