STAPLES EASY ROAD GETS HARDER

[Anonymous]

Staples’ easy road gets harder
Staples
has a clear lead in the office supplies market. But staying on top will
take more than a big red button, says Fortune’s Matt Boyle.
NEW
YORK — Those attending last week’s Manhattan press conference
heralding the introduction of office chairs bearing Donald Trump’s
imprimatur might have overlooked the mild-mannered man standing,
somewhat uncomfortably, next to “The Donald” on the dais.While Trump
launched zingers at Rosie O’Donnell and naturally hogged much of the
spotlight, Ron Sargent, CEO of office products purveyor Staples , was
content to play it straight. “It was a dog and pony show,” he remarked
afterwards, shaking his head in disbelief.Corporate governance experts
say it’s time to move him out of Whole Foods’ corner office and to trot
out one of those offbeat titles, like Chief Evangelist, reports
Fortune’s Matt Boyle. While Sargent’s approach to business lacks the
bombast of Trump’s, his results speak volumes. With sales that will
approach $20 billion this year from nearly 2,000 stores, Staples has a
clear lead over rivals OfficeMax  and Office Depot  in the office
superstore category – one that Staples co-founder Tom Stemberg invented
21 years ago.But with the economy slowing, sales growth stagnating in
its stores, and big-box retailers struggling to find more room to roam
– Wal-Mart , for one, has curbed its expansion plans this year – can
Sargent continue to satisfy customers that range from Bank of America
to mom-and-pop shops, while at the same time pleasing Wall Street?
(Over the past decade Staples has delivered average annual shareholder
returns of 18 percent, but so far this year its stock is down 9
percent.)Sargent answered those questions and others in a recent
meeting with Fortune, detailing plans for further growth of the
company’s burgeoning delivery business, expansion in Asia, and new
areas of business that will put Staples in direct competition with
tough customers like Best Buy  and FedEx

In 2006, about a
third of Staples $18.2 billion in sales came from its business delivery
unit, which ships toner cartridges, copy paper and Post-It notes to
customers large and small, as well as to grocery stores like Safeway
and Giant. There, the company’s “Easy” campaign allows customers to
create their own dedicated Web site for quick reordering.While most big
office suppliers offer delivery services, few have elevated the program
to a household brand as Staples has done. The company has even sold
over two million “Easy” buttons – one of which sits on the desk of the
Canadian prime minister. (Proceeds go to charity.)Staples’ Web site has
also undergone an overhaul over the past few years, and the company is
now the second-biggest online retailer, after Amazon, according to
industry publication Internet Retailer, with $4.9 billion in e-commerce
sales. Staples sells about 20,000 items, but only about 7,000 are
available in any given store. Over the past few years, Staples has made
the site much easier to navigate by actually visiting offices to
understand how customers ordered online.
Those improvements, and
others, have resulted in 15 percent annual sales growth for the
delivery arm of the business, which far outpaces the growth rate of its
brick-and-mortar side, where same-store sales grew only 1 percent in
Staples’ most recent quarter. Profit margins for Staples’ delivery
business, according to Credit Suisse analyst Gary Balter, are among the
best in the industry. And Sargent says sales at the delivery arm –
recently bolstered by the acquisition of corporate-branded tchotchke
maker American Identity – could eventually surpass those from
stores.Inside the stores, Staples is trying to sell more store-brand
products, which deliver higher gross margins. Five years ago, only 10
percent of sales came from such products. That stands at just over 20
percent today, and the long-term goal, Sargent says, is 30
percent.Staples is also testing small (4,000 square feet) standalone
copy centers that would compete with FedEx’s struggling Kinko’s
business. Staples has three in Boston now, and will launch in New York
later this year. The company has also launched an IT services business,
a la Best Buy’s Geek Squad. (The service, called Easy Tech, recently
“degunked” Sargent’s own computer.) “These steps point to
opportunities…to grow share of wallet,” says Balter, who currently
has a price target of $28 on the stock.Staples’ international
operations account for just 13 percent of revenues, and its UK business
has been a sore spot for some time. But things are heating up in
emerging markets like China and India. A store in Beijing just opened,
and Staples has won the right to be the exclusive supplier of office
furniture to the 2008 Beijing Olympics. In India, a joint venture with
local retail giant Pantaloon will soon bear fruit with three stores in
that country, one of which, in Bangalore, will be Staples’ 2000th
store.When Sargent joined Staples in 1989, Ohio was a new frontier for
the retailer. “I never would have guessed we’d have 2,000 stores and
certainly could not have imagined [the 2,000th store] being in India,”
he says.Nor would he have dreamed about sharing a stage with Trump, we
reckon.

[Author]

July 23, 2007 at 11:47 AM