Who’s My Competition in the Office Products Channel? Presented by David J Pydlek Integrated Supply Consultants LLC

Integrated Supply Consultants, ISC Why Develop a Business Products Vertical Market? Business products is currently a $270B industry! All combined power channel entities (OfficeMax, Depot, Staples, CorpEx) constitute 16% ($43.8B of approximate $270B) of market share in North America It’s still a fragmented industry Mass merchants Drug & food retail chains Government Integrated suppliers Manufacturers direct E-Commerce distributors

Integrated Supply Consultants, ISC *The fastest growing on-line product category in sales was office products $10.3B on-line OP sales in 2005 (15% of total sales) Total sales among top 500 was $68.9B The category accounts for 2.2% merchants among top 500 on-line retailers Top 500 internet retailers experience 60% sales growth on-line in this category! Office Products Channel: Market Facts *Source: Internet Retailer Top 500 Guide

Integrated Supply Consultants, ISC OP Channel Fast Facts 2005 total office products industry sales estimated at $270B overall Includes electronics Retail portion $205.9B Projected growth of ~4-5% per year for the next 5 years *Private label is growing aggressively >30% of sales are targets for all players *Source:The Stockwell Report

Integrated Supply Consultants, ISC *2005 Total Sales Revenue ($B) Among Big 4 Company CAGR OfficeMax $9.1^$8.8$ % Burhmann/ Corporate Express $4.3$3.9$3.71.1% Staples $16.1$14.4$ % Office Depot $14.3$13.6$ % Grand Totals: $43.8$40.8$33.1 *Source: Company reports and analysts projections; includes international sales ^Actually saw a overall sales decline due to divestiture of paper businesses

Integrated Supply Consultants, ISC *Fast OP Channel Facts: Internet Retailer “Consumers have responded to the new technology-driven service, thrusting office supplies retailers Office Depot Inc.; Quill’s parent, Staples Inc.; OfficeMax Inc. and CDW Corp. into the top 10 largest online retailers, according to the 2006 edition of the Internet Retailer Top 500 Guide to Retail Web Sites.” *Internet Retailer

Integrated Supply Consultants, ISC *Quotes from Internet Retailer “very or extremely important” to meet customer expectations for multi-channel purchasing and delivery options. “Indeed, fulfillment has emerged for multi-channel retailers in general as one of the keys to overall success. In a study of retail fulfillment practices last year by Aberdeen Group, more than 70% of retailers said they considered it “very or extremely important” to meet customer expectations for multi-channel purchasing and delivery options. 46% of retailers expect order fulfillment costs to rise over the next two years, 29% expect no change and only 25% expect their fulfillment costs to decrease.” But while order fulfillment has become front and center among the concerns of many retailers—a far cry from the early days of the Internet—its cost for many merchants is rising. Aberdeen found that 46% of retailers expect order fulfillment costs to rise over the next two years, 29% expect no change and only 25% expect their fulfillment costs to decrease.” *Internet Retailer

Integrated Supply Consultants, ISC *3 year Trends Among Big % Sales Change 2004 % Sales Change 2003 % Sales Change 2005 Channel Share % 2004 Channel Share % 2003 Channel Share % Staples Office Depot Office Max 3.46NA(3.27) *Source: Company reports, analyst’s estimates and DSN Retailing Today research

Integrated Supply Consultants, ISC *Op Private Label Trends CompanyPrivate Label Sales ($B) 2005 % of Total 2004 % of Total % Change Staples Office Depot OfficeMax *Source: Company reports; Industry Analysis

Integrated Supply Consultants, ISC *Burhmann/ CorpEx Facts Smallest of the big players $4.4B 2005 NA sales 20.4% overall sales growth 9% organic growth 3 Divisions: Australia, North America, Europe No retail Corporate Express private label represents 25% of total sales *Source: 2005 annual report

Integrated Supply Consultants, ISC Corporate Express NA (cont’d) 68% of sales comes through E-Way “OneShopExpress” One order, one invoice, one payment over multiple product lines 40,000 OneShopExpress orders processed in 2005 Biggest threat to T.O.P.S. single supply chain solution (still not as comprehensive) *CorpEx: 18.3 Brand Power Rating (only one to decrease over last 3 consecutive years as reported by CoreBrand) Use salesforce.com to manage sales team

Integrated Supply Consultants, ISC *Office Depot Facts North American Business Solutions Division produces 30% of overall sales 46% is retail $4.2B internet sales (#2 overall) 21% of total revenue ~30% GP 25.6% operating expenses $273M net earnings * 2005 annual report

Integrated Supply Consultants, ISC Office Depot (cont’d) Viking mail order went away Only in Europe Private labels include Office Depot, Foray, Ativa, Christopher Lowell *Brand power ratings are highest for 54.7% *Reported by CoreBrand

Integrated Supply Consultants, ISC Office Depot Websites State-of-the art public Internet sites: in Canada

Integrated Supply Consultants, ISC OfficeMax Primary customer: Fortune 500 Companies Contract segment represents $45.7M with 21.9 % GP 9.4% increase 19.7% operating costs Same store retail sales flat Store closings in unprofitable markets * (#6 overall) 29% of total US sales *source: 2005 annual report and Internet Retailer

Integrated Supply Consultants, ISC OfficeMax Facts (con’t) *OfficeMax Brand Power Rating: 51.2 OfficeMax Impress launched November 2006 Re-branding of Document management solutions *Reported by CoreBrand

Integrated Supply Consultants, ISC *Staples Facts #1 OP company Projected 2006 $16.08B 28.5%GP North American Delivery = 3 business units Staples Business Delivery Quill Staples National Advantage/ Staples Business Advantage 11.3% 1 year sales growth $3.8B online sales 2005 (#3 overall) 24% of total sales 27% increase over 2004 *source: 2005 annual report

Integrated Supply Consultants, ISC Staples Facts (cont’d) StaplesLink is the B2B online ordering program 70% of contract sales expected to come through StaplesLink.com B2B website ’06 Use WebSphere Commerce version 5.4 * Staples: 52.4 Brand Power Rating Stock approximately 13,000 items *Reported by CoreBrand

Integrated Supply Consultants, ISC Key to Success: A True Integrated Purchase Order for all Services

Integrated Supply Consultants, ISC eQuantum Integrated PO

Integrated Supply Consultants, ISC Kramer-Smilko Integrated PO

Integrated Supply Consultants, ISC Focus for the Distributor Sales Team You have an excellent single source, supply chain solution with your Forms & Print legacy system Market proactively to your end user Demo to your customer on their PC and save as Favorite Highlight & market your private label E.g. Innovera, Universal and Alera Use stockless model and ride on fulfillment partner’s low operating costs to serve your customer Market fulfillment excellence Market the fact you sell the category as part of your service solution portfolio

Integrated Supply Consultants, ISC Conclusions & How to Compete? Have an e-commerce solution Have a viable private label to compete (e.g. Innovera, Universal) Leverage low operating costs (assume distributor partner’s operating costs) Don’t re-create the wheel and add operating costs Brand your company (how do your customers know you?) Market excellent fulfillment capabilities Make the ordinary extraordinary Margins are high enough to make money Use a variable margin matrix