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Staples, Inc.

Staples, Inc.

500 Staples Drive
Framingham, Massachusetts 017024478
U.S.A.
Telephone: (508) 253-5000
Toll Free: (800) 813-1588
Fax: (508) 253-8989
Web site: http://www.staples.com

Public Company
Incorporated:
1985
Employees: 57,816
Sales: $11.6 billion (2002)
Stock Exchanges: NASDAQ
Ticker Symbol: SPLS
NAIC: 453210 Office Supplies and Stationery Stores; 454110 Electronic Shopping and Mail-Order Houses

Staples, Inc. is the countrys largest operator of office supplies superstores, offering a vast selection of products at low prices, primarily to small business owners. Staples pioneered this concept in 1986 and grew rapidly after opening its first store in the Boston area. The company subsequently expanded to areas outside the Northeast; by the early 2000s, there were about 1,300 Staples outlets located both in major metropolitan areas and smaller markets in 45 states, the District of Columbia, and 10 Canadian provinces. In addition to the retail operations, the company runs a delivery business that encompasses catalog and Internet businesses under the Staples and Quill names, as well as contract stationery businesses, which deliver office supplies to medium-sized and large companies. Staples European operations consist of nearly 200 retail outlets, under the Staples name in the United Kingdom and Germany and under the name Office Centre in the Netherlands and Portugal. The firm also runs a number of international mail-order office-products businesses: JPG and Bernard in France and Belgium, Kalamazoo in Spain, Neat Ideas in the United Kingdom, and MondOffice in Italy.

Pioneering the Office Supplies Superstore Concept: 1980s

Staples was founded in November 1985 by Thomas G. Sternberg and Leo Kahn, who had previously competed against each other in the Boston grocery market. Stemberg had worked in the New England food business since graduating from Harvard Business School in 1973. After his employer fired him in 1985 because of philosophical differences, he used his years worth of severance pay to explore other business opportunities.

Sternberg was interviewing for a job at a generalized warehouse club retailer when he noticed that the aisle featuring office supplies was in disarray, attesting to the popularity of the products, which moved quickly out of the store. When he learned that this small category of goods accounted for 7 percent of all warehouse store sales, Sternberg recognized a niche market that would provide him with the opportunity he wanted.

In formulating his concept for an office supplies warehouse, Sternberg drew on several demographic factors. As large corporations cut their workforces, small businesses were taking up the slack in the American economy, signaling a quickly expanding, lucrative market. In addition, the service sector of the economy was growing rapidly, and such businesses typically used a good deal of office supplies.

Sternbergs plan called for the elimination of the middleman in office supply distribution. Traditionally, manufacturers of paper and other items sold their goods to one of six major wholesalers around the country. The wholesalers then sold their goods to office supply dealers and stationery stores. The dealers sold supplies to large corporations, while stationers catered to small businesses and individuals. Along the way, however, the two layers of middlemen between the factory and the customer drove up costs dramatically.

With his Staples store, as he planned to call the outlet, Sternberg would collapse those two layers into one. Because supplies would be purchased directly from manufacturers, the store would be able to offer much lower prices than its competitors in the heavily fragmented retail environment. Sternberg hoped with this idea to gain a portion of the office supply market significant enough to justify purchasing in bulk. Sternberg expected that imitators would quickly copy his idea if it proved successful, so he set out to raise a large amount of capital to finance his company, hoping to expand Staples rapidly after its start-up and avoid losing ground to its competitors.

To do so, Sternberg approached his old nemesis Kahn, who invested $500,000. In addition, Sternberg made presentations to venture capitalists in the Boston area and was met with an enthusiastic response. In the first round of financing, the company raised $4 million. With this money, Sternberg set out to recruit a management team. Looking for people who shared his philosophy of how to run a business, he sought out those with a similar background, bringing in people who had worked at the same national grocery chain that he had. By the spring of 1986 everything was in place.

The first Staples Office Superstore opened its doors in May at 1660 Soldiers Field Road in Brighton, Massachusetts, a suburb of Boston. Consisting of one vast, open 14,000-square-foot space, the Staples store had a typical warehouse decor, with concrete floors and an unfinished ceiling. A huge array of goods was stacked on metal shelves, and shopping carts were provided for customers at the front. More than 40 workers were deployed to ring up sales at six cash registers. In an effort to provide customers with one-stop shopping, the store stocked everything that could conceivably be used in an office, from paper and pens, to office furniture, to microwave ovens. Most products were offered at a price half as low as that of Staples competitors.

To drum up business, Staples gift certificates were sent to 35 local small business office managers, who would be surveyed on their reactions to the store when they made a purchase. After five weeks, only nine of the certificates had been redeemed, and Sternberg learned that he had a sizable marketing task ahead of him.

The marketing push began with an effort to differentiate Staples from other stationery outlets, in order to draw the companys targeted customers into the store. The company invested more than $1 million in several linked minicomputers and a staff of three computer programmers and began amassing a database of small businesses. The database became part of a sophisticated multistep marketing program. Through telemarketing, Staples identified customers and enticed them into the stores. The profiles and buying habits of customers then became part of an extended database, enabling Staples to offer special discounts and encourage repeat business. With these strategies, Staples was able to begin building a solid customer base. In November 1986 the company opened its second store in Woburn, Massachusetts, another suburb of Boston. A third location emerged in Providence, Rhode Island, the following year, and the company began to plan for its expansion into the New York area.

As Staples broadened its geographical scope throughout the Northeast, the company decided to invest in a centralized distribution facility. Rents tended to be high in the crowded urban areas where Staples stores were located, and the company hoped that this move would allow it to offer a fuller selection in smaller facilities because fewer products would have to be stockpiled onsite at each location. With the distribution center, the company believed that it could replenish its shelves faster than competitors who had to rely on manufacturers for supplies. In addition, the central depot cut down on freight costs, as manufacturers were able to ship large amounts of goods to one location. It also kept payroll costs low. Staples began work on its 136,000-square-foot processing and distribution center in Putnam, Connecticut, in 1987. The decision to proceed with this project aroused controversy among Staples management because the investment meant that the company would postpone becoming profitable for an even longer period of time.

