Around the month of February 2020, we knew about the dramatic drop in the value of the shares of LSC Communications who is owner Tops Products.

TOPS Products is (after "ACCO Brands"), the leading American manufacturer of stationery, supplying offices, schools, and homes throughout North America and part of Mexico. Its best known brands are Oxford®, Pendaflex®, Cardinal®, Ampad®, Adams®, Quality Park®, Boorum® and Tops®

Observations: 1. TOPS Products is a division of LSC Communications. 2. Remember that LSC Communications is the result of a spin-off from the famous RR Donnelley

3. Spin-off is when a company called spin-off decides to go extinct and divides all or part of its assets, liabilities and capital stock into two or more parts that are contributed en bloc to other newly created companies called spin-offs; or when the spin-off, without being extinguished, contributes en bloc part of its assets, liabilities or capital stock to another or other newly created companies. The partners of the (original) spin-off company are also members of the (new) spin-off company or companies to whom shares or titles of the new spin-off company are delivered in exchange for the shares or shares of the original spin-off company that reduced its capital or its dissolution is agreed.

Thus, the CEO of RR Donnelley (holder of RR Donnelley Printing and Tops Products), Thomas J. Quinlan III, decided to diversify the company's income, beyond printing with ink and paper, which represented around 24% of sales and a decrease of 70% compared to 2000.

So the company began looking for new lines of business to complement its core printing operations, betting on the emerging field of printed electronics, which involves printers producing components by electrically depositing conductive ink layers of a precise thickness.

In the month of April and after the fall and recovery of its shares, LSC Communications announced the following (Bloomberg):

"LSC Communications announced that, along with the majority of its US office and print products subsidiaries, it voluntarily filed for a business reorganization under the US Chapter 11 Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York. The Company's decision follows a comprehensive assessment of opportunities to reduce its debt and better position LSC to compete and deliver exceptional products and services to its clients. LSC has enough liquidity to continue operating its business safely and efficiently and remains committed to serving its clients with the same high standards of Quality and reliability they expect. LSC's subsidiaries in Mexico and Canada are not included in the legal proceedings and will continue to operate in the normal course.

WHAT COULD BE AFFECTING TOPS PRODUCTS? It is evident that the Industry they serve, stationery, office and school supplies, is very mature and with a serious tendency to gradually decline. Characteristics of this Industry:

  • It must be considered that this industry still has very respectable annual income, although the competition has been concentrated in a few players represented by Acco Brands.

  • The growth rate of this industry is far from what it was 10 years ago, its life cycle is in full maturity with clear symptoms of decline in several of its products.

  • Buyers once many and fragmented into various sizes, have been shrinking over time, concentrating on large retailers such as OfficeDepot / OfficeMax and Staples and, in large wholesalers that are less every day. This implies the great bargaining power that some "Tops Products" clients have, which prevents the company from having better realization prices and profit margins.

  • An advantage of TOPS is its vertical upward integration through maquiladoras such as those located in northern Mexico, although it never developed a serious direct-to-consumer strategy (vertical downward integration); Despite having an acceptable website, it is too limited to generate an authentic e-business.

  • A disadvantage that TOPS has is that its strategy of acquisitions and strategic alliances (horizontal integration to the right) has been very poor, because when it acquired "Esselte", it did not manage to diversify and expand its distribution chain: Customers and Tops and Esselte products were practically the same! As a result, the market and product diversification strategy failed, although possibly due to economies of scale, its costs were able to drop.

  • It is evident that technological advance is causing the obsolescence of several of TOPS products and also, with low cost and good quality competitors in items such as folders, folders, forms, notebooks and blocks, they have become "commodities" in where the degree of differentiation is minimal; In short, the end user buys by price and not by brand.

  • In favor and taking into account the factories that Tops Products has in the US and the maquiladoras that it has in Matamoros and Reyonsa in Mexico, the economy of scales must still be allowing acceptable profits, however, to achieve this, the company must be capable to make her manufacturing processes and purchasing strategy more efficient.