Staples, Inc.

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Staples, Inc.

founded: 1986

Contact Information:

headquarters: 1 research dr. westborough, ma 01581 phone: (508)370-8500 fax: (508)370-8989 toll free: (800)333-3330 url: http://www.staples.com

OVERVIEW

Staples, Inc. is one of the world's largest office superstore operators with about 780 stores as of mid-1998. The company sells a variety of office supplies, computers and other office machines, and office furniture. The typical Staples store stocks over 8,000 brand-name and private-label office products. It offers these products at a discount price and also guarantees to pay a customer 150 percent of the difference if a competitor sells the product at a lower price.

Staples competes with a variety of discount office supply stores, warehouse clubs, individual stationery stores, mail order chains, and consumer electronics chains. Half of its 30,000 employees work part-time. For its fiscal year that ended on January 31, 1998, Staples had sales of over $5 billion, an increase of 31 percent over the previous year.

COMPANY FINANCES

Staples continues in its pattern of aggressive growth, with stores increasing from 230 in 1993 to 742 as of January 1998. Its sales increased correspondingly, from $883 million in 1993 to $5.2 billion in 1998. Over the same period, earnings per share of common stock went up from $0.10 to $0.43. Staples stock reached a high of $20.09 and a low of $11.75 in 1998. The company has never paid dividends and doesn't anticipate paying dividends in the near future.

ANALYSTS' OPINIONS

When Staples' attempted merger with Office Depot was blocked by the Federal Trade Commission (FTC) in 1997, each company was left with much more information about its rival's operations than before—a dangerous competitive situation. But most were confident Staples would be up to the challenge. "For Staples, the blow is largely in the pride . . ." editorialized Computer Retail Week. "The Staples founder is a retail innovator who can scrap with the best of them." Analysts continued to recommend Staples stock and were borne out when 1998 first quarter results included strong sales figures and better than expected earnings.

HISTORY

In 1985 Staples founder Thomas Stemberg was a Harvard Business School graduate who had recently been fired from a job in the supermarket industry because of "philosophical differences." While interviewing at a warehouse club he saw that the office supply section was in shambles and realized that this was one of the most popular sections of the store. Stemberg decided to open his own office supply business.

The first Staples store was opened in Brighton, Massachusetts, in 1986. It was a true warehouse, with shopping carts, rows of metal shelving, and grocery store-style checkout counters. The approach of the original store remains in today's Staples chain: it provides a wide variety of discount office products, with prices kept low by purchasing them directly from the manufacturers. In addition, customers are offered a special member discount card.

Three years after the first store opened, Staples became a 23-store chain with $120 million in annual earnings, and offered its stock publicly. However, it still had not made any profits, losing over $14 million during those initial years. Competition within the market was fierce, with chains such as Office Depot and even Kmart offering discount office supplies. Staples worked its way into profitability in the early 1990s by opening more stores and expanding into new regions. It also bought several of its smaller competitors, such as HQ Office Supplies Warehouse and National Office Supply Company, and began operations in Canada, the United Kingdom, and Germany.

In 1997 the company's aggressive growth was reined in when a proposed merger with chief competitor Office Depot was blocked by the Federal Trade Commission. That same year, Staples weathered a scandal when its then-president, Marty Tanaka, was arrested for allegedly grabbing the arm of employee Cheryl Gordon during an argument. The charges were soon dropped, but both Tanaka and Gordon resigned after the company concluded there had been a violation of its policy regarding fraternization between supervisors and their subordinates. In 1998 Staples bought Quill, a privately held company, for $685 million in order to expand its direct-sales business.

STRATEGY

Staples' core business values are everyday low prices, a wide selection of quality merchandise, and a focus on improving customer service. It reaches out to four distinct groups of customers: individual consumers and home offices; small businesses and organizations (fewer than 50 workers); medium-size businesses and organizations (50-1,000 workers); and large businesses and organizations (more than 1,000 workers).

Staples Office Superstores in North America, mostly located in suburban areas, are the cornerstone of the business. These stores offer a wide variety of products to individual and business customers. Staples Express stores are located near urban businesses and have a more focused selection. Staples Direct is a mail-order operation aimed at small and medium-size businesses, with telephone ordering and next-day delivery. Staples Business Advantage and Staples National Advantage are contract operations that offer customized services to medium and large regional businesses and large multi-regional businesses, respectively. Staples also seeks growth in international markets, with operations in Canada, the United Kingdom, and Germany.

Staples' priorities include an aggressive growth strategy. In 1996 and 1997 the company opened almost 300 new stores. Other goals are increasing retail sales per store, increasing delivery sales per store, and reducing costs throughout the company.

INFLUENCES

Because there were many sources of stationery products in the Boston area, Staples was not an instant success and had to distinguish itself from the crowd. Tele-marketing was used to identify potential customers who were given special discounts and gift offers such as free pen and pencil sets and copy paper. A database was set up to track all customers' purchases.

As more stores opened throughout the Northeast, a central distribution center was set up so that customers could phone in orders for next-day shipment through the Staples Direct division. In 1989 a line of Staples Private Label products were introduced, with the typical lower prices of generic items. A group of smaller stores called Staples Express were located in business districts and designed for quick lunchtime or after-work trips. Staples soon expanded outside of the Northeast, into California (where it acquired HQ Office Supplies Warehouse), Florida (where it acquired Office Mart Holdings Corporation's WORKplace stores), and then into Canada, the United Kingdom, and Germany.