Late 1980s: Expanding Throughout Northeast, Going Public

In June 1987 Staples made its first foray into the New York market, opening a store in Port Chester. By the end of the year the company had opened a total of nine stores that were clumped in the New York and metropolitan Boston areas. The following year Staples moved into the other major East Coast markets of Philadelphia and Washington, D.C. This was done in conjunction with the opening of the $6 million distribution center.

In the winter of 1988, Staples stepped up its marketing efforts by sending potential customers a special catalog, with a coupon promising a free pen and pencil set with a purchase of $10 or more. Of those who redeemed this offer, company data indicated that more than half would return to make future purchases.

By May 1988 Staples had opened 16 stores, and the companys revenues had risen to $40 million. In its rapid Northeastern expansion, the company sought to lock up prime retail locations throughout the region so that competitors would have difficulty establishing their own stores. To support this rapid growth, Staples solicited three more rounds of financing from the investment banking community, raising a total of $32 million.

The number of Staples stores had grown to 23 by the beginning of 1989. Whenever Staples opened a new store, the company bought a list of all the small businesses located within a 15-minute drive of the outlet. Buyers of office supplies from these firms were then contacted by telemarketers who announced the stores opening and garnered data about the buyers purchasing habits. In return they received a coupon for free copy paper that would hopefully bring them into the store and spur word-of-mouth advertising.

Company Perspectives:

Slashing the cost and hassle of running your office! Our vision is supported by our core values: C.A.R.E. CustomersValue every customer. AssociatesSupport them as valuable resources. Real Communicationsshare information with people when they need it. Executionachieve our business goals.

In addition, the company offered customers a free Staples card that offered discounts on goods purchased. When customers filled out a card application, the company got data about the nature of their businesses. The numeric code on the card also enabled Staples to track their purchases precisely. All of this information was collated at the companys headquarters on a daily basis.

In February 1989 Staples introduced its Private Label productsgeneric office supplies at exceptionally low prices. This strategy was one that Sternberg had first implemented in the grocery business, when he introduced company-label groceries for Star Markets. In April Staples sold stock to the public for the first time, raising $37 million to fund its further expansion. By the end of that month, the companys sales had reached $120 million. Despite this strong growth in revenue, Staples had yet to make any earnings, although the company did turn in its first profitable quarter at the end of January 1989. Overall, losses since Staples founding had reached $14.1 million.

These losses were caused by the high cost of the companys start-up and expansion as well as the strong competition the company faced. As Sternberg had predicted, Staples had quickly been joined in the office supplies market by a host of imitators around the country. In mid-1989 the company slipped to second place in revenues behind Office Depot Incorporated; Office Club was making a strong showing in California; and retail giants Kmart and Ames were also deliberating a move into the stationery field. To counter these threats, Staples continued its rapid pace of new store openings. By the end of the year the company was operating 38 stores, and it had racked up sales of $182 million.

Early 1990s: Further Growth

Building on these gains, the following year Staples moved to centralize its Northeast delivery operations through a hub-and-spoke system set up with its Putnam facility at the center. This warehouse was augmented with a 32,000-square-foot delivery distribution center. The new system allowed Staples to set up a toll-free line for orders, which were then shipped for delivery the next day. The operation was dubbed Staples Direct.

In July 1990 the company also commenced operations in a new market, southern California. Staples made its inroad into this competitive field with three stores located in Orange County, California, and a separate California distribution facility. Staples had targeted Orange County because of its high number of small businesses and growing economy, viewing its move into this area as the first step of a planned 34-store California roll-out.

Staples followed its West Coast expansion with the introduction of a new retail concept, called Staples Express. The first of these stores was opened on Court Street in the heart of Bostons financial district. With a space only a third as large as the companys suburban stores, this facility stocked 2,700 items, or half of the usual complement, which were sold at the same low prices. Staples Express was designed to appeal to the small business operator in an urban area and was geared to quick trips and impulse buying on lunch hours and after work. Customer purchases were typically small, being no bigger than what a person could carry.

The unveiling of this prototype was part of the companys strategy to dominate the office supplies market through three distribution channels: the suburban superstore, the urban ministore, and phone-in direct delivery service. Also in 1990 Staples began to buy its products overseas. To conduct international buying the company formed a subsidiary called Total Global Sourcing, Inc.

By the end of the year, the number of Staples stores had doubled to 74, including nine in California, and the companys sales had nearly reached the $300 million mark. Staples accelerated its California operations the next year when it bought ten Los Angeles stores from defunct superstore operator HQ Office Supplies Warehouse and converted them to Staples stores.

At the same time, Staples entered its first foreign venture, investing in The Business Depot, Ltd., a new Canadian office superstore. In the United States, Staples celebrated the opening of its 100th store, an outlet on Long Island in New York. By the end of the year, sales had risen 83 percent to reach $547 million, and earnings grew by 117 percent.

In June 1992 Staples expanded into another region of the United States with the purchase of Office Mart Holdings Corporation for $3.1 million. This company owned ten WORKplace stores in Florida. Staples had now moved into direct competition with its biggest rival, Florida-based Office Depot.

That year Staples made additional progress in its campaign to expand overseas. The company bought a 48 percent interest in MAXI-Papier, operators of five office superstores in cities around Germany. Staples also signed a partnership agreement with Kingfisher plc to open office superstores in the United Kingdom. Sales at the end of 1992 reached $883 million. In 1993 Staples celebrated the opening of its 200th store, and at that time the company announced plans for an additional 130 store openings over the next two years.

Key Dates:

1985:
Thomas G. Sternberg and Leo Kahn found Staples, Inc.
1986:
Founders open the first Staples storethe first office supplies superstorein Brighton, Massachusetts.
1989:
Company raises $37 million through an initial public offering.
1990:
First stores in California are opened.
1991:
Company establishes first non-U.S. venture, an investment in Canadian office superstore The Business Depot, Ltd.
1992:
Staples enters the European market for the first time.
1996:
Staples enters into agreement to acquire archrival Office Depot.
1997:
Merger with Office Depot is blocked on antitrust grounds.
1998:
Quill Corporation is acquired; staples.com is launched.
2002:
Staples acquires Medical Arts Press, Inc. and the European mail-order businesses of Guilbert S.A.

