The execution man

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OPI: Happy 20th anniversary Ron. This must have been some journey.
Ron Sargent (RS): I’ve been here 17 years this March and it is amazing how fast it’s gone and how big it has got. I had no idea how big it would get.
And there are many fond memories. For instance, meeting Tom Stemberg for the first time in the autumn of 1988. And I remember the time he told me he thought this could be a $1 billion company one day and make a real difference in people’s lives. I remember going home that night back to Kentucky and telling my wife, "the entrepreneur thinks it could be a billion dollar business, I’m going to give it a 50 per cent haircut. Maybe it could be a half a billion dollar business one day!"
OPI: When you first met Tom, what particularly impressed you about him?
RS: Tom has a lot of entrepreneurial energy and spirit. The thing that hit me was visiting store number one and two that weekend I was here.  I had been in retail all my life since I was 15, so I thought after visiting the store that this is a great idea. This really does revolutionise and create a whole new industry. Tom’s basically cut out the middle man and gone right from the manufacturer to the customer and saved a lot of money.
Tom is a pretty amazing guy. Back then he had a great energy and great conviction about the idea and I think he was very focused on building a strong management team, even way back then in 1988 and 1989.
OPI: What was your first role with Staples?
RS: My first role was regional VP of operations to open new stores in the Midwest. My first job was creating a division in the Midwest where we had no stores at the time.
A year and a half later I came to Boston working in real estate for Joe Vassalluzzo. I worked for Joe for a little over a year and then started the delivery business back in 1991, which turned into the contract business, which turned into the Quill business. I then came back and took over responsibility for international and Europe in the late 1990s.
OPI: When Staples first started, was it just with retail in mind?
RS: Absolutely. I think I asked Tom the question and his comment was that, if we start adding services, that would cause us to raise prices to our retail customers. Our whole thing was that we were going to save our customers a lot of money. It took a few years for us to realise that not only was there a customer service opportunity to offer delivery services, but I think we began to realise that there was a business opportunity as well. At this point I guess we’re  close to something like $5 billion in delivery sales.
OPI: You’re particularly known for your execution skills. What’s the secret to good execution?
RS: It’s very important to be able to execute programmes and ideas. To me, if we’re going to do it, we’re going to do it well. The secret is people. You have to have trained people, you have to have motivated people and those people have to understand what we’re trying to do, so they must have direction. Assuming you have people who want to do the job and are trained to do the job, then it’s supervision.
We have a focus on hiring the best people. In the early days, maybe we weren’t always able to hire the best people but we tried to hold out to bring talent to the organisation, and not just talent for what we needed right then but talent for what we were going to need for the big company we were hoping to become.
OPI: If you’re not careful, is it easy to take your eye off the ball of a company with so many different channels?
RS: The complexity of the business today is amazing. When I joined the company it was pretty easy, we had 15 or 20 stores and we were just opening more stores in more locations. But today, when you think about the multiple channels in 21 countries and three businesses growing simultaneously, yes it’s incredibly complex but again, we’ve got great people to manage those businesses.
OPI: And you’ve had to add to your personal skills set as time went on?
RS: When I first joined I was in my early 30s. When I look at the things that I do today and the involvement in various parts of the business, not only have I had to improve my management skills but also my knowledge and technical skills. There was a time in the mid 1990s when I felt like the expert, but today when I look at the complexity of distribution etc, I’ve still got a lot to learn.
OPI: Casting your mind back to the Staples/Depot merger, in hindsight are you glad it didn’t go ahead?
RS: At the time we certainly thought it was the right thing for our business and for our customer base. In hindsight? Frankly I don’t spend a lot of time looking back, I tend to deal with the reality of today and a decision was made not to go forward and we’ve tried to make the best of it since then and I think we’ve done okay.
OPI: What was you role at the time?
RS: I was running the delivery business, the contract business and the catalogue business. We didn’t have an internet business then, basically the delivery arm. I would have run the delivery side of the proposed merged company.
OPI: Was the decision right to turn it down?
RS: No. I think they (the FTC) defined the market very narrowly. They define the market really as an office superstore chain, but when you look today and see in how many places you can buy office supplies – from the internet, to the discounters, to the consumer electronic players to the clubs. In my personal opinion, they defined the market too narrowly given how competitive the market in fact is.
OPI: How did you adapt your growth strategy?
