A Course to the Top

Open the front cover of its flagship catalog, and you’ll be greeted by a note that begins, “Who is School Specialty?” That’s a question this fast-growing $870 million company has no trouble answering.

Having acquired upwards of 45 companies during the past 10 years, School Specialty now is a large and diverse organization with one common thread: to provide “everything but the textbooks” to the education marketplace, according to company CEO and President Dave Vander Zanden.

Indeed, School Specialty sells desks and lockers; library and media room equipment; workbooks and supplemental education products; classroom decorations; art and gym supplies; awards and incentives; and videos and DVDs.

The 80,000 SKUs School Specialty sells are geared primarily for kindergarten to 12th grade classes, and the company is starting to adapt some of its product lines for the pre-school market, too. There are 53 million students in the United States, and supplies for schools amount to a $6 billion market, of which School Specialty has a 15-percent market share.

School Specialty services this large market through various catalogs and channels. But it started out as a company called Valley School Supply, selling furniture to schools in Wisconsin. In the 1980s, the company zeroed in on the K-12 education market as its niche, and started acquiring companies to service that market with more specialized products.

The company now has School Specialty’s traditional company, plus eight major specialty catalog brands: Childcraft, Classroom Direct, Sax Arts & Crafts, Sportime, Teacher’s Video, Premier Agendas, Frey Scientific, and Brodhead Garrett.

It eventually took the School Specialty name from one of the businesses it acquired in 1995.

In 1996, School Specialty was bought by U.S. Office Products. Two years later, U.S. Office Products broke up into five companies and School Specialty became a publicly traded firm. It bought its largest competitor, Beckley-Cardy Group, later that year.

That’s how School Specialty became the No. 1 national education supplies company.

The Top-down and Bottom-up Sales Approach

Reaching the 3.5 million educators in the United States is no easy task. These teachers and administrators are based in elementary schools, middle schools and high schools in rural towns, busy suburbs and large cities. Districts with multiple schools may do centralized buying for some products like furnishings. Even for classroom education tools, it’s a complicated and complex web of buyers and specifiers. Sometimes it’s the individual teacher; other times it’s the principal or school secretary. In some instances it’s the school administration of an entire city making the buying decision for which workbooks to use for, say, third grade language arts.

And the process has gotten more complicated in recent years, says Vander Zanden. “Twenty five years ago, a district tended to buy everything. Then it moved to site-based purchasing. Then in the last 10 years, to classroom purchasing,” he notes.

To capture this market and meet the needs of all the different types of buyers, School Specialty developed a “top-down, bottom-up” approach to sales and marketing. “We come at it two ways because, in the education marketplace today, the decision about what to purchase — the control of the spending dollars — is really divided between those two segments depending on what kind of products you’re talking about.”

In the top-down approach, Vander Zanden, says: “Our traditional company operates through a sales force that calls on administrators and leaders at the school-district level.” The company’s 1,000-page flagship catalog is based on the top-down model.

Meanwhile, in the bottom-up approach, the company targets teachers directly by offering specialty products presented in individual catalogs. In addition to specifying purchases for their classes and often having control of a small budget, teachers may spend, on average, $550 of their own money each year on items for their classrooms.

Getting to the teacher is not always a straightforward affair, he admits. “The buying decision may come from the teacher or the principal, but the order may come from the school secretary, and this is an office where, believe it or not, many still are using typewriters!”

Often it’s the school’s front office that will get all of the catalogs and redirect them to the individual teachers, he adds.

Interestingly, teachers comprise one market segment not served particularly well by any one mailing-list source. There are a lot of teachers who may not be on any list, says Vander Zanden. The scenario is even more difficult in Canada, where schools are not allowed to offer teachers’ names. Market Data Retrieval and QED both supply teacher names to School Specialty for marketing purposes in the United States.

Of course, School Specialty remains eager for any new sources of names. “With many catalog purchases, we’re really after the customer list,” says Vander Zanden. “We still have only 15-percent market share, so there’s plenty of room to grow.”

Growth by Acquisition

The company remains committed to its growth-by-acquisition strategy, so for School Specialty, staying on top of its marketplace — and targeting those who might be ripe for a sale — is serious business. “We keep a list of possible acquisition targets. We have a person on staff who does nothing but look for acquisition opportunities,” Vander Zanden reveals.

“We still need to buy companies in the geography, music and math areas. There are a couple thousand more companies out there that might make good targets for acquisition,” he says.

