Trends
The OfficeSupplies Industry is subject to wide cyclical swings, the timing of which generally coincide with the fate of the U.S economy and, to a lesser extent, those of many European countries. This industry is not capital intensive, and expenditures are often less than annual depreciation charges. There are two major sectors.
One includes companies that produce digital office equipment, such as copiers, printers, facsimile equipment, and postage meters. The largest customer category here is major financial institutions. Other important sources of revenue stem from small and mid-sized businesses and government agencies. The provision of management/outsourcing services supplements the top lines of these companies.
The second sector is made up of office supply distributors. Their sales are derived from North American retail chains, domestic contract stationery businesses, and international operations. Retail chain business is supplemented by Internet-sourced orders, which are factored into the calculation of same-store sales, a key barometer of operating efficiency.
Stocks in this group are relatively easy to analyze, given the straight forward nature of their businesses, the extended length of the product cycle versus most other technologically oriented industries, and the ease of determining market-share gains and losses.
Pricing Wars
As is the case in the electronics industry, prices for office equipment and certain supplies, notably ink cartridges, tend to decline over time. The two main reasons for this are decreases in the price of electronic components (a result of the shift of production to

lower-cost countries) and to increasing manufacturing efficiencies. More important, competition from large players in the Computer and Peripherals and Foreign Electronics industries limits the growth of office products manufacturers. Office supply distributors face market inroads by major retail chains outside the industry. All told, even in times of global expansion, the overall sales gains of the Office Equipment & Supplies Industry are usually modest.
Margins
In light of the foregoing growth assessment, the companies here have to continually struggle to maintain or improve margins. One prime method in supporting profitability for office product developers is cost cutting. This is done mainly by cutting administrative employees, outsourcing manufacturing and/or transferring this function to low-cost countries, and acquisition integration. Another means is the upgrading of products, leading to price increases. New service offerings are an additional relatively successful way of bolstering margins, since they typically command a high mark-up over cost.
Office supply distributors, in turn, offer high-margined technical diagnostic services, generally to repair malfunctioning equipment. Smaller-sized stores have also helped to shore up earnings, thanks to increased sales-per-square-foot and fewer in-store employees. There are wide operating-margin variances among companies in this industry, and the overall average is relatively low.