This ambitious schedule was set despite fluctuations in the price of Staples stock. Wall Street had lost confidence in the company in early 1993 after Staples two largest rivals embarked upon a rapid string of acquisitions, while Staples demonstrated difficulty rolling out a new line of personal computer products. To redress these problems, Staples pared down the number of machines and software programs it offered, to create a more manageable department. In addition, the company began to make a number of acquisitions of its own. Staples arranged to buy out its Canadian partner in The Business Depot for $32 million in early 1994. The company also signed agreements to buy two contract stationers: New Jersey-based National Office Supply Company, for $99 million; and Spectrum Office Products, of New York, for $23 million. The former company boasted a nationwide distribution system.

Mid-1990s: Still Growing, Despite Blocked Merger with Office Depot

In April 1994 Staples bought seven former Office America stores in Virginia, Arizona, and Kentucky and began to convert them to Staples outlets. In July, the company announced that it would buy D.A. Maclsaac, Inc., a regional contract office supplier, for $15 million. A fourth contract stationer, Philadelphia Stationers, was later bought for $14 million. These moves were all designed to increase Staples size and penetration of the office supplies business, and they helped the companys revenues surpass the $2 billion mark for the fiscal year ending in January 1995.

Staples next launched a two-year, $240 million program to open an additional 170 new stores, entering still more new markets in the process, and to refurbish all of its existing outlets. The remodeling effort featured wider aisles, bigger in-store signs, and improved lighting. The company also launched a new advertising campaign in 1995, one that featured the tag line Yeah, weve got that; the ads, which captured several advertising awards, ran through early 2003. In the meantime, the latest expansion pushed 1995 sales past $3 billion, making Staples only the sixth company in U.S. history to reach that mark within ten years of its founding. The following year the firm opened its 500th store. Also in 1996, Staples bought out its partner in the U.K. and German ventures, Kingfisher, in a £29.4 million deal. By this time there were 34 Staples outlets in the United Kingdom; the MAXI-Papier stores in Germany were subsequently rebranded under the Staples name.

In the boldest move yet in its brief history, Staples reached an agreement in September 1996 to acquire its main rival, Office Depot, for $3.36 billion in stock. The deal had the potential to create the dominant player in the office-supply superstore sector, with 1,100 stores and annual revenues in excess of $10 billionfar eclipsing what would be the number two player, OfficeMax, Inc., which had about 500 stores and sales of just over $3 billion. In an attempt to head off antitrust objections, Stemberg and other officials from Staples and Office Depot tried to emphasize that the superstores did not just compete against each otherthey also competed with mass marketers such as Wal-Mart Stores, Inc., warehouse clubs, direct marketers, and others. The Federal Trade Commission (FTC), however, did not buy this argument, with the agencys chief concern being that the merger would significantly reduce competition in a number of markets where the two firms were competitors, leading to price increases as high as 10 percent. The FTC voted to block the deal in March 1997 and one month later rejected the deal again after Staples had reached an agreement to sell 63 stores to OfficeMax. The FTC then sued to stop the deal, and in late June a federal judge granted a preliminary injunction to block the transaction. At this point, Staples and Office Depot abandoned their merger plans, conceding defeat.

Late 1990s: Surpassing the 1,000-Store Mark

In the wake of this setback, Staples lost no time in reasserting its position as the office supplies superstore growth leader. During 1997 the company opened 128 new stores in North America, bringing its store total to more than 740. Revenues for the year topped $5 billion, making Staples the seventh company in U.S. history to reach that mark in a dozen years of operation or fewer. The expansion pace quickened in 1998, as 174 more stores made their debuts. That year, Staples also acquired Quill Corporation for about $685 million in cash and stock as part of its effort to expand beyond retail outlets. The privately held Quill, based in Lincolnshire, Illinois, was a seller of office supplies via catalog and through direct (or contract) sales to businesses. Quill, which had 1997 revenues of $555 million, continued to operate independently as a Staples subsidiary. Other important developments in 1998 included the launching of the Staples online retail store, staples.com, and the promotion of Ronald L. Sargent from president of North American operations to president and COO of Staples (Stemberg continued to serve as chairman and CEO).

Staples European operations were bolstered considerably in 1999 with the acquisitions of three companies: Sigma Browelt of Germany, Office Centre of the Netherlands, and Office Centre of Portugal. Sigma Browelt operated 15 office supply stores; these were subsequently rebranded under the Staples name, increasing the total in Germany to 41. There were 21 Office Centre outlets in the Netherlands and five in Portugal, as Staples entered those two markets for the first time. The Office Centre stores were conceptually different from the typical Staples outletthey had more of a business-oriented membership format and were similar to warehouse clubs in the United States. Overall, Staples now had about 120 European stores. Later in 1999 the company opened its 1,000th store worldwide, becoming the first office supplies superstore retailer to do so. Also, the Staples Center opened in Los Angeles that year as the new arena home for the Lakers professional basketball team and the Kings professional hockey team. In this corporate sponsorship deal, Staples, Inc. agreed to pay $100 million over a 20-year period. In the fall of 1999 Staples created a tracking stock for its Internet operations and began selling shares in the stock in private transactions.

Early 2000s: Competing in Uncertain Times

After a remarkably and consistently successful performance since its foundingsales and earnings had increased 30 percent per year for 12 yearsStaples finally ran into trouble in the early 2000s. During the latter months of 2000, the retail market for office supplies began foundering. The boom years of the 1990s were over, and the growth of small businesses and home officesthe core of Staples customer basewas fading away. Early in 2000 the company announced plans to sell its Internet tracking stock through an initial public offering (IPO), but the bursting of the stock market bubble soon thereafter forced Staples to abandon this plan (the tracking stock was later converted into Staples stock). Furthermore, the firm had made a number of investments in various Internet services that were offered through its web site, which proved to be a money-losing strategy. Staples announced in January 2001 that it would take a $206 million writeoff related to various web investments. As a result, net income for fiscal 2000 totaled just $59.7 million, compared to $315 million for the previous year, although revenues increased 19 percent and surpassed the $10 billion plateau for the first time. Later in 2001, the Internet operations were merged into Staples Direct, the companys thriving catalog unit.

