Big Interview: Shackles off, customer first

Staples has always had a tough time in Europe. Now independent, CEO Dolph Westerbos is determined to make the ‘new’ Staples Solutions a customer-centric and, finally, profitable operator.

In February 2017, the €1.5 billion ($1.6 billion) European business of Staples Inc, at the time the largest OP player in the world, was acquired by New York-based private investment firm Cerberus Capital Management. What followed was a period of reshuffling, readjustment and refocusing for what is now known as Staples Solutions.

Eight months later, on 1 November 2017, Dolph Westerbos joined the reseller as CEO. A new face in the industry, Westerbos brought a fresh angle to Staples, questioning established systems and procedures and hailing a new, transformative and much more customer-centric outlook.

OPI’s Steve Hilleard met Westerbos at Staples Solutions’ European headquarters in Amsterdam, Netherlands, in early November to find out how – not unlike chief competitor Office Depot – the company has removed the shackles of its US parent, giving it the flexibility to be more nimble, customer-centric and, importantly, successful.

OPI: Let’s start with a short Dolph Westerbos résumé.

Dolph Westerbos: Sure. I am Dutch by birth, but I’ve spent most of my life abroad. I lived in the UK for nine years, 17 in the US and also had a couple of stints in Asia.

My expertise lies in the supply chain and logistics/distribution, but also in IT and technology. Different industries, but as the business supplies space is broadening to something much wider than just office products, I believe there’s actually a lot of commonality with my background.

Up until just over a year ago I ran Westcon Group, an IT distribution company in New York. That’s where I came across this opportunity to head up Staples Solutions after it split from its US parent and became independent. Its private equity owner, Cerberus, is headquartered in New York and was looking for a European with an international perspective.

It was exciting to come back to the Netherlands. After four years in Manhattan, I now live a fairly Dutch lifestyle – I go to work on my bike at least half the time and I have cheese sandwiches and milk for lunch! It’s quite different from my life before.

OPI: What made you take the job – the lure of coming back to your home country or the challenge of the task you faced?

DW: I wasn’t looking to move back to the Netherlands, so no, that wasn’t a core reason, it was definitely the job. What I liked is that there was a good foundation of a company, but there clearly were challenges – be that the market itself or the way the company was organised. The task was to figure out with our customers and our employees how to transform the business for the benefit of both. I liked the broad spectrum of what needed to be done – I get easily bored if life is too simple.

OPI: ‘Simple’ would not be a word I’d use for the job you faced. Can you walk us through what  Staples Solutions looks like?

DW: We are a €1.5 billion company. We are in 17 countries physically with offices, and distribution centres in 12 of them, employing 6,000 staff overall. About 50-60% of our revenues come from the contract B2B business, focused on large enterprises and global accounts. Another 30% of sales is our online business, which is concentrated around the SOHO and small business segment. The remainder – less than 20% now – is retail. All in all, it is a very omnichannel set-up.

OPI: What was your brief when you joined?

DW: What appealed to me was Cerberus’ strategic vision for the business. The new owner saw that Staples in Europe hasn’t always had the strategic focus it needed from its previous parent. But it also recognised a company that could become a platform not just for office supplies, but for many adjacent areas that support our customers with everything they could possibly need to run an office – from furniture and breakroom supplies to safety equipment and personalised apparel.

The question was: how do we create a company that can win in a consolidating space; a financially strong player that can grow in the various adjacencies and become an all-round streamlined procurement and service solutions provider in a challenging marketplace? Figuring that out was really attractive to me.

OPI: Being a little critical here, venturing outside office supplies and into adjacent segments is not really revolutionary anymore…

DW: True, and most operators have realised that and moved in the right direction. A third of Staples Solutions’ revenues now come from these adjacencies, so we’re not new to the table either. My point is that it is not enough, and I don’t think we have accelerated quickly enough yet.

OPI: Why haven’t you?

DW: I believe it’s partly execution-related. When Staples was under US ownership, the two parts – Europe and the US I mean – were quite different. The fact that the various European countries where Staples has a presence are also quite unique didn’t help.

In the five or six years before I came in, a lot of the focus in the company was on internal projects, such as creating common ERP systems across Europe. It seemed like a good idea and many companies did the same following acquisitions during that period. But we executed it poorly and failed twice. All of it meant an internal focus and a lot of investment that ultimately didn’t create a return, certainly not for the customer.

