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InkStop an Upstart


April 27, 2009


InkStop WebSphere Commerce WebsiteDirk Kettlewell jokes that it likely would be tougher today to finance
the startup of office supply chain InkStop than the way he did it all
the way back in … 2005.

A six-figure home equity loan, long since repaid, on the InkStop CEO’s home launched what is now a 155- store chain. Today, InkStop’s distinctive red logo is visible on its headquarters just off Interstate 271 in Warrensville Heights, as well as on stores in 23 cities in 14 states from Ohio to Texas.

In an almost prescient way, InkStop’s growth has been fueled by eschewing the debt that cripples many companies now. Rather, InkStop has relied on more than $80 million in private equity from 150 investors worldwide. Their ranks include a number of wealthy Northeast Ohioans Mr. Kettlewell declines to identify (though he said his former boss, OfficeMax Inc. founder Michael Feuer, isn’t among them.)

“We’ve probably benefited from not being involved in the banking thing,” Mr. Kettlewell said. “This was always built to be a large chain. With our investors, we see it as a fastpacedretail concept with a management team that’s done it before.”

Mr. Kettlewell envisions a chain of 2,500 to 3,000 stores. He said the company expects to become profitable later this year for the first time, as it concentrated first on building its internal systems to be big. For example, in 2006, when InkStop opened its first store in Independence, its headquarters had 10 execs — six of whom were devoted to creating information systems to facilitate large-scale growth.

Ironically, the big plans are based on something small: ink cartridges for computer printers.

A focus on convenience

Typically less than 1,900 square feet, InkStop stores are dwarfs compared to their bigbox competitors, and they have just two staffers per store selling ink cartridges and related items. They cater to convenience through their location in shopping centers.

“We don’t see someone having coffee on Sunday and talking to their spouse, saying, ‘I’m thinking about going out today and getting an ink cartridge,’” Mr. Kettlewell said. “It’s something you need when your kid has a paper due for school tomorrow and the printer runs out of ink.”

Ink cartridges account for 40% of InkStop’s revenues. The rest is from related products added as it satisfied customer requests for printers, digital cameras and PC accessories.

A retail expert who asked not to be identified said the drop in consumer spending due to the lousy economy will challenge a growing concern such as InkStop as much as its bigger rivals. Surviving in the draconian retail environment is rougher than expanding in the free-spending era of a few years ago, the expert said.

But Mr. Kettlewell seems undaunted.

“Our focus is simple: convenience and service,” he said.

The economic headwinds are slowing InkStop’s growth march, though. Rather than opening 50 stores this year, as InkStop planned as late as last fall, Mr. Kettlewell expects to open half that many.

Even so, investment firm RBC Global Capital Markets last week ranked the company one of the 30 fastest-growing retailers nationwide — and that was with InkStop closing six stores earlier this year.

Maximizing old connections

Ralph Della Ratta Jr., managing director of Western Reserve Capital Partners, which handled one of InkStop’s four private placements, said he’s encouraged by InkStop’s prospects. He comes at the judgment from the perspective of an investment banker who handled OfficeMax’s rapid growth before it left Cleveland in 2006.

“It’s a replicable concept with minimal investment” in each store, Mr. Della Ratta said. “Its executive in charge of finding job sites, Mark Race, is very talented. It brings traffic to the strip malls it’s in, so they are also good for landlords.”