97. Why Distributors Are Behind in E-commerce & How to Catch Up | Paul Gatens, ECI Software Solutions

Karthik Chidambaram: Paul Gatens. Paul, I'm really excited and looking
forward to this conversation. First off we enjoy working with ECI. Thank you
and appreciate the partnership. Love working with you and your team. We also
met with JC yesterday, so now, working with them as well. So thanks for the
partnership.

Paul Gatens: Absolutely. We couldn't be happier working together with you
guys executing the distributors where we don't, you know, we aren't their
ERP and we need a partner like yourself to integrate to, you know, one of
the other platforms like Profit 21, others, and your team's phenomenal to
work with. Couldn't be happier with partnership as well.

Karthik Chidambaram: ECI is into multiple verticals. You guys do a lot of
different businesses and you are focused on the e-commerce end of things
with Evolution X, the platform. Is that correct?

Paul Gatens: It's one of the platforms that I handle. I'm VP of sales for
our entire distribution division.

We've got ERP software that services primarily the office products industry.
Then, Evolution X is our e-commerce platform for all distribution. And then
we also have a product called Chameleon that is a product in the office
furniture, and it's a product in the office furniture industry, and also in
job management.

Karthik Chidambaram: I love the story. I mean, you talked about office
products, and I love the story of how you even got into ECI. You spent a
great amount of time, almost like 25 plus years with SP Richards, and you
were a customer of ECI then.

Paul Gatens: Yeah, it was interesting. So, you know, I started at SP
Richards as Director of E-commerce.

And SP at that time was one of the two major wholesalers of office supplies
in the US. And so supporting, providing product content to office products
resellers, and working with the system providers that, that executed their
e-commerce systems for them, managed the relationship with all of the
different systems providers.

Including ECI. And, and it's funny, I started working with ECI, even before
ECI was a company. The two people that founded ECI, Ron Books and and Paula
Jman were running online office supplies.com at one of the early.com selling
office supplies online in the late nineties, early two thousands. And they
realized they built a software that was good platform and wanted to to
provide that too.

Office products dealers as potentially their e-comm software. They created a
business outta that and then ended up acquiring DDMS, the largest ERP system
in the the office products industry. And that was sort of the genesis of
what became ECI. And so managing our SP's relationship with ECI through
their growth.

And it's interesting that you have a company that started in the world of
office product software. The distribution division is now the smallest
division within ECI as they. Got acquired by private equity and, and grew
into a lot of other industries. Manufacturing, lumber and building
materials, residential, home construction, field service software you know,
going from just being US based only to, to being worldwide.

It's been fun watching that company grow over the years and, and managing
that relationship from the outside and now, now being on the inside. And,

Karthik Chidambaram: You also have operations in the uk. You guys are pretty
big in the uk.

Paul Gatens: We are. We, we acquired multiple softwares over in the uk.
Again, primarily starting in the, in the office products industry.

And so we're, we're very heavy over there on a couple of ERP systems. In
addition to Evolution X actually started over there. ES Tech. The company
that developed it that ECI acquired ECI acquired about four years ago was
originally out of Ireland and then grew into the UK and then over to the US

Karthik Chidambaram: since we spent a lot of time in the office supply
industry.

How is the office supply industry doing today?

Paul Gatens: It's interesting as I look at, at as we're trying to grow
e-commerce into a lot of other distribution verticals, the office products
industry, and, and maybe it's primarily because it's so white collar
oriented, adopted e-comm very early and you know, the, a successful office
products dealer today is doing 75 to 80% of their business through their
website, hugely focused on e-comm and the efficiencies around it, but the
industry as a whole.

Has certainly had its struggles post COVID, you know, recovering from, you
know, the world going remote or hybrid. You know, you look at the, the
number of people in a white collar office building today is 50% of what it
was in 2019. And you know, folks at the house aren't printing things on a
sheet of paper, and so much of the demand keys off of that printing not
happening compared to what somebody would do if they're in a white collar
office printing on a network printer.

If you don't print something on a sheet of paper, you're not stapling it
paper, clipping it, putting a post-it note on it, putting it in a file
folder, a three ring binder in a bookcase or a file cabinet, everything
flows off of the fact. Not only was paper and ink, the two biggest product
categories. Now all of those other things aren't happening either.

And so the office products dealers that are growing are by finding other
things to sell and new people to sell them to, whether it's growing into
janitorial and and sanitation, it's growing into it. And consumer electronic
supplies growing into MRO equipment, getting off of the carpeted side of the
office into the concrete side of the back of the office.

Is really where folks are being successful. Been a lot of consolidation, a
lot of consolidation in the dealer community, and consolidation on the
wholesale side. You know, there's now only one major wholesaler of office
products in the us. The other competitor at Espy Richards ascended, exited
the market in Q4 of last year, or exited the office supply side of the
market in Q4 of last year, and now we're seeing the exact same thing
happening right now over in the uk.