In 1993 Staples encountered delays in bringing its new line of personal computer products to market and was forced to reduce the number of computer products it offered. At the same time, competitors were exerting pressure by acquiring smaller office supply chains. Staples responded by ramping up its own acquisition program, buying chains such as National Office Supply Company (New Jersey), Spectrum Office Products (New York), and Office America (Virginia).

In 1997 Staples and its chief rival, Office Depot, tried to merge their operations, but the Federal Trade Commission blocked the merger on the grounds that it would have anti-competitive results.

CURRENT TRENDS

Staples continues to offer a wide variety of office products at a significant discount from list prices at its office superstores. Regular customers receive "dividends" toward future purchases as an incentive for repeat business. Staples began a major store remodeling program in the mid-1990s, completing 180 stores by the beginning of 1997. As part of its goal of improving customer service, Staples initiated a "mystery shopper" program in 1995 in which outside evaluators posing as customers visit every store several times a year.

In the mid-1990s Staples introduced two new operations that provide custom services for business customers, including customized pricing and payment terms, stocking of specialized items, and usage reporting. Staples Business Advantage was established as a regional operation, combining the acquisition of several regional competitors and the opening of new stores in the New York and Washington, D.C. metropolitan markets. Staples National Advantage was made possible by the 1994 acquisition of National Office Supply Company, an established contract stationer business.

In the latter part of the 1990s Staples began to run an extremely popular television advertising campaign. It was designed to appeal to small businesses, home office operators, and, perhaps most importantly, the female employees who make many purchasing decisions for businesses. One of the most memorable of these ads featured a new male employee, who steals a young woman intern's ideas for saving money and sends her off to clean the office refrigerator, but then finds out she is his boss' daughter.

PRODUCTS

Staples stocks over 8,000 brand name and private label products in each of its superstores, regularly evaluating the sales and profit performance of its product mix. Stationery products are generally sold in small multi-unit packages to strike a balance between the cost-effectiveness of bulk buying and the budget and storage constraints of Staples' small business customers. In addition to office supplies, computer hardware and software, office furniture, and other business-related products, the stores offer business services such as copying, faxing, and printing.

FAST FACTS: About Staples, Inc.

Ownership: Staples, Inc. is a publicly owned company traded on NASDAQ.

Ticker symbol: SPLS

Officers: Thomas G. Stemberg, Chmn. & CEO, 48, $862,232; Ronald Sargent, Pres., North American Operations, 41, $511,032; John C. Bingleman, Pres., Staples International, 54, $599,674

Employees: 32,286 (1998)

Principal Subsidiary Companies: Staples' major subsidiaries include: Staples Business Advantage; Staples UK; The Business Depot Ltd. (Canada); Bureau en Gros (Canada); and MAXI-Papier (Germany).

Chief Competitors: Staples competes with other purveyors of office and business supplies including: Office Depot; OfficeMax; and Costco.

CHRONOLOGY: Key Dates for Staples, Inc.

1985:: Staples, Inc. is founded
1986:: The first Staples store opens in Brighton, Massachusetts
1989:: Staples goes public
1990:: Total Global Sourcing, Inc. is founded by Staples to conduct international buying
1992:: Purchases Office Mart Holdings Corporation
1997:: A proposed merger with Office Depot is blocked by the Federal Trade Commission
1998:: Staples buys Quill, a direct-sales business

CORPORATE CITIZENSHIP

Going back to its Boston-area roots, Staples has teamed up with the New England Patriots to recognize a "Star of the Game" or outstanding player during each Patriot's game throughout the NFL season. As part of the promotion, local schools are invited to enter a weekly drawing to win a $1,000 Staples gift certificate, adding up to more than $16,000 in donations each year.

GLOBAL PRESENCE

As of 1998 Staples participated in three international office superstore operations, all originally begun as joint ventures designed to reduce the amount of risk to Staples and to enlist the assistance of locally based experts. Business Depot of Canada became a wholly owned subsidiary in 1994. Staples UK began as a joint venture with Kingfisher PLC, a British corporation. In 1996 Staples acquired 100-percent ownership of this operation. It also increased its interest in Germany's MAXI-Papier-Markt GmbH to about 91 percent in that same year.

Although Staples plans to maintain and perhaps to expand its international operations, those operations were unprofitable as of 1997 and company management was not overly optimistic about their future. Risks facing these operations include lack of operating control, differences in local customs, and foreign currency fluctuations.

STAPLES, INC.: FUN FACTS

Did you know that over the past 10 years, Staples has sold. . .

10 billion individual staples?
3 million rulers, which, placed end-to-end, equal 584 miles?
more than 51 million bottles of correction fluid (240,500 gallons), which is enough to paint more than 24,000 average-size houses?
approximately 2.42 million individual stick pens, which, placed end-to-end, equal 22,000 miles?
5.3 million paper clips?

EMPLOYMENT

Staples believes in building on its existing management talent. Most of its store managers have been trained in the internal management development program, which uses company-prepared training modules. Current employees receive recruitment bonuses for bringing in new employees. Staples also offers an employee stock option purchasing program and gives stock options to employees as performance rewards.