OPI: Kicking off even before the start, do you think there would be a Staples today had you not lost your job at National Supermarkets?
Tom Stemberg (TS): I guess we’ll never know! I think the idea, however, was so compelling that if we had not had come up with it someone else would have in due time as the category got bigger. In fairness there were one or two operations in business then that were somewhat close. I would in particular cite an operation down in Florida that was not a discount operation, but it was a supermarket for office supplies in a sense.
So, I wish I could say no, but the answer to your question is probably yes.
OPI: The OP superstore concept is still a relatively new idea, why hadn’t it happened before?
TS: That’s a question that I’ve probably been asked more than any other in our history and I guess the answer is that sometimes it is the most obvious ideas that never happen.
One important thing to note is that at the time most things were sold at specialised stores. Machines by machine dealers, furniture by furniture dealers, computer supplies by computer supplies dealers. Staples was one of the first to put all those under one roof. We were not just the first to discount, but the first to have one-stop shopping.
OPI: When you first started out, did you have any idea that it would grow up to become what it is today?
TS: Absolutely not. My business plan was to get to 23 stores and $120 million. I guess if you really asked me, I would tell you that maybe, just maybe we’d get to be a $1 billion company. Had you told me Staples would be $16 billion someday, I would have told you that you were crazy.
OPI: So why do you think it has been so successful?
TS: Because throughout its history Staples has done a very good job responding to the needs of its customers. From the earliest days it was the vision of getting a complete selection at discount prices which small businesses had never been able to take advantage of. In more recent years Ron Sargent and the team figured out that it was essential not just to have low prices but also to make it easier for customers to get all their office products.
If there is anything that distinguishes Staples I think it is the relentless focus on the customer.
OPI: And it seems to me that you’ve always attached a lot of value to a strong management.
TS: The thing I am probably proudest of is that we put together the best management team not only in the office products industry, but arguably one of the best management teams in all of retailing and distribution. And I made it my goal as I headed off into the sunset to ensure that the team I left behind was better than the one when I was there.
And I’m proud to be successful in accomplishing that. I’m just incredibly proud of the depth and breadth. It is never just one or two people at the top of the organisation, it’s really the tremendous depth of VPs, directors, store managers etc that make the difference.
OPI: How have you managed to assemble such
a great team?
TS: First of all, it has been putting tremendous emphasis on it. Number two would be that we were always willing to share the fruits of our success with our associates. So even in the earliest days we progressively optioned all of our people, making them owners in the business and we treated them like owners, with respect. The employee communication feedback process began back in 1986 and although it has evolved over the years, it is still in place today, 20 years later.
OPI: I notice among the management team that many of them are veterans of the company.
TS: Ron Sargent joined three years after we started, Demos Parneros joined one year after we started, Shira Goodman helped Ron build the delivery business back in 1989. That’s a major positive. However, we’ve never been shy in bringing in outsiders when needed. The key is to build our own talent and I think we did a terrific job in doing that.
OPI: Is it unusual in corporate America to have so many long-serving people in senior management?
TS: Yes. Look at Office Depot just as a contrast!
OPI: When you started up, was the idea to be just an office superstore or did you have the other channels in mind as well?
TS: As a matter of fact, one of our greatest mistakes was that, in the earliest years, we refused to deliver! Then we saw that Office Depot and Office Club were doing huge volumes doing that. So that was a big mistake.
That mistake brought a lot of things with it. I was told I should take the most talented young guy in the business and put him in charge of catching up in the delivery
business and I made the wise selection of Ron Sargent.
OPI: He has clearly been instrumental in the
company’s success. His execution skills are famous in the industry, are they not?
TS: Absolutely right. For those people who don’t know much about it, he really built the delivery business. I made a few of the acquisitions, but really operationally never got that intimately involved. It was always Ron building the business and then not just building it, but integrating all these diverse companies and personalities into one big happy family. And that was not easy to do.
OPI: And that’s now a fantastically successful part of the business.
TS: Arguably the best.
OPI: Moving back to retail, when you opened your 1,000th store in 1999, that was a great landmark.
How did that make you feel?
TS: It was a great landmark, but also very gratifying as it represented our entry into Atlanta, Georgia, where Office Depot and others have never been able to penetrate our home territory if you will. To us, it was an American
historical analogue – we marched through Georgia the way General Sherman did! That store we also dedicated to Arthur Blank and Bernie Marcus [founders] of Home Depot – they are truly inspirational heroes to me as an entrepreneur.