A niche cataloger that features some of its own proprietary products is a good target for School Specialty — a smart move, says Trace Urdan, a financial analyst with Think Equity in San Francisco. “School Specialty’s traditional company sold the pencils, crayons and paper — largely commodity products. But its newer, acquired companies tend to offer proprietary products into the space — things that today’s teachers want. These companies are really intended to serve the teacher with items they can’t easily get elsewhere,” Urdan contends. “The real point of acquisition is to pick up those proprietary products — and that’s what their specialty catalog business is all about.”

For example, he says, “School Specialty offers really neat stuff like basketballs that show kids where to place their hands to shoot properly.” They also make more money, and get higher margins from these types of products than they could from selling the more commodity-type lines, he notes.

Integration Opportunities

The first thing Vander Zanden looks for in a possible purchase is if the match is a good fit — both product-wise and culturally. “We’re very good at integration, so we look for those natural complements,” he notes. “There’s really nothing magical about it. … We go in and get the job done as efficiently as possible.”

Closing plants and laying off people really are the only smart ways to integrate in an honest and efficient manner, Vander Zanden contends. The key to a successful strategy is to always “let people know what’s happening to their jobs and their companies as soon as we know,” he says.

Following an acquisition, School Specialty quickly capitalizes on the benefits it can achieve. “We put the companies together, take out redundancies and create more value. In many cases, we also shore up a stronger market position by buying the competition.”

When it comes to integrating, School Specialty moves quickly. “We bought ABC School in August and by mid-January, it was completely integrated. We put that company together with one we already owned, Childcraft, which also focuses on the early education market,” he says. Both companies had manufacturing plants, distribution centers (DCs), sales forces and catalogs. “We integrated all of those operations, and within four months, closed a DC and a plant, and combined back-end operations.”

The day an acquisition closes, Vander Zanden and his management team go on-site to the newly purchased company and explain what they’re planning to do. “We let them know right up front if we’re going to close the DC, for instance. When we buy a company, we move quickly to integrate the back end: the purchasing, IT systems and DCs. We don’t worry as much about integrating the front end — though if there’s obvious overlap, we’ll try to work that out,” he says.

That was the case with the purchase of Select School Agendas in Montreal. Vander Zanden and his team combined its operations with those of Premier Student Agendas in Bellingham, WA.

An acquired business might keep its own front-end, but only if the newly purchased company exists in a market in which School Specialty doesn’t already have an established front-end. “Either way, we get a lot of savings on the back-end,” Vander Zanden says.

This speed of integration was made possible by an operational restructuring in 1998 following School Specialty’s purchase of Beckley-Cardy Group. Since then, it’s made a concerted effort to operate on a more national, centralized basis.

One goal was to reduce the number of call centers and DCs, and that’s been achieved over time. The company has gone from a high of 17 DCs to a more manageable group of eight. And two call centers now do the work that nine used to handle for the company’s core business.

School Specialty’s plan is to continue along that track each time it makes an acquisition. Says Vander Zanden, “We’ve purchased 45 companies, and brought that down to eight distribution centers, and are looking to consolidate that even further to perhaps five.”

Change also has been taking place inside the DCs. For example, products now are being strategically placed in different warehouse facilities for easier distribution, according to Vander Zanden. “We put our ‘A’ products — the fastest-moving items — in all of the DCs. ‘B’ products are located in some DCs, and ‘C’ products probably only will be located in one or two DCs.”

Systems for inventory management also have been impacted. For the more traditional business, and for a limited number of the specialty products, School Specialty uses System for Distributors, a supply-chain solution. The other specialty catalog businesses use a mail-order system from Ecometry. And a new enterprise-wide, fulfillment-management system from Yantra is being installed and should be complete in 12 to 15 months. “The plans are to combine everything onto one system,” Vander Zanden says.

One back-end benefit School Specialty won’t likely achieve through integration is a selling cycle more evenly spread out through the year. “Teachers and schools tend to think and buy only once a year — unless they run out of something or it breaks. And as much as we’d like to, we’re not going to be able to break them of that habit,” says Vander Zanden.

“We drop a book in January and then some follow-up mailings and circulars through the spring. Orders start coming in late spring through summer. Our product shipping cycle is very concentrated: 65 percent goes out in June, July and August.”

Financial analyst Urdan agrees that part of the business isn’t likely to change. “People who’ve tried to change the buying habits of schools always realize they have too large a force to go against.”

New Markets to Tap

Even when it comes to traditional face-to-face sales models like which reps handle which catalogs, School Specialty has seen benefits from its expansion.

