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The Aftermarket Imaging Supplies Business in 2013: Opportunities, Challenges and Threats

6 Mar, 2013 By: Luke Goldberg, Micro Solution Enterprises (MSE)

We often hear the (now overused) phrase “the new normal” when discussing expectations in the hard copy supplies business. This era of the “new normal” is one where inexorable trends curtail demand and we can do nothing but adapt to this bleak slow-growth/no-growth future.

If you look at certain trends from an OEM perspective, you can see why what I call a “culture of negativity” is pervading their talk tracks. It’s as if they are saying, “If we talk enough about diminished expectations, maybe shareholders will take note and be more accepting of plummeting financials and missed quarterly targets.”

I don’t think the shareholders will accept it, and neither do I.

Yes, 2012 was another bloodbath for OEMs; the second worst since ‘09 at the height of the recession. Printer sales are down and the once vibrant cash cow of ink has been changed forever by Facebook, Instagram, and the overall digitization of formerly printed content.

For the aftermarket, I look at things with a much brighter perspective. Given that the aftermarket enjoys somewhere north of 30 percent share on mono and less than 10 percent on color, on aggregate, since color and mono are nearly even in revenue potential, at an OEM spend, we have approximately 20 percent total share.
The global consumables market is approximately $80-billion according to Photizo, of which approximately $52 billion is toner. When we look at the biggest drop offs from an OEM perspective, it’s predominately ink-related as witnessed by Lexmark and Kodak exiting the business. Clearly printer OEMs are trying to recapture some of the ink magic by competing with laser in the SME and corporate market. We have all heard the news about Memjets and HP’s fast, low CPP 60+ ppm units. Time will tell if they can play in the office. I for one am a little skeptical given that business-class inks have been at this for over 20 years.

Most readers of this periodical are undoubtedly servicing and supplying laser printer and or copier printer toners far more than inks, which is certainly the case with most independent dealers. So, it should come as good news that in spite all of the doom and gloom, laser consumables actually grew in 2012 to 447 million units versus  411 million in 2011 (Photizo).

Wow, who would have guessed this? I thought print was dying, and printers were to be the next technological relics taking their place with typewriters and the abacus.

Sarcasm aside, the facts tell the story: We have huge opportunities as an aftermarket if we stop the madness of internal competition and focus on the broad blue ocean still dominated by the OEMs.

Still better news, most experts agree that in the coming 2 years color revenue from consumables will actually surpass mono. This untapped reservoir of color could sustain the aftermarket for years to come given our current paltry share. I estimate the global aftermarket to be approximately $13-15 billion which includes new molds and other products that may infringe OEM IP (More on that later).

Today, the total pie for color laser is approximately $24 billion. If we have only 10 percent, that equates to $2.4 billion in total revenue we would enjoy. If we grow this to 20 percent in the next 2-3 years, that would add another $2.5-2.75 billion (accounting for color growth until 2015 to 27 billion) to the total aftermarket pie. In other words, we could grow the entire aftermarket by over 20 percent by just adding another 10 percent share in color.

Sounds great, but not easy. Let’s look at some of the challenges, both internal and external, that are hindering this growth opportunity.

To start, OEM color technology continues to stymie the aftermarket. Today, there are multiple technology platforms to master in order to cover Canon, Lexmark, Xerox, brother, etc. They are all different, and they all have a myriad of technological challenges related to raw materials, leaking issues, toner adherence to the PCR, and general print quality issues.

OEM struggles in recent years present a mixed bag when it comes to technology. Lower printer sales means less money for R&D, which equates to technological stagnation and an aging printer base. We know that the older a printer gets, the greater the aftermarket share for its consumables becomes.

In the monochrome world, the aftermarket might enjoy as much as 50 percent share on legacy printers such as the 4200 family, and certainly the long-in-the-tooth 4000/4100. Clearly MPS and the placement of refurbished printers exacerbate this trend as older machines are continually re-introduced into the base.

In the world of color, our share is so low (even in MPS) that many resellers opt for OEM color and aftermarket mono.  Some of the biggest OEMs aren’t spending the dollars to truly innovate; instead, in some cases, their refreshes in color and mono are just extensions of older engines.

Witness the newest HP releases: The M525 is really just a 3015 using a 55x cartridge, and the color M575 is essentially a 3525 platform, which uses the same toners as the M551. Even the new A3 monochrome  M712 is just a modified  5200.

The good news for the aftermarket is that we can utilize existing technology to gain access to these newer printers faster. The bad news is, in the long term, a healthy aftermarket relies on a vibrant, flourishing OEM. If they don’t innovate, technology stagnates and consumables commoditize.

Choose What  Works

In the world of color, the aftermarket is collectively having enough trouble with pre-existing technology, so more innovation might not be desirable in the short run. However, there are signs of life for the aftermarket: share is creeping up incrementally in color, raw materials are improving, and transparency is better. On the issue of transparency, I really feel for the independent dealer who’s trying to find the right choice for color. How do you decide when every single company claims leadership?  

I for one think too many independent dealers take their consumable quality for granted and spend too much time focusing on solutions, connectivity, software and the like. While these are all critical, let’s not forget, if you are in the world of MPS, 70-80 percent of your CPP and COGS are consumables derived. I cannot be more adamant in imploring dealers to take a more decisive role in choosing their consumables.

Remember: In the world of color, sometimes the best way to create value is to offer the OEM. Sometimes, the aftermarket just hasn’t caught up, and the OEM is the way to go. Your customers will thank you, and the credibility you establish will give you an opening when/if the aftermarket is ready.

Dealers today also need to have a keener understanding related to the IP positioning of the products they sell. The OEM exercise of their IP will, undoubtedly, get more strenuous in 2013 as they look to protect their dwindling supplies business. I would venture to say that recent cases will tip the scales from new mold products to remanufactured on the laser side of the business. Remanufacturing, while not immune from IP, is a safer route, as it’s protected by long standing doctrines governing right to repair and patent exhaustion. 

We are also all waiting to see when/if Canon is granted a GEO. If they are, this will clearly favor US domestic manufacturers who will not have to be concerned with customs seizures since they aren’t importing cartridges. Dealers by now are aware of this and many are seeking contingencies to avoid disruptions if a GEO is issued. We will know for sure in the coming months.

If there is a shift towards remanufacturing away from new molds it will further necessitate dealer/manufacturer core collection programs to offset OEM collection efforts. For dealers, core collection will become a requirement in order to maintain supply continuity. For end users it will be a requirement to ensure that they have a choice when they buy their print consumables.

By now, it should be clear: As an aftermarket, we face obstacles, but we have great opportunities if we build our supplies business to be viable, fair competition to the OEMs, whose huge pie, while slightly diminished, can still provide us with great opportunities for years to come.

I always end these articles with a call to sanity on behalf of the aftermarket:  Let’s stop killing each other and competing for the small share we already have, because that is a recipe for disaster and a race to the bottom.  OEM prices only go up, they don’t go down and yet aftermarket prices continue unabated to the bottom. If we can’t stop this, we will squander the opportunities presented by color, MPS, and general printer trends.

Upcoming ITEX Expo Presentation

Luke Goldberg is Senior Vice President of MSE. To hear more about this and other aftermarket happenings, consider attending his upcoming seminar at the annual ITEX Expo in Las Vegas (held April 16-18) entitled: The Aftermarket Imaging Supplies Business in 2013: Challenges, Opportunities and Threats. Session code P3 Wednesday April 17th at 9am. Visit www.itexshow.com for detailed show information.  For MSE info visit www.mse.com.

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