Andrew Penfold* analyses the unfolding impact of COVID-19 on the $12 billion Australian office and work supplies market.

 

2020 has turned out to be a year of shock, adaption and a significant reset for the OWS market. 

 

While the OWS market will eventually stabilise and return to at least a semblance of its former self, some major pillars have already been shifted. These changes will drive a reformulation of market dynamics – forcing many operators to realign their strategies and business models in the process.  

 

Firstly however, what sort of growth (or more precisely decline) can be expected for 2020?  

While there remains considerable uncertainty and therefore difficulty in providing reliable forecasts at present, we have relied on the established patterns of behaviour, systems and ‘knowns’ to provide the following projection.  

 

The massive evacuation of centralised offices, combined with the screeching deceleration in economic activity over the last few months, has heavily impacted OWS expenditure. 

 

With the Australian economy projected to shrink by around 4% in calendar 2020, our estimate is that ‘broad’ office and work supplies expenditure growth will be slightly worse; at -5%. 

 

While this decline may appear relatively mild under the circumstances, it disguises major variances between sectors, product categories, customer segments and regions.  

 

Traditional ‘core’ office supplies projected to grow at -14% for 2020 will be pulled down markedly – lagging economic growth by around 10%. 

 

One contributing factor will be significant reductions in the high volumes of centralised office printing amongst medium/large businesses (i.e. curtailing the two major expenditure categories of toner and paper). 

 

At the same time – and highlighting the uneven impact of COVID – several non-core categories will outperform, resulting in the non-core sector (at +3.5% in 2020) growing around 7% better than the economy. 

 

This will be particularly driven by elevated growth for cleaning/janitorial products, workwear/safety equipment, selected furniture and packaging.  

 

(CAUTIONARY NOTE: With significant uncertainty surrounding future rates of COVID-19 and therefore any precise path to economic and social recovery, there is a high degree of difficulty in providing accurate projections at present. In this context, readers should be aware the data and statements in this document represent a professional opinion at the time of writing.) 

Under Penfold Resarch’s broad definition ‘office & work supplies’ (OWS) includes; 

 

• ‘Core’ (traditional) office products; (ie writing instruments, art & craft, paper, pads & books, labels & mailroom products, technology consumables & accessories, filing & presentation, general office supplies and business machines), and 

 

• ‘Non-core’ work supplies; (ie kitchen supplies, cleaning/janitorial products, furniture, printing services, promotional products, work wear/safety equipment and packaging supplies). 

Although the ultimate degree of market/behavioural change remains in-play, there is enough evidence to indicate some fundamental pillars of the OWS industry have already irrevocably shifted. Operators should be aware of these and already be strategising on how to adapt their businesses. 

 

In many ways COVID-19 is proving to be an accelerator of existing trends.  

 

The following is our outline of some key enduring changes to OWS market dynamics:

 

Workplace decentralisation 

 

With businesses & workers proving they can function productively from dispersed locations, the role of centralised large-scale offices has/will diminish. This will fragment demand to smaller and wider-spaced suburban and regional purchase units, shifting competitive advantage to operators with distribution models best able to cope with this. This massive and relatively sudden migration of a sizable but as yet unknown portion of the 7-8 million Australian office workers to more outlying locations will be wide-reaching and profound. It will shift the types of products used, as well as the selection and decision-making process – plus in all likelihood the supplier used.

 

At the same time, decentralisation will prompt a redesign of existing centralised office spaces to adjust to the new paradigm. For example, allowing for more flexible, rotational working styles, wider spaces, as well as collaboration and video conferencing areas. In our view this creates opportunities for industry operators; as businesses and property owners will need to invest to make these changes.  

 

Widespread and enduring reshaping of homes as workplaces

 

While this is already well underway, we believe there is considerable ongoing scope for expenditure on a relatively broad range of products & services. Large swathes of homes remain inadequately set-up for efficient home-based working – and we expect ongoing investment to rectify this. Some expenditure areas that come to mind beyond the standard IT/electronic equipment 

and accessories include; ergonomic furniture, IT services & data security, lighting, partitioning and sound proofing. 

 

A faster shift away from most traditional paper-oriented (core) products - as people & organisations become used to screen-based working. 

 

We expect some product exceptions, however they will be relatively few on balance. The implication is greater downsizing, restructuring & possibly consolidation amongst core product suppliers. 

 

Channel shift to online suppliers – at the expense of retail shopping

 

The most profound shift here is amongst households and students (traditionally retail shoppers) who have discovered the convenience and price-benefits of online. Amazon has gained significantly from this during the pandemic. The implication is the future role and value of physical stores has meaningfully diminished amongst customers. Greater online use also increases price comparability, suggesting price and margin tightening. 

 

Diversification of supply sources 

 

The pandemic has highlighted the fragility and vulnerability of what has become the dominant supply chain model; relying on large, distant, low-cost foreign manufacturers. The fractious nature of political relations between China and Australia is adding further impetus to this shift. The implication is a move to a more balanced, diverse range of manufacturers – including local (Australian & NZ) manufacturers. 

 

This development may lead to higher market prices or lower margins. 

 

Industry sectors unevenly impacted resulting in rises and falls among customer types.

 

While some business types will collapse, others will thrive in the next 1-2 years, resulting in a reshuffling of the composition of the Australian business landscape. 

 

We expect larger shares for businesses in these industry sectors; health, public administration and safety, wholesale trade, warehousing - and manufacturing. By contrast we expect lower shares and closures amongst, retailers, accommodation and foodservice (via reduced international tourism) as well as education/training (via reduced face-to-face learning). The implication for OWS operators is there will be highly varied spending patterns amongst business customers (i.e. end-users) – some growing healthily & others shrinking and potentially becoming bad debts. 

 

Greater demand for personalised work from home (WFH) oriented products and services 

 

There will be an on-going elevated appetite for more individualised product versions, with design-elements that cater for individual tastes/preferences. At the same time there will also be heightened demand for small pack sizes. 

  

*This article represents a professional opinion amid a fast-moving, pandemic-induced period of major market change. Please feel free to send any comments or general feedback to the author;  

 

Andrew Penfold

Director 

Penfold Research 

[email protected] 

M 0419 980 971