OPI: What other milestones stick in your mind?
TS: The most significant one was opening the first store [in Brighton, Massachusetts] on 1 May. I told our investors we’d open on 1 May, but I gotta tell you I had my own doubts whether that would happen or not.
A second big one was Ron Sargent’s success in building the delivery business.
Another important one was the acquisition of Quill. It was a huge positive. Staples is a learning company, it is not one of these arrogant companies that comes in and tells people how to do things; Staples has always made an effort to learn from others, and we learned a tremendous amount from Quill. Not only has Quill become more successful, it has tremendously enhanced Staples’ own success.
OPI: When you acquire these companies, you are acquiring the skill sets as well. Larry Morse is still there today, isn’t he?
TS: Absolutely right. Again, that has been a key mantra of Staples’ success.
OPI: What strengths did you personally bring to
TS: My greatest strength is two things. I had a pretty good understanding of markets and how to exploit those markets, be they the original idea, and then seeing the opportunity in Canada, and more recently seeing the opportunity in China. Secondly, I have been able to attract great people to work for the company and being able to keep them motivated.
OPI: What’s the secret to attracting great people?
TS: One of the most important secrets is to treat people with dignity and respect. Also, winning people want to work with other winning people. When you have a team that is successful, success breeds success.
OPI: Is this the part of the business you’ve enjoyed
TS: I’ve enjoyed many parts of the business. The first store, the first successes with delivery, pioneering the dot.com business and just the whole process of building the business from scratch. Those kind of pioneering early stages are really what get my juices flowing, and that’s kind of what I’m doing today.
OPI: And more recently there’s been China, of course.
TS: As I predicted in our 20th anniversary video, China would become a billion dollar plus business. And I can’t tell you how gratifying it has been to work with an
entrepreneur like Jeff Jin to build the business.
OPI: There can’t be much left for Staples to conquer, can there?
TS: There’s no Staples in Russia, there’s no Staples in India, Staples is still pretty small in much of South America, there’s no Staples in Africa. There’s still a long road ahead of it.
OPI: So if we’re talking about the life story of Staples, we’re still pretty early on in the book, would you say?
TS: I’m not sure if early in the book is fair, but I don’t think you’re past the mid-point.
OPI: Casting your mind back to the proposed merger with Depot, what are your thoughts in hindsight?
TS: I did one thing that I think was pretty smart back then. I said we were going to plan for the merger and we were also going to plan for the merger not going through. I told our people the day the merger went down that we would not look back for one minute. Everyone was sitting around saying if only we had done this, if only we had done that. I said "guys, it’s over, move on and let’s go and kick these guys’ butts!". And that’s in fact what we did.
OPI: Did the authorities get it right not letting
it go through?
TS: Not at all. The reality is that in the early years of the office superstore industry, we tended to place superstores against other superstores and we were naively ignorant of the tremendous impact that Wal-Mart, Target and all the other non-office superstore players had. It was our own stupidity frankly. How we appraised and portrayed the market is what led to that merger being defeated. If you look five years later and you see that Wal-Mart is as big as or even bigger than Staples in selling office products, many would argue that it was a tremendous mistake turning the merger down. But you can’t rewrite history.
OPI: How did you feel stepping back and handing the baton to Ron Sargent? Was that difficult?
TS: No way. This was something I had been trying to do for many years and I was fortunate enough to have in Ron an individual who was ready to step up and take the job. More importantly, he has the appropriate skill set for what Staples is doing today. And the reality is, as you point out, that while there are new theatres to conquer, Staples is in most large theatres in the world, and the primary challenge is to implement and execute, and Ron is a light years better implementer and executer than I am.
OPI: Would you say your two different talents
complemented each other very well? You were the ideas man, he was the executer.
TS: I think you’re right. I was the entrepreneurial guy, Ron was the executer. It was a tremendously complementary skills set and I think that, if you look at the Staples management team today, there are wonderfully complementary skill sets in Ron, who is really an operator, and Mike Myles who is more of a marketer, and Shira Goodman, and Demos who is a real people person. Today, very few companies enjoy such complementary skill sets.
OPI: When you first took Ron on board at Staples, could you see very early on that this guy could be
your successor one day?