In February 2002 Sargent was promoted to president and CEO, while Sternberg remained chairman. Sargent was charged with leading Staples through its transition from a growth-oriented young retail firm to a more mature company competing in an industry dealing with an increasingly saturated U.S. market. Changes began almost immediately. In March 2002 Staples announced a plan to close 31 underperforming stores, most of which were located in small towns, taking a charge of $50.1 million in the process. The company also considerably slowed its pace of expansion, opening just 72 new stores in North America and 14 in Europe during fiscal 2002, compared to 117 and 19, respectively, the prior year. Furthermore, expansion into new markets was curtailed as well. Many of the new outlets were located in large metropolitan areas where Staples already had a presence. The company also launched a remodeling effort, converting a significant number of stores from the original warehouse design to more of a boutique look, with an open design and lower shelvesall aimed at making it easier and faster for customers to find what they were looking for. The new format was supported through an advertising campaign, launched in early 2003, featuring the new slogan, That was easy. Finally, under Sargent, Staples eliminated hundreds of items from the store shelves as it sought to shift the chains focus away from casual shoppers toward small businesses and what were termed power users. The latter were defined as customers who purchased more than $500 per year of office supplies, and such customers included home-based businesses, persons with home offices, and teachers. Small businesses and power users accounted for 70 percent of Staples revenues and fully 90 percent of profits.

While overhauling its core North American retailing operations, Staples was also completing acquisitions at home and abroad. The company looked to purchase delivery-based businesses, which tended to have higher profit margins than retailing operations. In July 2002 Staples bought Medical Arts Press, Inc. (MAP) for $383.2 million. Based in Minneapolis with 2001 revenues of $168 million, MAP was a direct marketer of specialized printed office products and practice-related supplies to healthcare offices. MAP became a division of Quill Corporation. Staples in October 2002 spent EUR 806 million (US$788 million) for the European mail-order businesses of Guilbert S.A., a subsidiary of Pinault-Printemps-Redoute S.A. of France. The operations gained through this deal had revenues of about $425 million in 2001, and they sold office supplies and furniture via catalogs and Internet web sites to small businesses under several brands: JPG and Bernard in France and Belgium, Kala mazoo in Spain, Neat Ideas in the United Kingdom, and MondOffice in Italy.

Early indications were that Staples various strategy shifts were paying off. Despite the continuing economic downturn in the United States, Staples managed to post an 8 percent increase in fiscal 2002 sales to $11.6 billiona jump that enabled the company for the first time to surpass rival Office Depot (which reported 2002 revenues of $11.4 billion). Net income was a record $446.1 million. Staples planned to continue its more modest pace of expansion, opening between 75 and 90 stores in North America during 2003. Another 20 stores were slated to open in Europe that year, including the expansion of the Office Centre concept into Belgium. It appeared that Staples had gotten past the rough patch it encountered earlier in the decade and was ready to enter a new period of industry-leading growth.

Principal Subsidiaries

Hayes Marketing, Inc.; Medical Arts Press, Inc.; Quill Corporation; Smilemakers, Inc.; JPG Benelux SPRL (Belgium); The Business Depot, Ltd. (Canada); JPG SA (France); Reliable France SA; Bernard SA (France); Staples (Deutschland) GmbH (Germany); Mondoffice Sri (Italy); Business Office Supply B.V. (Netherlands); Staples Netherlands B.V.; Sistemas Kalamazoo SA (Spain); Neat Ideas Limited (U.K.); Staples UK Limited.

Principal Operating Units

North American Retail; North American Delivery; European Operations.

Principal Competitors

Office Depot, Inc.; OfficeMax, Inc.; Buhrmann N.V.

Further Reading

Bailey, Steve, and Steven Syre, Its His Party: Sternberg Marks Down Nasellas Role As Staples Celebrates 10th, Boston Globe, April 26, 1996, p. 89.

Barrier, Michael, Tom Sternberg Calls the Office, Nations Business, July 1990, pp. 42 +.

Brumback, Nancy, New Retailer, Staples, Out to Build Mass Chain of Office Superstores, HFDThe Weekly Home Furnishings Newspaper, December 28, 1987, pp. 57 +.

Charm, Robert E., Thomas G. Sternberg of Staples, Inc., New England Business, May 2, 1988, pp. 17 +.

Einhorn, Cheryl Strauss, Paper Chase, Barrons, March 27, 1995, pp. 1516.

Facenda, Vanessa L., Staples Writes a New Plan, Discount Merchandiser, November 1999, pp. 95 +.

Gupta, Udayan, Retail Start-Up Decides to Start Out Big, Wall Street Journal, May 14, 1987.

Hemp, Paul, Staples Plans a Frontal Assault on the British Market, Boston Globe, January 12, 1993, p. 39.

Hirsch, James S., and Eleena de Lisser, Staples to Acquire Archrival Office Depot, Wall Street Journal, September 5, 1996, p. A3.

Hyatt, Josh, Staples: Gutsy and Growing, Boston Globe, June 9, 1992, p. 55.

Klebnikov, Paul, Hair of the Dog, Forbes, April 16, 2001, pp. 74 +.

Lanctot, Roger C, Staples: Homing in on Office Superstores, HFDThe Weekly Home Furnishings Newspaper, April 25, 1988, pp. 1+.

Liebeck, Laura, Staples Plans for Growth, Discount Store News, June 22, 1998, pp. 1, 60.

McConville, James A., Fla. Retail Showdown Looms, HFDThe Weekly Home Furnishings Newspaper, March 9, 1992, pp. 73 +.

, Staples Head Still Sees Growth, HFDThe Weekly Home Furnishings Newspaper, October 18, 1993, pp. 103 +.

, Staples Targets Urban Niche, HFDThe Weekly Home Furnishings Newspaper, October 22, 1990, pp. 149 +.

McLaughlin, Mark, Category Killer Office Superstore Uses Blitzkrieg Retailing Approach, New England Business, August 4, 1986, pp. 41 +.

Miller, Paul, and Shannon Oberndorf, Staples Buys Quill Corp., Catalog Age, May 1998, pp. 1, 36.

Pereira, Joseph, Staples Inc. Pulls Back on Its Store-Expansion Plans, Wall Street Journal, March 13, 2002, p. B4.

, Stapless Shift Boosts Profit, Wall Street Journal, March 5, 2003, p. B2.