Exertus is in the process of being acquired by Val. And so, you know, in
both markets we've now got one dominant wholesale vendor and the dealers.
Really having to evolve their thought process of do they get back into
acquiring product direct for manufacturers? Do they get back into stocking a
much greater percentage of what they sell versus buying through wholesale?

So it's definitely very evolving industry at the moment.

Karthik Chidambaram: Yeah. If you don't print it takes a hit.

Paul Gatens: Absolutely. And you can't make that up, you know, selling flash
drives

Karthik Chidambaram: Totally. Since you worked in the office supply industry
and you talked about. E-commerce being adopted and the adoption for E-com
was definitely good for office supplies.

But then you work with distribution. Today at ECI you work with electrical
distribution, plumbing. You guys serve a lot of other markets, but the
adoption of e-commerce is not. That high compared to the office supply
industry. Why do you see that is and do you see that changing?

Paul Gatens: Well, it's interesting.

It's certainly significantly lower. I think primarily ties to you know,
they're, they're dealing with a, a more blue collar customer clientele
that's not sitting in an office in front of a computer all of the time, able
to. To shop in that type of fashion. But it's, it's fun because I'm having
the same types of conversations with these distributors that I was having
with office products distributors 15 to 20 years ago.

So it's, it's been kind of fun going back to having the conversations around
the efficiencies of, you know, having your customers pay their bills online
having your customers key in their, their own orders, which eliminates an
order entry point. An error point for orders. If you can get a customer
shopping on your site, you end up with larger average order sizes.

You end up with better GP on those orders. You end up with a lower return
rate on those orders and getting distributors to understand and getting
their sales force to understand. You know that they're not reducing their
value by having customers buy 'em, just gives them an ability to provide
value in a different way and to expand it, you know, the, the things that
those resources can be doing to generate more business where they were just
chasing orders, inputting orders

Karthik Chidambaram: previously.

And know for e-comm as well, the data becomes a very, very critical
component. And how are you ensuring the data is accurate, you know, for your
e-comm platform. And are you helping distributors to, you know, there are
organizations like idea, which, you know, we partner with, but how are you
managing data?

Paul Gatens: Data's critical. You know, I mean, product content in
particular, you know, if you've got an e-commerce store that doesn't have
products on the shelf, it, it can't sell. And so the industries where we've
been the most successful are the industries that have access to a good data
model. Partners, you know, for example, like DDS in you know, they, they're
heavily focused in, in the world of, of electrical and, and plumbing,
providing good con content in the office products arena.

It was a company called e Utilize that was acquired by GFK and now Nielsen
iq, and they also do it, and consumer electronics content. Having good
searchable merchandisable content on a site is critical for. The site to be
successful.

Karthik Chidambaram: You talked about e-comm adoption, you know, we talked
about how, you know, e-comm adoption is happening, right?

So, but for Evolution X or for ECI, right? So is that a specific industry
you guys are targeting or where does your e-comm fit in really well?

Paul Gatens: Obviously we've got our, our history in, in, in office
products, but I think our growth right now is more in industrial channels.
Seen tremendous success in the welding and gas industry because of the
partnership that we have with the major ERP system there through a company
called Computers Unlimited.

Their E-R-P-E-R-P system, Tims we've been integrated to for, for years. And
I've seen tremendous success in the welding and gas distributors who've
wanted to get online, wanted to get online in a serious way. Being able to
leverage Evolution X paired with Tims to be able to do that. Things like you
know, gas cylinder tracking capabilities you know, paying bills online in
addition to just selling hard goods and things of that nature.

That's probably been the, the channel that we've grown in most significantly
beyond op. But our, right now, our big focuses are, are electrical,
plumbing, and hvac. It's one of the reasons we're here at NAED today is
really learning more about the electrical industry, the opportunities for
growth, the right folks to partner with.

In order to, you know, help the, the distributors in this industry grow.

Karthik Chidambaram: And what advice would you give for electrical
distributors out there or for plumbing HVAC distributors out there to better
sell online?

Paul Gatens: Well, the key, I think, first is finding the right platform.
Finding a platform that fits with their corporate goals, and one that can
integrate well to their ERP system.

You know, one of the things I love about the partnership that we've got with
DC Cap. Is the, the depth of integration that you're capable of doing into
many of the ERP systems in the industries that we're targeting. And that
data integration is critical. You know, you don't want to have to maintain
data in two places.

Being able to sync, you know, customer information, whether a customer
account is open or, or not, pricing, getting those orders down into the, to
the ERP system quickly. Inventory, all of those types of things. You don't
wanna be maintaining data in two places. It's a, it's a recipe for, for
problem and, and it just creates double work.

And so integration is critical. Making sure that the systems that they have
will talk effectively with each other.