Today, not only does the company mail 40 million catalogs a year, 600 salespeople represent the various brands. And, says Vander Zanden, “These sales elements are blended differently in different parts of the country. Our key accounts division in Atlanta visits our large districts and tells them about all our different offers — not just our traditional line. Just like in the print catalogs, we’re starting to cross-promote the brands.

“In the future, we’ll be doing more to merchandise some products across the brands,” Vander Zanden continues. It’s about image- and awareness-building, he says.

Cross-merchandising already is happening online. “We have Web sites for all the brands, and they do cross over,” he notes.

School Specialty also is expanding its market vertically, by reaching beyond grades K-12. “The day care and preschool market is a big growth area for us,” says Vander Zanden. “Through Childcraft and ABC, we’ve tapped into this increasingly important segment of children’s education. And it’s been very good for us so far.”

Not only is the company selling to childcare centers and day care facilities, it’s selling to some public school systems that are beginning to serve the 4-year-old age bracket with educational programs. As part of the national “No child left behind” campaign to improve public education, a small but growing number of municipalities and states are beginning to offer this type of program.

If the trend continues, Vander Zanden says, School Specialty will be well positioned to serve the market’s needs. The company is developing new products for this younger market segment by leveraging the knowledge of products it already has in its offerings.

But the pre-K market isn’t the only niche in which School Specialty has focused its eye toward growth. Its proprietary product development carries into other areas. “We’re developing new products, for example, in the art and physical-education markets,” Vander Zanden says. “These are two areas of education that have seen a lot of change over the past 20 or so years. [Teachers] are using some new teaching methods and are in need of new tools to succeed.”

About 40 percent of the company’s products are developed in-house, he notes, explaining that most of the manufacturing is then outsourced. School Specialty does maintain a few manufacturing plants, accounting for about 5 percent of total products. “Proprietary products should continue to be a good source of growth for us.”

Much of what the company is doing to grow in the United States also is happening on a smaller scale in Canada. “We’re looking at a very similar business in Canada — a market that’s only about 10 percent the size of the U.S.,” says Vander Zanden.

Regardless of the niche, officials at School Specialty plan to exploit it to its maximum potential. Says Vander Zanden, “We look to keep acquiring and keep growing in the education market.”

About School Specialty

Founded: 1959, as Valley School Supply. Took the name School Specialty in 1995 when it acquired that catalog company.
Customer demographics: Supplies nearly every school district in the United States.
Number of SKUs: 80,000
Number of catalogs: School Specialty’s traditional company, plus eight specialty company brands
Total number of catalogs mailed annually: 40 million
Annual revenues: $870 million
Distribution centers: eight
Contact centers: Appleton, WI, and Mansfield, OH (each specialty company also maintains a small contact center)
Printer: Quad Graphics
Housefile: not available for rental

Company Chronology
1959 Founded as Valley School Supply, Appleton, WI.
1987 Acquired Michigan School Supply.
1991 Acquired Western School Supply and the institutional sales division of Learning World.
1992 Acquired JS Latta.
1994 Acquired Chaselle and New England School Supply.
1995 Acquired School Specialty Supply and changed company name to School Specialty Inc.
1996 Sold to U.S. Office Products. Also acquired: Metropolitan School Supply, Bardeen’s, Southern School Supply, Thompson Book & School Supply, Bender & Sons, and National School &Office Products.
1997 Acquired Allied School & Office Products, Childcraft, California School Furnishings, Sax Arts & Crafts, Don Gresswell Ltd., Northern School Supply, and American Academic Supply.
1998 Spun off from U.S. Office Products. Also acquired: Hammond & Stephens, Teacher DeskTop, and Beckley-Cardy Group.
1999 Acquired Sportime, SmartStuff Development Corp., Holsinger, Audio Graphic Systems, and Scranton Quality Computers.
2000 Acquired the classroom furniture business of Irwin Seating Co.
2001 Acquired Global Video, J.L. Hammett Co.’s K-12 wholesale division. Sold Don Gresswell (UK) and SmartStuff Software.
2002 Acquired Envision, Premier Science Curriculum Product and Premier School Agendas.
2003 Acquired Bradburn School Supply, ABC School Supply and J.L. Hammett’s non-retail business. Also, Sportime International subsidiary acquired SPARK Products and Texas Athletic Supply, and Global Video LLC subsidiary bought Sunburst Visual Media.
2004 Acquired Select Agendas.

Alicia Orr Suman is a Philadelphia-area freelance writer and the founding editor of Catalog Success magazine.