Savini, Gloria, Where the Pens Are, Direct Marketing, August 1988, pp. 82 +.

Selz, Michael, Office Supply Firms Take Different Paths to Success, Wall Street Journal, May 30, 1991, p. B2.

Solomon, Stephen D., Born to Be Big, Inc., June 1989, pp. 94 +.

Sternberg, Tom, Staples Sets Pace, Discount Merchandiser, March 1988, pp. 66 +.

Story, Louise, Staples Expands European Business, Boston Globe, August 23, 2002, p. D1.

Strauss, Lawrence, Back to Business with Staples, Barrons, November 18, 2002, p. T8.

Suskind, Ron, Staples Reacts to a Large New Rival with Confidence, Wall Street Journal, December 21, 1992, p. B4.

Teitell, Beth, Office Supply Supermarkets: A Future Staple? Boston Business Journal, March 17, 1986.

Wilke, John R., and Joseph Pereira, Office Depot, Staples Deal Is Blocked, Wall Street Journal, July 1, 1997, p. A3.

Elizabeth Rourke

update: David E. Salamie

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Staples, Inc.

Staples, Inc.

100 Pennsylvania Avenue
P.O. Box 9328
Framingham, Massachusetts 01701
U.S.A.
(508) 370-8500
Fax: (508) 370-8955

Public Company
Incorporated: 1985
Employees: 3,234
Sales: $883 million
Stock Exchanges: New York
SICs: 5112 Stationery and Office Supplies

Staples, Inc. is the countrys third largest operator of office supplies superstores, which offer a vast selection of products at very low prices to small business owners. Staples pioneered this concept in 1986 and grew rapidly after opening its first store in the Boston area. The company has subsequently expanded to areas outside the Northeast, opening hundreds of outlets across the nation and beginning joint ventures overseas.

Staples was founded in November of 1985 by Thomas G. Stemberg and Leo Kahn, who had previously competed against each other in the Boston grocery market. Stemberg had worked in the New England food business since graduating from Harvard Business School in 1973. After his employer fired him in 1985 because of philosophical differences, he used his years worth of severance pay to explore other business opportunities.

Stemberg was interviewing for a job at a generalized warehouse club retailer when he noticed that the aisle featuring office supplies was in disarray, attesting to the popularity of the products, which moved quickly out of the store. When he learned that this small category of goods accounted for seven percent of all warehouse store sales, Stemberg recognized a niche market that would provide him with the opportunity he wanted.

In formulating his concept for an office supplies warehouse, Stemberg drew on several demographic factors. As large corporations cut their workforce, small businesses were taking up the slack in the American economy, signalling a quickly expanding, lucrative market. In addition, the service sector of the economy was growing rapidly, and such businesses typically used a good deal of office supplies.

Stembergs plan called for the elimination of the middleman in office supply distribution. Traditionally, manufacturers of paper and other items sold their goods to one of six major wholesalers around the country. The wholesalers then sold their goods to office supply dealers and stationary stores. The dealers sold supplies to large corporations, while stationers catered to small businesses and individuals. However, along the way, the two layers of middlemen between the factory and the customer drove up costs dramatically.

With his Staples store, as he planned to call the outlet, Stemberg would collapse those two layers into one. Because supplies would be purchased directly from manufacturers, the store would be able to offer much lower prices than its competitors in the heavily fragmented retail environment. With this new idea, Stemberg hoped to gain a significant enough portion of the office supply market to justify purchasing in bulk. Stemberg expected that imitators would quickly copy his idea if it proved successful, so he set out to raise a large amount of capital to finance his company, hoping to expand Staples rapidly after its start-up and avoid losing ground to its competitors.

To do so, Stemberg approached his old nemesis Leo Kahn, who invested $500,000. In addition, Stemberg made presentations to venture capitalists in the Boston area and was met with an enthusiastic response. In the first round of financing, the company raised $4 million. With this money, Stemberg set out to recruit a management team. Looking for people who shared his philosophy of how to run a business, he sought out those with a similar background, bringing in people who had worked at the same national grocery chain that he had. By the spring of 1986 everything was in place.

The first Staples Office Superstore opened its doors in May at 1660 Soldiers Field Road in Brighton, Massachusetts, a suburb of Boston. Consisting of one vast, open 14,000-square-foot space, the Staples store had a typical warehouse decor, with concrete floors and an unfinished ceiling. A huge array of goods was stacked on metal shelves, and shopping carts were provided for customers at the front. More than 40 workers were deployed to ring up sales at six cash registers. In an effort to provide customers with one-stop shopping, the store stocked everything that could conceivably be used in an office, from paper and pens, to office furniture, to microwave ovens. Most products were offered at a price half as low as that of Stapless competitors.

To drum up business, Staples gift certificates were sent to 35 local small business office managers, who would be surveyed on their reactions to the store when they made a purchase. After five weeks, only nine of the certificates had been redeemed, and Stemberg learned that he had a sizable marketing task ahead of him.

The marketing push began with an effort to differentiate Staples from other stationery outlets, in order to draw the companys targeted customers into the store. The company invested more than $ 1 million in several linked minicomputers and a staff of three computer programmers and began amassing a database of small businesses. The database became part of a sophisticated multi-step marketing program. Through telemarketing, Staples identified customers and enticed them into the stores. Customers then became a part of an extended database that tracked their purchases, enabling Staples to offer special discounts and encourage repeat business. With these strategies, Staples was able to begin building a solid customer base. In November of 1986 the company opened its second store in Woburn, Massachusetts, another suburb of Boston. A third location came on line in Providence, Rhode Island, the following year, and the company began to plan for its expansion into the New York area.

As Staples broadened its geographical scope throughout the Northeast, the company decided to invest in a centralized distribution facility. Rents tended to be high in the crowded urban areas where Staples stores were located, and the company hoped that this move would allow it to offer a fuller selection in smaller facilities because fewer products would have to be stockpiled on site at each location. With the distribution center, the company believed that it could replenish its shelves faster than competitors who had to rely on manufacturers for supplies. In addition, the central depot cut down on freight costs, as manufacturers were able to ship large amounts of goods to one location. It also kept payroll costs low. Staples began work on their 136,000-square-foot processing and distribution center in Putnam, Connecticut, in 1987. The decision to go ahead with this project aroused controversy among Stapless management because the investment meant that the company would postpone becoming profitable for an even longer period of time.