TS: I’m not sure it went that far. Let me tell you a story. We had an analyst named Tom Culley, something of a legend in the office products industry, and his venture firm invested in Staples in the early days. He went to see our Columbus, Ohio, stores and we had hired Ron as our district manager. During the course of his visiting those stores he asked Ron about the numbers he couldn’t get from corporate, thinking he could get them from the local manager. So he asked Ron what the rent is among many other things, and Ron did this wonderful "schucks, I don’t know, they don’t tell me that. What’s the margin? I’m not sure!" Tom Culley called back the next day yelling how do we get these idiots in the field who don’t know all these numbers? I responded: "Tom, he’s fully aware of the numbers, he’s just too smart to tell you!"
And at that point I realised that Ron was more than just a smart guy and an operator, but might have the broad skill set to be a senior leader.
OPI: What other key memories do you have from your time at Staples?
TS: The most meaningful snapshot time I can think of was the night before we opened the first store in Brighton, Massachusetts. I had to go out to the hardware store to get a hammer, and I was thinking that this whole venture was pretty exciting, that it’s going to work, and we’re going to get people a great deal, etc. I thought, gosh, we could be so successful that we could even be a public company one day!
A second one was when we tried to acquire Office Club and lost out to Office Depot. At that time, Office Depot, having bought Office Club, was literally triple Staples’ size. It was a billion dollar company and we were $300 million. That was a concerning moment in our history.
Another salient point was when we had a 16 per cent stake in Eastman Stationers and lo and behold Office Depot came along and offered a huge price. We had a first right of refusal and could have paid the same price, but my financial guy said to me there was now way we should be paying a double-digit, multiple EBITDA for a business that is growing five or six per cent a year. So we passed. Paine Webber came out with a report, actually authored by Aram Rubinson, saying that Office Depot showed brains and braun, upgrade Office Depot, downgrade Staples! And I kept that piece on my desk until the day I left Staples!
OPI: Is it important to have mistakes to have learned from?
TS: Yes, I think you learn from your mistakes. I’m not sure you want to have loads, but you certainly want to learn from them, and Staples could do that.
Another potent memory I have is becoming number one. It took us until 2003 or so when we finally passed Office Depot and became number one.
OPI: Was it always a great motivation to pass Depot and become number one?
TS: Our public statements were always "we don’t want to be the biggest, we want to be the best". But I would be lying if I told you that somewhere deep in our hearts we didn’t want to be number one. When we did pass Depot, it was extremely satisfying and, I gotta tell you, a key moment.
Another, I’m not sure if this is a high or a low, kind of both, we had come to terms to acquire Viking, on a Friday afternoon. This was six months before we acquired Quill. We had negotiated to buy both and came to terms to buy Viking. On the plane on the way home from California, Shira was there and Ron was there, Joe Vassalluzzo, too. Our lawyer walked up and down the aisles and said "nobody’s happy! Why? When you do a deal, you’re supposed to be happy!" And I said it was for a whole lot of reasons. One, I think, we paid too much, and two, more importantly, Irwin Helford, a wonderful man, wasn’t going to stay on to run it. Had it not been for now governor, hopefully soon to be president Mitt Romney (a Staples board member), going around the room and getting some sense of where people were coming from, that deal could have gone through. He said: "I don’t care what you’ve agreed to, there’s no deal here until the board approves it. And when I don’t see the kind of enthusiasm I like to see from a board, I’m reluctant to vote for a merger."
That led to one of the great lows of my career –
calling back Irwin Helford, whom I adore. Telling
him was probably one of my most difficult moments in the industry.
OPI: Had you bought Viking, would you have still bought Quill?
TS: We would have tried. Buying Quill, of course, turned out to be a wonderful, wonderful story. And Quill has now tripled its profits since we bought it, while Viking no longer operates in the US. Typically, the highs and the lows come together.
OPI: It’s been a fantastic ride.
TS: Hard to know how it could have been better.
OPI: Finally, I must ask you. How did you come up with the name Staples?
TS: The original name on my business plan was 8 x 11.
OPI: (laughs) Catchy!
TS: Not a good name. Probably wouldn’t have worked in the UK! I was driving back from Hartford to Boston, talking to myself and throwing out names, clips and things, paper and clips, clips and staples. Staples! Staples the office superstore! That has a ring to it!
OPI: Looking at the Depots and the rest, do you
sometimes take satisfaction that you helped create the OP retail industry?
TS: I was asked this a number of years ago, how does it feel to be father of the industry, and my quote back then was that I wish I had used a condom!