Lexmark to pursue superstore customers

Lexmark International will announce Tuesday that it is dramatically expanding its lineup of printers at office superstores Staples, Office Depot and OfficeMax.

The Lexington-based company will nearly triple the number of printers for sale compared to six months ago at the three chains.

Lexmark says all three cater to exactly the type of customer it wants: small businesses that print a lot.

The announcement comes at a critical time for the only Fortune 500 company, which has its headquarters in Lexington, because it was recently dealt a blow by the shutdown of Circuit City.

It's also a critical year for Lexmark in the eyes of analysts, who have expressed skepticism about the long-term viability of its inkjet printer division.

Tom Carpenter, who follows the company for Hilliard Lyons in Louisville, said that this year, "the writing could be on the wall" for the company's inkjet division without a large increase in shelf space at major retailers, particularly office superstores where small and medium-size businesses shop.

Getting into those stores is another step in a turnaround plan begun after Lexmark's inkjet division began to struggle in the latter half of 2005. The company found it was selling printers to consumers who didn't print enough. Since inkjet printers are often sold at a loss, printer makers rely on sales of ink to make their profits.

Since 2006, Lexmark has walked away from 20 percent, and then 30 percent more, of its inkjet printer sales, in an attempt to focus its new strategy on consumers, such as small businesses, that use lots of ink.

"As someone's going through their normal workday ... they are having to print to communicate, to generate reports, to share information and more," said Todd Hamblin, vice president of worldwide sales and marketing for the inkjet division.

Carpenter has said that he would like to see Lexmark offer at least three to five models in each office superstore to give those consumers a good selection, a benchmark that Lexmark has now achieved.

On the added shelf space, Lexmark will be offering higher-end products that offer features such as dual-sided printing and wireless functionality, Hamblin said.

For instance, at Staples the printers will range in price from $150 to $400. Lexmark's offerings at that store used to cost anywhere from $79 to $250, he said.

The company will also sell more laser printers at those stores, where it previously sold mainly inkjets.

Lexmark is also expanding its presence at some other stores nationally, including regional consumer electronics chains Fry's and Micro Center. Neither has locations in Kentucky.

Although most small-business customers shop at office superstores — about twice as many, on average, than at other types of stores, Hamblin said — the electronics stores help build awareness of Lexmark and grab individual consumers.

The company has not yet been able to get back into Best Buy after the chain took its printers off the shelves last year and decided to sell them only on Hamblin said the company is constantly working to expand its relationship with all retailers.

He noted that Best Buy has reduced the space it allots in stores for printers after the economy contributed to a decline in sales for the category.

Lexmark has focused on smaller consumer-electronics chains such as Fry's, to expand distribution. This strategy has been in place since last year, when it became apparent that Circuit City would close some stores and might close completely.

Lexmark has traditionally sold most of its inkjets at mass-marketers such as Wal-Mart and Target, and those stores will continue to play a strong role. Hamblin wouldn't say the amount of sales that come from that type of business, but he said it is higher than the industry average of 30 percent to 40 percent.

Those retailers will be shipped more higher-end printers, too, Hamblin said, in hopes that Lexmark can sell those to small business customers who might be in smaller towns where there are fewer retail options.

"Our goal is to attract that small-business and home-office customer wherever they're shopping," Hamblin said.

Another key initiative, he added, is that Lexmark has hired more regional sales teams to go to stores and educate employees on the benefits of Lexmark printers.

Analysts like Carpenter have long said that Lexmark salespeople don't visit stores enough.

"The perception among many salespeople is Lexmark is cheaper, but it costs way more to print than an HP," Carpenter said.

Hamblin said Lexmark is finding stores receptive to meeting with the salespeople.