In June of 1987 Staples made its first foray into the New York market, opening a store in Port Chester. By the end of the year the company had opened a total of nine stores that were clumped in the New York and metropolitan Boston areas. The following year Staples moved into the other major East Coast markets of Philadelphia and Washington, D.C. This was done in conjunction with the opening of the $6 million distribution center.

In the winter of 1988, Staples stepped up its marketing efforts by sending potential customers a special catalog. Wrapped around this brochure was a coupon promising a free pen and pencil set with a purchase of $10 or more. Of those who redeemed this offer, company data indicated that more than half would return to make future purchases.

By May of 1988 Staples had opened 16 stores, and the companys revenues had risen to $40 million. In its rapid Northeastern expansion, the company sought to lock up prime retail locations throughout the region so that competitors would have difficulty establishing their own stores. To support this rapid growth, Staples solicited three more rounds of financing from the investment banking community, raising a total of $32 million.

The number of Staples stores had grown to 23 by the beginning of 1989. Whenever Staples opened a new store, the company bought a list of all the small businesses located within a 15-minute drive of the outlet. Buyers of office supplies from these firms were then contacted by telemarketers who announced the stores opening and garnered data about the buyers purchasing habits. In return they received a coupon for free copy paper that would hopefully bring them into the store and spur word-of-mouth advertising.

In addition, the company offered customers a free Staples card that offered discounts on goods purchased. When customers filled out a card application, the company got data about the nature of their businesses. The numeric code on the card also enabled Staples to track their purchases precisely. All of this information was collated at the companys headquarters on a daily basis.

In February of 1989 Staples introduced its Private Label productsgeneric office supplies at exceptionally low prices. This strategy was one that Stemberg had first implemented in the grocery business, when he introduced company-label groceries for Star Markets. In April Staples sold stock to the public for the first time, raising $37 million to fund its further expansion. By the end of that month, the companys sales had reached $120 million. Despite this strong growth in revenue, Staples had yet to make any earnings, although the company did turn in its first profitable quarter at the end of January, 1989. Overall, losses since Staples founding had reached $14.1 million.

These losses were caused by the high costs of the companys start-up and expansion as well as the strong competition the company faced. As Stemberg had predicted, Staples had quickly been joined in the office supplies market by a host of imitators around the country. In mid-1989 the company slipped to second place in revenues behind Office Depot Incorporated; Office Club was making a strong showing in California; and retail giants Kmart and Ames were also deliberating a move into the stationary field. To counter these threats, Staples continued its rapid pace of new store openings. By the end of the year the company was operating 38 stores, and it had racked up sales of $182 million.

Building on these gains, the following year Staples moved to centralize its Northeast delivery operations through a hub-and-spoke system set up with its Putnam facility at the center. This warehouse was augmented with a 32,000-square-foot delivery distribution center. This new system allowed Staples to set up a toll-free telephone line for orders, which were then shipped for delivery the next day. This operation was dubbed Staples Direct.

In July of 1990 the company also commenced operations in a new market, Southern California. Staples made its inroad into this competitive field with three stores located in Orange County, California, and a separate California distribution facility. Staples had targeted Orange County because of its high number of small businesses and growing economy, viewing its move into this area as the first step of a planned 34-store California roll-out.

Staples followed its West Coast expansion with the introduction of a new retail concept, called Staples Express. The first of these stores was opened on Court Street in the heart of Bostons financial district. With a space only a third as large as the companys suburban stores, this facility stocked 2,700 items, or half of the usual complement, which were sold at the same low prices. Staples Express was designed to appeal to the small business operator in an urban area and was geared to quick trips and impulse buying on lunch hours and after work. Customer purchases were typically small, being no bigger than what a person could carry.

The unveiling of this prototype was part of the companys strategy was to dominate the office supplies market through three distribution channels: the suburban superstore, the urban ministore, and phone-in direct delivery service. Also in 1990 Staples began to buy its products overseas. To conduct international buying the company formed a subsidiary called Total Global Sourcing, Inc.

By the end of the year, the number of Staples stores had doubled to 74, including nine in California, and the companys sales had nearly reached the $300 million mark. Staples accelerated its California operations the next year when it bought ten Los Angeles stores from defunct superstore operator HQ Office Supplies Warehouse and converted them to Staples stores.

At the same time, Staples entered its first foreign venture, investing in Business Depot, Limited, a new Canadian office superstore. In the United States, Staples celebrated the opening of its 100th store, an outlet on Long Island in New York. By the end of the year, sales had risen 83 percent to reach $547 million, and earnings grew by 117 percent.

In June of 1992 Staples expanded into another region of the U.S. with the purchase of Office Mart Holdings Corporation for $3.1 million. This company owned ten WORKplace stores in Florida. Staples had now moved into direct competition with its biggest rival, Florida-based Office Depot.

That year Staples made additional progress in its campaign to expand overseas. The company bought a 48 percent interest in MAXI-Papier, operators of five office superstores in cities around Germany. Staples also signed a partnership agreement with Kingfisher plc to open office superstores in the United Kingdom. Sales at the end of 1992 reached $883 million. In 1993 Staples celebrated the opening of its 200th store, and at that time the company announced plans for an additional 130 store openings over the next two years.

This ambitious schedule was set despite fluctuations in the price of Stapless stock. Wall Street had lost confidence in the company in early 1993 after its two largest rivals embarked upon a rapid string of acquisitions, while Staples demonstrated difficulty rolling out a new line of personal computer products. To redress these problems, Staples pared down the number of machines and software programs it offered, to create a more manageable department. In addition, the company began to make a number of acquisitions of its own. Staples arranged to buy out its Canadian partner in the Business Depot for $32 million in early 1994. The company also signed agreements to buy two contract stationers: New Jersey-based National Office Supply Company, Inc., which cost $99 million, and Spectrum Office Products, of New York. The former company boasted a nationwide distribution system.

In April of 1994 Staples bought seven former Office America stores based in Virginia and began to convert them to Staples outlets. In July, the company announced that it would buy D.A. Maclsaac, Inc., a regional contract office supplier. These moves were all designed to increase Stapless size and penetration of the office supplies business as the company moved into the late 1990s. Although its market had become more competitive than ever, Staples appeared to be well-situated to continue its strong growth in the future.

