Overview 

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Thomas Stemberg founded Staples in 1986. Stemberg graduated from Harvard’s business school in 1973 with a job at Jewel Corporation. The idea for Staples came to Stemberg after he lost his job and realized how much people were spending on office equipment. Stemberg hired an old teaching assistant to do market research and value the industry. As Stemberg predicted, the industry had large price umbrellas, where small businesses fell victim to. The industry had a high growth rate due to demographic trends and the increase in new technology.  

Staples’s first store opened in Brighton Massachusetts on May 1st. After 3 years Staples had 27 open stores around the United States and sales between $300 to $800 per square foot. Staples has stores in 23 different countries including, the United Kingdom, Germany, Netherlands, and Portugal. Staples has also lowered office equipment costs for small businesses. According to Stemberg small businesses used to pay around $5,000 a year for office supplies, now small businesses pay around $2,000. Staples has helped small businesses cut costs and become more efficient.  

 

Problem statement  

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Staples hit financial trouble during the 2008 – 2009 financial crisis. The office supply industry was subject to price discounting, causing slower top line growth for Staples. Even though the economy recovered from the financial crisis, Staples still suffered from revenue loss. People have become more fiscally conservative and do not buy as much office supplies as they did before. Staples now generates most sales from online purchases. 

 

During the 90s there were around 25 different office retail chains. Throughout the past couple years, the industry has shrunk to three main players: Office Depot, Office Max, and Staples. Staples acquired Office Depot and Office Max, making the company the largest player. Staples is now facing increasing competition from online retailers such as Amazon. It is easier for large companies to make purchases online, Staples is strategizing to find a way to combat the growing online shopping threat.  

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Consumers also started to utilize online shopping more. Companies such as Amazon, Wal-Mart, and Costco expanded into the office supplies industry, causing a decrease in sales for Staples. Staples has tried to combat the situation by redesigning their stores and focusing on the customer service. Staples main goals during the redesigning period was to ensure the store would never be out of stock for any item. Staples also focusing on expediting the shopping process and ensuring the employees are always on the floor and helping customers find items. 

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Current situation 

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Staples current situation is best observed through a SWOT analysis. Looking at the company’s strengths, the main strength is Tom Stemberg. He got the company to where it is today and created opportunities for the company to be competing at their current level. Another strength is the state-of-the-art information system to track inventory and keeps the store constantly in stock. Without the system, prices would be much higher and would therefore drive down business. One final strength is the customer-centric philosophy, “easy”. The philosophy differentiates Staples from competitors, making the company stand out and therefore driving business.  

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The next point to focus on are the company’s weaknesses. One weakness was shown when price wars with competitors emerged. These price wars were overall bad for business, driving down profit margins by up to 8%. Another weakness is when Staples missed the small-town markets. They did not see any opportunities to open retail stores there, and missed out on large profits in these suburban areas.  

Opportunities for the company are varied. Staples Direct, the delivery service is one major way Staples can generate new revenues. The delivery service now accounts for half the sales Staples generates in North America. By seizing this opportunity and providing more opportunities and product on their online store, they will be able to compete with their major online competitors. Another major opportunity for Staples is to merge with Office Depot. Such a sizeable merger would be beneficial for both companies, as well as for the industry. The merger would allow for overall lower sales in the industry as a whole, and streamline many distribution channels. All the merger needs is to be approved by the Federal Trade Commission. 

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Some threats are very apparent to the company as well. The company’s imitators are one threat. Office Depot, Office Max and Office Club are all similar stores selling similar products at very similar prices. These imitators make switching extremely easy to the consumer. Another threat is the Federal Trade Commission blocking the Office Depot purchase. The blocked purchase later made it obvious there was bias in the case when the FTC wholeheartedly approved Office Depot and Office Max merger. The merger created the opportunity for these newly merged companies to expand revenues, locations and have the lion’s share within the industry. One major threat to the company would have to be the newly online market. Many stores, especially Amazon are delivering office supplies direct to consumer at extremely low prices. The sales happening are directly cutting into Staples’ sales and revenues, creating a direct threat to not just the company, but to the industry as a whole.  

 

Financials 

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The office supplies industry has been declining rapidly since 2007. Sales grew within the industry on a steep but steady trajectory from 1992 until 2000. In 2000, sales saw a momentary decline, but remained steady until 2007. From 2000-2007, the industry had passed its emerging and growth phases, and had become a mature industry. It was a matter of time before the industry began to decline, especially due to the many competitors and the threat technology posed on the industry. The industry began its rapid decline in 2007. Office supplies and stationary store sales in the United States were at an all-time high, reporting $23 billion in sales, but dropped by 40.86% to a reported $14 billion in 2016.  

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Unfortunately, Staples has not been immune to the industry’s declining sales. It seemed Staples was able to evade significant losses until 2013, when Staples’ revenue dropped by over 14%, and the company reported a $211 million net income loss. This significant net income loss resulted from losses due to discontinued operations. In addition, the company reported a -1% profit margin for the year, a dangerous figure, representing severe financial losses. Since then, the company has struggled to regain both revenues and growth profit which have been declining on a similar trajectory since 2013.  