RS: One of the things we did was say that this merger may or may not happen and we cannot take our eye off the ball. We must continue to grow our business assuming that it doesn’t happen. One of the great things we did was that we had very few people focused on merger-related issues. The bulk of the firm was still devoted to growing the company and when you look at our growth in the late 1990s, we spent a lot of time, even through the merger discussions, to rapidly grow and we continue to do that.
OPI: What were the goals and ambitions when you took the CEO reins in 2002 and have these been met?
RS: Having been here so long I think my first goal was to continue and improve on our track record of success. We’d been a very successful firm for many years and I wanted to continue that trend and, if anything, accelerate it.
The thing I focused on specifically is that I wanted to improve the customer experience in our stores. I felt that we could do a better job engaging and differentiating our shopping experience by improving our service. If I’ve done anything over the last few years, it has been refocusing our company on our customer base – we’ve certainly made some tweaks and stepped on the gas with the Staples brand.
We’ve refocused on our small business customer base and our Back to Brighton strategy. However, everything we’ve done has been focused on how to improve the customer experience, and you can do that to such an extent that you can start to differentiate the Staples offering from everyone else’s.
So if I look back on my last four years as CEO, it’s really been reconnecting, re-engaging and building our strategy around and making it easier for our customers.
Back in 1994, we acquired six or seven contract stationers and probably the biggest challenge of my business life was integrating these into one company all on the same page. It was difficult and took a couple of years and stretched me and a couple of other people, but that focus on what the customer wants has been a mantra that has saved me many, many times over the last few years.
OPI: What do you look for in an acquisition? Do you have a set strategy?
RS: I think we certainly have an approach, and that is one of our key strengths. We developed that as a result of the work we had done on the merger with Office Depot, but I think what we look for is a strong management team. We want to make sure that the management team wants to continue to be part of the company. If people want to leave, we’re probably not as interested.
Second of all, we want to make sure that they have similar values and culture to us in terms of our focus on the business and our work ethic. And finally, we look very closely at their relationship with their customers. Once we get past those three criteria, we get to move forward.
OPI: Looking back, what deals stand out for you?
RS: The ones that jump out on me as I look back I think on the contract side are National Office Supply, which was Evan Stern’s company, and Spectrum, which was Henry Epstein and Roger Freelander’s company.
Those are the businesses we initially acquired back in 1994 and that got us into the contract business. It was a channel at the time we had no knowledge of. We did a build versus buy analysis and decided it was really a different business from our catalogue offering. We needed to buy and understand some expertise, that’s why we bought National Office Supply and Spectrum, and that was really the start of what is now our fastest growing business.
The other smart thing I did in 1995 was to make a good hire. His name is Jay Baitler. He’s been terrific – it goes back to hiring great people.
The other one that jumps out is Quill. This is a company that Staples has had enormous respect for from the very first minute Tom was thinking about Staples. And Quill was kind of a highlight of my career too – that was 1998.
Those businesses taught us a lot. We had great learnings from Quill and the contract entries, all have turned into big growth opportunities for the company. And probably most importantly, we have got great people as part of the acquisitions. Larry Morse, who was basically the COO for Jack Miller, is still running Quill today. Great people, great learnings and great growth.
When we talk to companies and say ‘if you don’t want to be a part of this and stay around’, we’ll certainly still talk to you but the price is going to be different because we really need more talent to bring in even more rapid growth. We don’t expect to stay at $16 billion, we expect to double that.
OPI: Is growth easier through acquisition?
RS: Frankly, when you look at the Staples story, probably 90 per cent of the growth has been organic, so I would probably say it is easier to grow through organic means. You have a model and a team and you grow through your sales reps, your catalogues or your stores, so its something you pretty much know how to do and want to do, but there are cases when there are assets out there that are simply too good.
You feel like, maybe we could build this over time but wouldn’t it be so much better if we could acquire that capability sooner rather than later. Our European acquisitions would be a good example of that.
OPI: What are the next great frontiers?
RS: Everything we do is based on whether we can create value for our customers. That might include further
geographic expansion, or additional product lines. We are very excited about the copy centre business and we are excited about taking the Staples brand to the grocery store channel, so there’re a lot of things we are working on, but again it’s all about creating value for our customers.
In terms of new markets, we look at the potential, the size, the growth. China’s one of those that’s very exciting. I was in China recently and I think that’s a billion dollar plus opportunity for the company in the not-too-distant future. I think it has that kind of potential which we are very excited about.
OPI: Will you do retail in China one day?
RS: Only time will tell, but we’ve made it clear that we want to lead the market. And I think we’ll lead the market in every channel that we operate in. Given the fragmented nature of the retail market in China, I think we’re smart in going at it with the delivery business right now, but time will tell if we decide to pursue retail as well.