It’s also financial strength, of course. It’s easy to say you want to change and do this and that, but if you don’t put your money where your mouth is, that’s very hard to execute. As an independent company, you have to generate liquidity in case you need it and make room to invest for growth. We’ve created over €100 million of credit facilities with a banking consortium, so that we can invest that liquidity. Overall, we now have a very strong balance sheet and no debt in the company.

OPI: It’s no secret that under US ownership, Staples’ European division struggled to make a profit pretty much since its inception many years ago.

DW: Correct.

OPI: And I believe Staples Inc has divested its remaining 15% in Staples Solutions?

DW: That’s right, there’s no equity relationship between the two companies anymore.

OPI: What was the purpose of initially keeping a 15% stake?

DW: This happened before my time, so I couldn’t tell you. But the fact that we are totally independent is good. We have a great working relationship with Staples Inc on our joint global customers, of which there are quite a few, and both our accounts teams are very well aligned on that. That’s the only area where we still overlap.

OPI: What are you doing differently that will lead to success and, importantly, profitability? Is the consolidation and harmonisation of the ERP systems done now, for example?

DW: No, and that was the easiest decision to make when I came. We’re not trying that again. Twice failed, let’s not do this. We now manage these ERP systems and the complexities through integration layers and common data.

Where we are investing is on the IT side into customer-facing technologies, meaning e-commerce, self-service, configuration, personalisation and so on. It’s a multi-layer IT and digital investment strategy which provides functionalities that customers really do need.

The biggest part of becoming an independent company from a management point of view has been our systems separation. That was completed in August 2018 and now we control, for the first time, our own e-commerce platform. What it essentially means is that everything is done so much faster. We’ve introduced rapid development cycles where we’ve already had two releases in quick succession, with new functionality for customers that, in the past, took us a very long time to build.

The other thing we’re doing is becoming much more aware of what the customer wants and needs. The workplace and our clients have changed quite dramatically over the past few years and I don’t think we have changed enough with them. Work today blends into the home, the community, family life and into the office – all of this requires a different approach from us on products, services and, in fact, overall engagement. It’s about creating the right categories and the right offers around that changing workspace for customers.

I’m a big believer in the notion of ‘you’re in business to make your customer succeed’. We’re in 17 countries, the markets are different and relationships are personal. If you don’t empower the front line to be there for customers, then we’re not going to succeed. We’ve done a lot of work over the past 12 months in terms of moving the decision-making into the various countries, rather than everything being directed from the head office here. That’s been a big change for us.

OPI: With that in mind, what’s the function of this building we’re in now?

DW: You need some scale for scale purposes. You can’t have everything 17 times over, so we have excellence centres in various locations – not all necessarily here. We have a shared service centre in Gdansk in Poland, for instance, but the expertise for our furniture business is in Paris. Our promotional experts sit in Sweden, meanwhile.

I see this particular office as a virtual location where leveraged skill sets need to be. And all the boring stuff – governance, financial reporting and so on – needs to be done somewhere, so we’re doing that here as well.

OPI: Let’s go back to all these adjacencies you want to get into or be better at. Are you looking at acquisitions for some of these areas?

DW: Acquisition is a great way to accelerate or get a skill set you might not have. For us, segments such as furniture, promotional and facilities products are particularly interesting in that regard, and there will hopefully be some announcements soon.

As I said before, we’re already outside the ‘traditional OP’ box, with a third of our business coming from these other categories. But not across the board. Take a look at furniture, for instance. We do that very well in Germany and France, but not particularly well elsewhere. Promotional products are great in the Nordics, but not yet everywhere else, while hygiene is a good category in France.

In addition to looking at external opportunities, we want to accelerate the assets we have internally. It’s about breaking down the barriers that might have existed in the past and work much better across borders and within teams to learn from each other. As such, we’re very much looking for organic as well as inorganic growth.

OPI: One of the potential acquisitions that recently fell through revolved around your discussions with ADVEO. Why were Cerberus and Staples Solutions interested in acquiring ADVEO debt and why have you ultimately pulled away from it?

DW: I still see ADVEO as an attractive company and in a number of its markets the wholesaler is running a good business. I’ve got to know the firm and its customers – both in the reseller and franchise retail space – quite well in this process and in my view it’s a good business model that I’m still very interested in.