Karthik Chidambaram: Commerce as we speak, is changing in a big way, and
especially the way you shop online now. There's also a lot of talk about
agent eCommerce, so how you. Seeing all that being adopted into
distribution, are we still not there yet?

How far along are we,

Paul Gatens: we're still in the crawl stage. As it relates to, I think
distributors taking advantage of ai, it's, it's obviously a huge focus for
us. And proud to say that Evolution X is probably the leading platform
within ECI as a whole from the standpoint of execution and implementation of
of ai.

You know, we're hosted with AWS and we use. Amazon Bedrock as the base of
our ai implementation and our ability to plug and play LLMs into what we're
doing within Evo. And it's neat. And I'm definitely not an AI expert. I,
I'm, I'm still in the, in the crawl stage myself as. Or, or I feel like I am
compared to, to some of the, the pundits that I'm listening to, but our
ability to target the LLM to the types of data it's most effective with.

And, you know, whether you are using Claude for writing product descriptions
or, or. You know, using Gemini for focusing on sales data or whatever. As
each new LLM comes out, you can plug and play, put in a new one to target a
specific data set as you find one in the market that becomes better at
analyzing certain things.

And so, you know, building into Evo the ability to help distributors write
product content, you know, in the office products industry, for example.
Dealers have a lot of private label SKUs that they're having to do their own
photography, write their own descriptions. Being able to leverage AI to
write better descriptions, turn those descriptions into bulleted sales copy
and implement that quickly, and at scale across hundreds or even thousands
of SKUs, is a huge time saver and, and just makes for more effective selling
content on a site.

And so implementing those types of things for the distributor to use, being
able to allow a distributor to look at things like churn. We did a live demo
looking at a distributor site and just ask the question, you know, what are
my customers that are most at risk for churn? And, you know, like an ai. It
came back with a couple of AI answers that, you know, the top two customers
on the list were people who'd only ever purchased once.

Well, yeah, they're most likely not to purchase a second time, but. You can
immediately ask the ai, you know, can you write an email and create a
promotion that I can target those one-time customers to try and make them
second time customers. But the third customer on the list was Dave who said,
Hey, Dave normally purchases from you every four days, and he hasn't placed
an order in the last 29 days.

Okay. Somebody might need to talk with Dave and find out what's going on.
You know, did Dave go on a long vacation or has Dave left you as a customer
and, and you need to be chasing him. You know, looking at fraud risk in
orders, you know, analyzing orders in large scale to say, you know, what
Have, what have these orders that I'm about to place with my wholesaler,
with my manufacturers this afternoon are most likely potentially fraud.

And screening those out before processing those further. And actually
experiencing the loss associated with that. There's so many different ways
as we've implemented the AI and, and started to allow our, our dealers and
distributors to, to play with it, the types of questions that they're asking
and, and trying to get answered is really neat.

Karthik Chidambaram: These are great use cases, Paul. I love it. Now also,
the customers who have churned. Okay. You know, Dave usually purchases
something, you know, but he is not really done anything for the last 27
days. Let's reach out to him or just give him a call. So there, there is
human intervention there, right? So it's not like an AI is reaching out to
them.

Okay? I pick up the call the sales rep, Hey, you know, what's really
happening, Dave? You know, I think these are some really, really great use
cases where it's not just the e-comm or it's not just the ERP. The data is
obviously integrated. They talk to each other. But then you are able to
leverage that data and use ai, leverage the data, and you have actionable
insights there.

So I think this is great, actually love

Paul Gatens: this, that that's really the key. You know, AI can take over
repetitive tasks, but there's points where, you know, how do you leverage AI
to make your humans more efficient? And, you know, leveraging the data.
You've got huge amounts of sales data. You got huge amounts of product data.

How do you look at that data, gather insights and provide those insights to
your employees to take action on, and, and it's those actionable insights
that are really, I, I think what are exciting as we look at different ways
of leveraging.

Karthik Chidambaram: I also wanna give a shout out to Dave Bent. Dave, if
you are watching this, just wanna say hello and

Paul Gatens: absolutely.

It's- I had worked with Dave for years in my old role as well. He had become
my F1 buddy. He always talked to him about what was going on in the world of
Formula One. Actually I need to reach out to him about the engine changes
for this coming year, to get his perspective.

Karthik Chidambaram: I just watched this movie, Brad right. So, F1, that was
a great movie as well.

Paul Gatens: I haven't seen it yet. I need to catch it. I've heard a lot of
good things about it.

Karthik Chidambaram: So, Paul, it's a great way to end the conversation.
Thank you so much for joining me. Enjoy chatting with you.

Paul Gatens: Absolutely. Thank you.

Karthik Chidambaram: Thank you, Paul.

Paul Gatens: Appreciate it.

Karthik Chidambaram: Yeah.