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Staples was able to salvage their net income the following year and reported a 3.07% profit margin, but showed positive signs for recovery. By this time though, it may have been too late for Staples to make a comeback. From 2015-2017, the company faced more major losses to net income, and fluctuating profit margin. In 2017, profit margin fell to -8.20%, representing Staples worst financial position until that point. In 2017, Staples was acquired by Sycamore Partners Management, L.P. and became a privately-owned company.  

 

Industry 

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The industry analysis for Staples is best looked at through Porters Five Forces. In accordance with Porter’s methods used to identify competition within an industry, analyzing the industry has four major components: threat of new entry, threat of substitutes, power of buyers, and power of suppliers.  The threat of new entry is moderate. After Staples was created, there were many imitators who tried to copy what the store was doing in order to achieve similar success, at the forefront were Office Max, Office, Depot, and Office Club. If the correct strategy was implemented, these imitators did fairly well, but many others were unable to succeed. As competitors accumulated power, they became likely to encounter one another, leading to price wars. 

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The supplier power is moderate as well. Many stores have their own distribution centers, allowing the companies to have large product inventories. These large inventory stores are provided by distributors who have entered into contracts with the companies. If a distributor does not have a contract, they are forced to sell to companies in a traditional fashion, which allows for high revenues, but is not popular. Individual distributor sales are stores such as Staples, which is why it is important for Staples to build relationships with distributors, and vis versa.  

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The threat of substitution is high for the industry. There are many competitors on the market, selling the exact same products for very similar prices. Customers are not necessarily loyal to a company, unless they have a membership card or other benefits or incentives. The competition is intense, with substitution occurring often, especially when customers turn to online shopping or stores with differentiated product lines, such as Walmart or Target. 

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The buyer power is moderate but varies depending on the target market. There are many stores for the buyer to choose from, with the stores having similar price points. Switching is simple, giving the buyer more power to choose between options. While educators and business people might turn to stores like Staples for their office materials, many students opt for Amazon or Target – somewhere that provides basic office supplies along with most other items on their list. Considering the power of buyers and suppliers, and the threat of substitution and new entry, it is determined that competitive rivalry among the industry is high. There are varied, strong competitors throughout the market. Fierce competition is therefore created in the industry.  

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 KPI  

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Political, economic, social, technological, environmental, and legal factors are all present in the coffee industry; but some factors are more prevalent than others. In Staples’ case, the economy was a major player in the downfall of the company’s financial position. After the 2008 recession, customer were less eager to spend on items such as office supplies they could easily find laying around the home or workplace. The economy downfall combined with the rise of technology and the digitized world also worked against Staples’ favor. Notepads and pens were quickly replaced by palm pilots and desktop computers, which were soon surpassed by smart phones and laptop computers. Ron Sargent, former CEO at Staples, articulated this experience in 2014, stating, “Our customers are using less office supplies, shopping less often in our stores and more often online, and focus on value has made the marketplace even more competitive.” For companies in the office supplies product line to succeed, they should be aware of each factor’s implications and significance.  

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Strategic Options and Recommendations 

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Staples has stood out through growth on an international scale. Emerging markets in different regions and states has created more opportunity for growth. Staples should create products and services that can differentiate themselves from the competition. Developing new innovative products and services can make Staples stand out from the competition can drive consumers into more stores. Some products or services could be easy online shopping with two-day delivery or one day delivery. While all stores offer in-store pickup, this is not an easy alternative for people these days. A new trend rising in companies worldwide is building sustainable products and becoming a sustainable company. When it comes to teachers specifically, consumers are more opt to buy products when they know the product is safe to be used by kids. Creating more sustainable products would be a good way to build up consumer trust and jump into helping the environment.  

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Pricing has been in issue not only Staples has struggled with, but the whole industry has struggled with as well. Staples should be coming up with a way to differentiate their costs from other competitors in the retail industry. Since consumers are often buying multiple products at a time when they walk into Staples, lowering costs can make Staples more favorable over the competition. One other recommendation is to build up Staples social media presence along with their marketing and advertising. Staples lacks social media presence that does a good job in promoting their products and services. Building up a larger presence on both Instagram and Twitter will drive in consumers to the store both in person and online. Along with this, consumers will be informed better about promotions or deals going on in store. Email marketing would be an easy alternative for Staples to drive in consumers. Direct emails can offer an incentive for consumers will increase sales and overall company growth. 

 

Conclusion 

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Staples industry and company environment has been significantly impacted by the high growth rate due to demographic trends and the increase in new technology. Companies like Amazon have had a huge effect on Staples over the past few years. Staples has been struggling to keep up with the changing world through technology and digital presence. The retail industry focuses on ways to get products and services to the consumer in order to steer the company’s way towards advancement. While it is important to keep in mind the competitors, it is also important for Staples to keep in mind how to drive in more consumers. Staples maintains their competitive position as one of the top companies in the industry.