Staples May Hand Over All Retail Operations To Office Depot.

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Date: Thursday August 10, 2017 01:29:17 pm
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    Staples May Hand Over All Retail Operations To Office Depot.
    By Daphne Howland.

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    Staples is looking into spinning off its retail operations including all 1,500 stores to Office Depot, just over a year after the office supply rivals called off their proposed merger in the face of opposition from antirust regulators, sources told the New York Post. A Staples spokesperson and an Office Depot spokesperson each declined to comment to Retail Dive on the report.

    The report comes about a month after Staples agreed to be acquired by private equity firm Sycamore Partners for approximately $6.9 billion, in what will be Sycamore’s biggest ever deal. A Sycamore spokesperson decline to comment on the Post report to Retail Dive.

    Before its agreement with Sycamore was announced, Staples had unveiled a strategy that hinged on further penetrating the business-to-business market rather than direct-to-consumer sales, with the goal of reducing brick-and-mortar sales from 40% to 20% by 2020. 

    Dive Insight:
    According to the Post’s report (which Retail Dive couldn’t confirm by press time), Office Depot had already bid on some of Staples’ stores and Staples declined its offer before Sycamore came along to buy the entire company. But Sycamore is said to be interested in unloading the retail side.

    Staples previously tried — and failed — to merge with Office Depot in 2015 to create a stronger competitor to the growing Amazon threat, but after more than a year of regulatory scrutiny, the deal was dashed by the Federal Trade Commission. CEO Ron Sargent resigned in the aftermath and Staples has struggled to find firm footing. Sales have steadily declined and the company reported a first quarter drop of 4.9% in May and announced plans for 70 store closures over the year. 

    Both retailers, in fact, have worked to regroup as they go it alone. Both have instituted cost-cutting measures, unloaded their overseas business, shaken up their C-suites and introduced new marketing plans. 

    Cost-cutting measures have been top of mind for both Staples and Office Depot as they move to execute new strategies. Staples sold its U.K. stores and a controlling interest in its remaining European operations. To draw more entrepreneurs and remote workers to its stores, the retailer has also experimented with a partnership with workspace startup Workbar.

    For its part, Office Depot earlier this month announced a new loyalty program with expanded benefits, including a “VIP tier” for higher-spending customers like small businesses, and last month rebooted its “Taking Care of Business” brand platform, aimed at business and retail consumers alike. 

    Amazon's growing sales in the space overshadow the retailers' efforts, despite the fact that the judge who granted the regulators their injunction against the deal didn’t buy the’ idea that Amazon presented adequate competition. Amazon has indeed increasingly muscled its way into office supplies (as have Target, Walmart and other general merchandisers), but Amazon’s success in the business-to-business side has been a surprise, says Matt Sargent, senior vice president of retail at Frank N. Magid Associates. Staples Business Advantage, the company’s North American contract business, saw fourth quarter sales flatline year over year, for example.

    “The impact that Amazon has had on Staples' consumer segment cannot be underestimated, but what is more concerning is the impact that Amazon is having within the B2B space,” Sargent told Retail Dive in an email. “Amazon is penetrating small, medium and large corporations within office supplies. This is a red flag for Staples given that corporate office supplies are the most profitable segment of Staples' portfolio.”

    Nearly a quarter of corporate buyers “frequently” shop at Amazon, according to Magid’s research. “This would not necessarily be a shock for small businesses, but we found this to be true even in large businesses where 22% of buyers buying for businesses [with] over 250 employees indicated they use Amazon ‘frequently.’ When seeing that 38% of Staples' customers use Amazon for business on a frequent basis, it really hits home for the company.”

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