OPI: China started as a joint venture with OA365. Are JVs important when breaking new markets?
RS: It depends on the market. In China when we made our first investment we started off with a very small share and at this point we are the majority owner of our China business, but from my perspective again it’s all about people. We have a terrific team that understands China and operates in China. I don’t think we can be successful in the country without that local talent and local expertise that we have through Jeff Jin, the guy who’s running the business, and his team.
OPI: So local knowledge is important?
RS: Absolutely. You would think that the US and the UK would be similar, but having worked in the UK a lot over the last seven years it’s still a very different market. So you can imagine how different China or Brazil might be.
Santiago Bilinkis is a guy I got to know in the late 1990s and we’ve been talking for many years about what Officenet is doing, what Staples is doing. I made my first trip to Brazil and Argentina back in September 2001, and during that week we got to know each other much better.
At the time there was a monetary crisis and there was a question whether the Argentine peso was going to be devalued, and we decided we were going to continue to monitor and to watch it and see how Santiago and his team did. They grew the business through that crisis and we started talking in earnest about 18 months ago.
OPI: Moving forward, what are your goals?
RS: We feel it is very important to create a global brand.
We will do that not only with our retail business but our delivery business, our contract business, our Staples brand product.
Second, it’s very important to differentiate Staples on service. Making it easy for our customers, making sure the customer experience is good, continuing to execute flawlessly when we can. So I think differentiation is really important, because we are not the only ones that sell office supplies. We have to make the Staples experience special.
And the third thing – to give our associates great careers with important work. That’s part of the culture of our company, the people. It’s a meritocracy – people can get ahead and do well.
OPI: Why has branding become so important to you?
RS: I spent 15 years with Kroger and one of my last jobs was building the private label brand there. You want to create brand ubiquity. We want to become the national brand office product. I think we’ve got the opportunity to do that. Today Staples’ own brand is about 17 per cent of sales – that’s a $2.5 billion brand. Someone sent me a photo of a medical tent in Iran, and in that tent, they’ve got a Staples brand box of rubber bands. Now how on earth we get Staples brand products to Iran I have not the faintest idea, but I think building that big global brand is part of our success. When people think office supplies, we want them to think Staples.
OPI: It seems to me that previously, own brand was cheap and cheerful, but that has now all changed.
RS: Cheap and cheerful is a good way to describe it. Everything was red and we just slapped our name on things, but over the last few years we realised that if you want to build a great brand, you’ve got to have good quality. Jevin Eagle is running that programme ensuring we do adequate testing, making sure it is every bit as good as national brand and is of value to our customers. You have to have a fighter brand, but we don’t even call it Staples any more, we have a lower tier brand and just call it Simply. If it’s got a Staples name on it, you want to make sure it’s something you are proud of.
And I think we’ve gone beyond just duplicating what’s out there, we’ve moved into innovation and developing brands that never existed before. Our industry in some cases could use a shot of innovation and we’ve been trying to do that through the Invention Quest contest.
Private label is certainly one of our key opportunities. Not only is it a great brand-builder, but also a market opportunity for the company and great value to the customer. A few years ago, own brand was about 11 per cent of our sales, today it’s about 17 per cent.
OPI: How far that can that grow?
RS: I’ve said let’s get to 20 per cent and then we’ll test our customer. You can run a risk of having so much own brand in your store that the customer questions whether you are going to have choice. National brands will always have a big role, but whether the Staples brand will be 20, 25 or 30 per cent, it’s just too early to know. The customer will give us that answer.
OPI: And other areas of growth?
RS: Down the road, a bigger percentage of our sales will be in the delivery side, catalogue and contract, and Europe. We’ve underperformed this year, but I think Europe is going to be a big part as the company goes forward. And some of the emerging stuff – it might not affect us over the next year or two, but in five or ten years from now we’re going to be very happy that we entered South America and China.
And frankly, just good old-fashioned store growth. There’re still 11 or 12 medium to large markets that we don’t operate a store in. Our success in Chicago has shown us we’re systematically going to work through the remainder of those big markets, because we think we’ve still got a lot of room to grow here in the US and Canada.
OPI: You don’t think the OP superstore market in the US is saturated?
RS: We’ve done our calculations that North America can support 4,000 office product superstores and currently in North America we have about 1,500. So as far as we’re concerned we’ve got an opportunity to open another 2,500 Staples stores.