That said, after we had spent more time on the details and the funding needed, there were issues that were too much of a challenge for us to feel really comfortable with, so we ended up not going through with a transaction at this stage.

OPI: Will ADVEO survive?

DW: Perhaps not in the way it has operated in the past. But as a business model? I hope so – I think it’s a good one.

OPI: In parallel, of course, Staples Inc in the US is looking to acquire Essendant. The model of a large omnichannel reseller owning a wholesaler that serves smaller independent dealers is something people would have been aghast at a few years ago. Many still are. Is it just a logical step forward to solve some of the issues that we’re having in our industry, including overcapacity?

DW: Definitely. As the workplace is changing, a less rigid and more flexible model in terms of how we serve customers is necessary. As a result, our partner relationships need to change as well.

In my previous jobs, there’s been a lot of mix and match as to who sells to whom direct or via the reseller or wholesaler channel, etc, and it all seemed to work well together. You need clear lanes of play, good agreements, and concise and predictable ways of engagement, but we can easily operate in this industry in the same way. It will go a long way towards the issue of scale and relevance.

Staples Solutions is both retail and wholesale in the Nordics and here in the Netherlands, so we’re operating these models already and we don’t hear any negative noise about it from customers.

OPI: And if your bid for a pan-European footprint in wholesaling fails, you could quite possibly do something on a more local level? You’ve got someone already who’s had senior leadership positions in both of the established full-line wholesalers in the UK, of course…

DW: Robert Baldrey, yes.

OPI: Both EVO and SPOT have a direct selling arm and are owned by private equity firms which, at some point, will be looking to exit. Is that a conversation worth having?

DW: In the past – under public ownership – I don’t think we were the right player to be having those conversations. Now we are and that’s exciting, and we’re having many of them, both local and also at a broader, more regional level.

OPI: Let’s talk about retail. Is it part of your future business strategy?

DW: Well, the customer is part of the strategy, if that makes sense. We sold our Dutch retail business last summer. We sold it to a company that is an expert in this space and which brought a focus to the stores that we didn’t have. What’s great is that we are now the wholesale supplier to this operator with Staples-branded products.

Our customers are receiving good service from a retail expert and we continue to support the company and its customers – our previous customers – through this wholesale relationship.

OPI: Will you be looking at similar transactions in Portugal or Germany?

DW: We’re not actively looking, but what happened in the Netherlands was a real win-win for all parties.

OPI: You’re putting a lot of emphasis on your customers. How do you figure out what they want?

DW: When I joined, my colleagues and I spent the first several months interviewing over 3,000 customers across most of our countries to establish first of all, before we set our strategy, what is important to them. If we know what they want, then our employees can get excited about providing that for them and solving any issues. It’s less about paper and ink today, and more about the workplace as a whole. What makes customers productive, efficient, happy, etc – we spent a long time on that.

OPI: That brings me to Amazon, arguably the most customer-centric company of all. Amazon and Amazon Business are becoming a major competitor in Europe. It must be a concern as you try to implement your strategy.

DW: I like it when there’s a disruptor in town because it makes you sit up, re-evaluate your own business and become more nimble and innovative. There is no doubt that Amazon will be in every market and have a real relevance everywhere.

The market is big enough for a variety of players and there’s more to it than just the Amazon online model. We are taking a holistic look at the relationship with our customers and are aiming to offer them more service and support, account management where it’s needed, contract management in complex environments, and so on.

OPI: Amazon Business is doing all of that as well. It’s recruiting specialists, putting people on the street and is publicly saying it’s working with large private companies now, in the education sector, in government, etc – your customer base. How do you get across the USPs of Staples Solutions when Amazon Business is knocking on the same door?

DW: I still think we win on service every day. Clearly, Amazon is making significant investments and is disrupting where it can. What I like about the business model is that Amazon remains focused on what it’s very good at, but it’s not trying to be everything to everyone; the strategy is a bit more nuanced than that.

We have an omnichannel model and we have to compete on intimacy and customer centricity. Yes, we share that space with other players and Amazon is one of them, but I think there is enough space for us.

OPI: Would you view Amazon as the greatest disruptive force in the market right now?

DW: No. Complacency is. We were very good at selling paper – we still are – but paper by itself is going down. Things change and as clichéd as it sounds, you have to change with it.