Principal Subsidiaries:

Office Mart Holdings Corporation; Total Global Sourcing, Inc.

Further Reading:

Charm, Robert E., Thomas G. Stemberg of Staples, Inc., New England Business, May 2, 1988.

Galanie, Mary Ann, Staples Plans to Open Four Stores Here, Los Angeles Times, December 12, 1989.

McConville, James A., Staples Targets Urban Niche, HFDThe Weekly Home Furnishings Newspaper, October 22, 1990.

, Fla. Retail Showdown Looms, HFDThe Weekly Home Furnishings Newspaper, March 9, 1992.

Solomon, Stephen D., Born To Be Big, Inc., June, 1989.

Teitell, Beth, Office Supply Supermarkets: A Future Staple? Boston Business Journal, March 17, 1986.

Elizabeth Rourke

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Staples, Inc.

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.




SOURCES OF INFORMATION

Bibliography

enrico, dottie. "staples nails office images." usa today, 9 june 1997.

hazel, debra. "what's next for retail mergers?" chain store age, 1 august 1997.

rourke, elizabeth. "staples, inc." international directory of company histories, vol. 10. detroit, mi: st. james press, 1995.

"staples merger is officially off." new york times, 3 july 1997.

stemberg, thomas g. staples for success. santa monica, ca: knowledge exchange, 1996.


For an annual report:

write: staples, inc. 1 research dr., westborough, ma 01581


For additional industry research:

investigate companies by their standard industrial classification codes, also known as sics. staples' primary sics are:

5112 stationery & office supplies

5734 computer & software stores

5943 stationery stores

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Staples, Inc.

Staples, Inc.

THAT WAS EASY CAMPAIGN
YEAH, WE'VE GOT THAT CAMPAIGN

500 Staples Drive
Framingham, Massachusetts 01702
USA
Telephone: (508) 253-5000
Web site: www.staples.com

THAT WAS EASY CAMPAIGN

OVERVIEW

In 2002 three retailers, Office Depot, Inc., Staples, Inc., and OfficeMax, Inc., were America's largest office-supply superstores, with Staples trailing closely behind Office Depot, the industry leader. Advertising analysts criticized the trio for not differentiating their brands. Each offered an abundance of office products, furniture, computers, and printing services at competitive prices. All three used humorous ad campaigns during the back-to-school season and targeted small businesses throughout the year. In February 2002 Ron Sargent was appointed as Staples' new chief executive officer. After research revealed that consumers did not want just low prices but also an effortless shopping experience, Sargent had the store layouts changed so that every aisle could be viewed from the main entrance. Printer cartridges were made more accessible. Unpopular items were removed from Staples' inventory to reduce clutter. To herald its more convenient in-store environment, Staples released the "That Was Easy" campaign in 2003.

The $73 million print, online, radio, and television campaign was created by Omnicom's ad agency Martin/Williams of Minneapolis. The first two commercials ran during the CBS program 60 Minutes on March 2, 2003. Both spots exaggerated the frustration some customers experienced at office-supply stores. In one spot, titled "Ink Cartridge Bingo," a frazzled office-supply worker called out printer cartridges as if they were Bingo letter-number combinations. Later spots aired during programs that included the Major League Baseball playoffs, prime-time premieres, Monday Night Football, NFL football games on CBS, and the 2004 Super Bowl. Staples ended its relationship with Martin/Williams in July 2004 but continued using the "That was easy" tagline for later campaigns.

Just days after "That Was Easy" began, Staples posted 2002 fourth-quarter earnings that repositioned Staples as the new industry leader over Office Depot. The campaign's spot "Ink Cartridge Bingo" was awarded Adweek magazine's Best Spot honor in April 2003. The campaign was also credited with boosting sales for Staples' printer cartridges by 14 percent. Additionally, sales for printing services more than doubled during the campaign.

HISTORICAL CONTEXT

Thomas Stemberg was credited with starting the first office-supply superstore, Staples, in 1986 after realizing that small businesses paid too much for office supplies. Before Staples existed, large businesses could buy discounted office supplies in bulk, but smaller businesses purchased their supplies from small, expensive retailers. The average price for one case of copy paper in 1986 was $65. As a result of the emergence of office-supply superstores, 20 years later the price had dropped to $23.

In 1994 Staples awarded its advertising budget to Cliff Freeman and Partners, an ad agency based in New York. The agency's long-running campaign, "Yeah, We've Got That," which promoted the breadth of Staples' merchandise selection, became insignificant after OfficeMax and Office Depot boasted a similar selection. Staples' sales slowed from 2000 to 2001. Not only had the waning economy affected the retailer, but customers were also complaining about the stores' confusing merchandise layouts.

When longtime Staples executive Ron Sargent replaced founder Stemberg as CEO in 2002, employees were already aware of the new CEO's modesty. Even after the promotion, Sargent commuted to work every day in an older Toyota Corolla. Two months later the company's advertising account was reassigned to Martin/Williams. Hoping to take the industry's lead position away from Office Depot, Staples conducted a survey to identify what its own stores were lacking. The survey revealed that the main reason customers chose an office-supply store was not price or selection but in-store convenience.

Staples replaced 700 of its low-end items, such as $9 paper shredders and vegetable-shaped pens, with products more suitable for small businesses. After the survey revealed that convenience outweighed selection in the minds of consumers, newer Staples outlets were opened with less space and fewer items. The aisles were repositioned so that customers could view the entire store from the entrance. In early 2003 Martin/Williams developed the tagline "That was easy" to herald the new store format.

TARGET MARKET

Prior to the "That Was Easy" campaign, marketing analysts criticized Staples for catering to the "casual customer" with cheap, eccentric items such as glitter markers and glow-in-the-dark magnets. "Casual customers" were infrequent buyers who added little to Staples' bottom line. After the 2002 Staples survey revealed that small businesses spending at least $500 annually on office supplies accounted for 90 percent of Staple's profits, Martin/Williams created "That Was Easy" to target small business customers. The survey also revealed that price was not the main impetus behind what office-supply stores small businesses chose; customers simply expected Staples, OfficeMax, and Office Depot to offer the same low prices. In a 2002 earnings conference call Sargent explained the needs of small businesses to investors. "… [W]e asked the customer[s] what they thought and what they needed. What we found out … is that customers wanted us to be in stock," he said. "They wanted to us have helpful associates. They wanted to us have quick checkout. If they had a problem, they wanted it fixed easily."

