Analysis: Staples strategy taking shape

But transformative actions will be needed to achieve the 20/20 strategic plan goals.

Staples’ full-year results published at the beginning of March underlined its evolution into a North American-focused B2B delivery-oriented reseller.

The company’s 20/20 strategic plan which was revealed after it abandoned the attempt to acquire Office Depot last year, aims to transform Staples into a workplace products and services provider with 95% of sales coming from North America and a channel mix of 80% delivery and 20% retail.

Following the sale of Staples’ European operations in two separate transactions and the announcement that an agreement had been reached for the sale of the Australasian businesses, the first goal has already been achieved. Staples will now just be left with a small international presence in China and South America when the Australia/New Zealand deal closes.

Achieving 80% of sales from the North American Delivery (NAD) division looks like it will be a more challenging goal to accomplish. Of the $17.3 billion in sales from North America in 2016, around 60% came from NAD and 40% from the retail division (NAR). To achieve the 80/20 ratio target by the end of the 2020 financial year, there has to be a pretty drastic change in the current sales trends – low single-digit growth at NAD and mid-single-digit declines at NAR – at one or both of the divisions.

The strategy – a defensive one – at NAR is to “preserve profitability and rationalise excess capacity”. Staples has said it will close 70 stores this year, but there are 250 leases up for renewal in each of the next three years. That means store closures could feasibly accelerate without the company having to cough up for onerous lease-obligation costs.

At NAD, underlying sales were up about 1% in 2016, largely due to growth in the mid-market sector and in categories beyond office supplies. Last year’s bolt-on acquisition of Capital Office Supply will add just under 1% to the top line in 2017, but a more aggressive approach to external growth will be required to make any significant impact to the top line.

Staples CEO Shira Goodman said there were plans “to dramatically improve the growth trajectory” of the mid-market business, but she did not refer specifically to acquisitions, instead focusing on a number of internal growth projects such as membership, expanding the range of products and services, and several digital initiatives.

These initiatives will all take time to ramp up and it is highly unlikely that they alone will be enough to achieve the 80/20 ratio goals. This suggests, therefore, that something transformative will have to happen over the next three years, either a cull of the retail network or a major – ie multibillion dollar – acquisition in the B2B space. 

Mid-market momentum

Some of the ways in which Staples is gaining ground in the mid-market segment:

  • Staples ended 2016 with about 30,000 mid-market membership customers. The largest mid-market membership programme is called Business Advantage Premium and costs $299 per year. Benefits include bulk discounts and a range of added-value services for office managers; for example, Staples recently partnered with Drizly for wine and alcohol delivery to business customers.
  • Mid-market sales in beyond office supplies categories grew 16% in Q4, including a 4% boost from the acquisition of Capital Office Supply.
  • In 2016, Staples partnered with and made an investment in Managed by Q, a start-up that offers more than 100 business services, mainly aimed at mid-market customers. Staples sales reps are actively selling these services.