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 user 2008-03-24 at 1:47:18 pm Views: 79
  • #21564

    Staples stumbles
    In its search for fatter profits, Staples has been focused on upscale office supplies. A recent Business Week story says the company is trying to lure customers with such things as “haute couture paper clips” and a new line of upscale, private label products.What happened to this company? Somewhere along the line, in its search for fatter profit margins, the office supply store seems to have forgotten that it needs to deliver value to get customers like me in the door. Staples lost much of my office supply business last year. If the retailer wants to get it back, it should take a page from Wal Mart and focus on value rather than fancier paper clips.

    Here’s a real-world example of how myopically profit-focused thinking can be short sighted. Last year, Staples decided to dump generic printer ink supplies in favor of higher margin – and higher priced – OEM products. I use a lot of ink and my need for ink supplies is what brought me into the store – and lead to a lot of other purchases as well.When Staples dropped its low-cost line of toner cartridges, I was left with HP’s 12A cartridge, which Staples sells for $69.99. My search for an alternative took me to the InkJet SuperStore, where I purchased a compatible cartridge that works just fine. My cost: $29.20 including shipping.

    Had Staples not eliminated its generic brand, which was $10 to $15 cheaper than the HP branded products, I probably never would have bothered to switch. But now that I’m sourcing my ink elsewhere, my visits to Staples have been far less frequent. In preparing my taxes I did a year-end report. In 2007 my total expenditures there dropped sharply. I didn’t change my behavior on purpose. It’s just that my shopping habits changed. The things I’ve needed I’ve either ordered online or picked up at places like Wal Mart – because I was there anyway.None of this was intentional. I have nothing against Staples. Its just that in making that one small change they took away my primary reason for visiting their stores. I am sure that HP made the decision to drop generic brands of ink worthwhile to Staples. But what they may have gained in ink profits they may have lost in ancillary sales to customers like me.

    The Business Week article points to early success with a few items. It states that “..cheap wares and cut-rate prices were out. In their place came a new line of higher-quality offerings, marketed with a Staples logo.” The result: sales of those supplies rose to 22% of sales, up from just 8%, and profits rose from 24% to 28%.This strategy may work with a small segment of the market that includes the Neiman Marcus crowd. But if Staples wants to appeal to the broad base of bread and butter business customers, I think the strategy will fail.There’s a recession going on. Abandoning loss-leader private label generics in favor of a tonier image and upscale higher margin house brands means abandoning value. That may work with some fashion-conscious customers. But for the average business person like me, the strategy is a nonstarter.At the end of the day, a paper clip is a paper clip.