When I first arrived here, I had this big leather chair behind my desk. It looked impressive and created lots of hierarchy and distance between my colleagues and I. It was also really uncomfortable and gave me bad backache, so after two weeks I talked to one of our furniture experts who showed me all the options. Now I don’t have a big fancy chair anymore, but I also don’t have any back problems and I’m delighted.

OPI: Across Europe, you’ve got four big players in the wider business products market at the top end – Staples Solutions, Office Depot, Lyreco and Amazon Business/Amazon. Is that too many – are we on the cusp of more consolidation?

DW: Consolidation is happening, is needed and is healthy I believe. But we mustn’t forget that the market as we define it is very different now. We talked about adjacent categories; if you factor all of those in, the market is much bigger than it used to be, so you’re consolidating from a different vantage point.

OPI: What about the dealer community? Independents are terrified of the threats from a resurgent Staples or Lyreco on one side and from e-commerce giants like Amazon on the other. Is there a future for them?

DW: Dealers still have the edge on their proximity to customers. There’s real value in that intimacy and I believe there is always going to be a space. But dealers, just like Staples Solutions, have to move with the times too. Customers don’t want to sit at their desks anymore all day, they want to stand; they don’t want to be in a meeting room and do big video conferencing, they want to do conferencing on their mobile phone while they’re cycling to work.

I do it all the time. I’m half an hour on my bike on the way to work and I can still be productive. There are challenges, like reducing wind noise, etc, but there are solutions for all of these problems now; we just have to offer them and give the full service. This is what people are looking for now. If independent dealers can see that and act upon it, they will have a future too. It’s the same story for all of us.

OPI: As a pan-European player, are you concerned about Brexit and the possible impact that might have?

DW: No. We’re working in many countries that are not in the EU today. In that sense, it will just be another one of those countries.

From an operations point of view, we’re very localised and our business in the UK has its own distribution and supply chain solution, so we’re not dependent on any kind of central warehouse in continental Europe.

OPI: On that UK/Ireland topic, you sold off your Advantage business in Ireland a few months ago. What was the rationale behind that move?

DW: We were not set up to support our customers well in that market, it’s as simple as that. We had no distribution centre in the country, but thought we could just support the Ireland business out of the UK. It didn’t work, so we tried to find another solution which was Codex.

This is a really good and established player in the market, with a great management team and excellent values as a company. It’s exactly the kind of operator I look for in partnerships. We have a great agreement on how we’re supporting our joint global and regional customers, and I believe they have benefitted from the service levels of this new solution. To me, that’s another perfect, customer-driven outcome.

OPI: What keeps you awake at night?

DW: Too much! That’s another example of how the workspace is changing – you don’t ever seem to switch off, with work migrating into the home and into ‘off’ time. To answer your question though: that we understand our customers well enough and that we are responding well enough.

If we get it right, customers will reward us with their loyalty. If we make them successful, if their space works well for them, if they become productive, they will recognise it. When I sat on this new chair I mentioned earlier, within hours I was a happier guy and I won’t forget the person who helped me. The idea is that our customers feel the same way about Staples Solutions when they deal with us.

OPI: A tough job to get that kind of message right across an organisation of 6,000 employees.

DW: It is. My job, among other things, is ‘chief culture officer’. People enjoy working for a company that understands why they’re in business, not just to sell products, but to make your customers successful. By the same token, we also want our staff to be happy and successful, and we’re offering them the same positive working environment that our customers demand – sit-stand desks, a productive working environment, electric bikes to get to work or to get their groceries at lunchtimes rather than late in the evening – all the things we’ve talked about.

If you have the right spirit in an organisation, it will create its own success, and we’re beginning to see that now. In the second quarter – we’re in Q4 now – our core contract business returned to growth after many years. This trend is continuing and, seeing that we’re winning, creates its own momentum. We’re on the right track.

OPI: Let’s go back to the beginning. Cerberus acquired the business and has obviously given you the liquidity and the rein to execute your strategic vision. What’s the exit vision?

DW: That’s one of the first questions I asked too, as you can imagine. The answer was surprising to me – there isn’t one.

Cerberus is an organisation that is focused on making the companies in its portfolio – and there are a lot of them – operationally stronger. If we succeed in making Staples Solutions a better run and more efficient organisation, then that will create its own exit strategy. We’re certainly talking more than a short-term, three-year perspective and I really like that.