One of the campaign's first commercials, "Ink Cartridge Bingo," showed small-business customers waiting impatiently for printer cartridges. The spot was derived from customer feedback. "Based on customer research, 84 percent of small businesses surveyed said a critical aspect of shopping for office products is having the toner or ink cartridge they need in stock," Shira Goodman, executive vice president of marketing at Staples, said in a Business Wire press release.

In August 2003 and again in July 2004, the campaign's target market was expanded to include the parents of children returning to school. One humorous spot featured a father interacting with a cardboard cutout of his wife at his daughter's soccer game. The mother's absence was attributed to her having to wade through school supplies at a non-Staples office-supply store. Goodman explained in the press release, "Our customers have told us they are time starved. We've responded this back-to-school season by making it easy for them to get the supplies they need quickly."

COMPETITION

OfficeMax's successful "What's Your Thing?" campaign, which began in December 2003 with a 60-second commercial sharing the campaign's title, featured a lively character called Rubberband Man delivering office supplies inside an office building. In the spot the Afro-sporting character danced to the 1970s Spinners hit "Rubberband Man" while tossing office supplies to employees and pushing an OfficeMax cart. The spot proved so successful that it was parodied on NBC's The Tonight Show and was even nominated for a 2004 Emmy within the "Outstanding Commercial" category. Omnicom Group's ad agency DDB Chicago created the campaign with an annual budget of $49 million, helping OfficeMax remain third-largest in the office-supply industry. OfficeMax posted $4.7 billion in sales for 2003. In comparison, Staples posted $11.6 billion in sales that year.

The campaign initially targeted businesses, but after the Rubberband Man character, played by Eddie Steeples, resonated so well with other demographics, further spots promoted back-to-school supplies. "The first 'Rubberband Man' ad established OfficeMax as the best source for business office supplies. These new spots show that OfficeMax is the best place to go for back-to-school shopping because we have a large selection year-round," Dave Goudge, executive vice president of marketing at OfficeMax, said in a PR Newswire press release. "The 'Rubberband Man' appeals to kids, teens, college students and parents, giving us a perfect opportunity to make our point in a highly memorable way."

MARKETING STRATEGY

The $73 million Staples campaign's first two commercials aired during the CBS program 60 Minutes on March 2, 2003. Both spots depicted customers who were frustrated with non-Staples office-supply stores. "Our new work for Staples takes an experience that every small business person can relate to and exaggerates it," John Karlson, senior vice president of strategic development for Martin/Williams, said in a Business Wire press release. "It's humorous and memorable, and it differentiates Staples as a brand that makes life easier, saves time, and delivers products consumers need and trust."

One of the first commercials, "Meeting Paper Shuffle," touted Staple's improved three-step printing and photocopying service. The spot began with a business presentation that suddenly went awry due to grossly misprinted handouts. "Before we start, if everyone could move page 15 up two pages," one executive apologetically said. "And if your page 5 in the deck is fuzzy, just pass it down." The camera revealed page 8 to be a misplaced invitation to a luau. "Page 8 … just remove it," the executive said. The commercials' voice-over explained, "Unprofessional documents lead to messy meetings. But at Staples, you'll get professional copying and printing."

The campaign's commercials dropped Staples' previous closer, in which a stapler stapled around the corporate logo. Instead Martin/Williams ended "That Was Easy" spots with images pertinent to the service advertised. "Meeting Paper Shuffle" concluded with the Staples logo being scanned inside a photocopier. The campaign's other debut spot, "Ink Cartridge Bingo," which promoted Staples' commitment to a wide selection of printer cartridges, ended with the Staples logo emerging from a printer.

The campaign suggested that Staples did not offer just office supplies but also competent service and advice. "Our new tagline, 'Staples. That was easy' goes far beyond an advertising campaign," Goodman said in the Business Wire. "It represents a fundamental shift in our approach to selling office products. It is evolving the Staples brand and guiding every business decision that takes place at the company."

NOT THAT EASY

One month after the office-supply chain Staples released its "That Was Easy" campaign in 2003, the Idaho-based office-supply company Boise Cascade filed a lawsuit against Staples. Executives at Boise Cascade claimed that Staples was unfairly capitalizing on its older slogan, "Boise. It couldn't be easier."

In August 2003 Staples modified the display of its school supplies much as it had done its office products. "Grab and Go" bins with essential school supplies were placed near the stores' entrances. Each store was stocked with ample amounts of filler paper, pencils, and folders to ensure that parents could get everything they needed in one trip. One back-to-school commercial featured a father interacting with a cutout version of his wife at their daughter's soccer game. It ended with the tagline "Back to school shopping at Staples. That was easy." The spot implied that, by shopping for school supplies at Staples, parents could spend more time with their children.

In 2004 Staples also spent $2.25 million to air its first Super Bowl spot. The commercial featured a mean-spirited distributor of office-supplies making his employees provide him candy before he would issue supplies. The commercial concluded with the modified tagline "Staples. That was easy," and targeted a broader audience of consumers that did not typically watch television.

OUTCOME

In July 2004 Staples ended its relationship with Martin/ Williams, citing "creative differences," and instead awarded its advertising account to McCann-Erickson New York. The new agency continued using "That was easy" as a tagline but introduced the "Easy Button" campaign, which referred to a device that solved life's problem in the same way that Staples solved office-supply problems. Despite the fact that the Martin/Williams campaign had lasted for only two years, it helped Staples outpace Office Depot from late 2002 to 2004. Adweek magazine named the commercial "Ink Cartridge Bingo" a Best Spot of April 2003, commenting, "It's a clever way to promote a dull and frustrating product." Sales of Staples' printer cartridges increased by 14 percent during the breadth of the campaign, and the company's printing-services business more than doubled.

Advertising critics and Staples executives, including Staples' CEO Ron Sargent, initially praised Martin/ Williams for reflecting in-store changes so succinctly in the campaign's message. The tagline "That was easy," however, was soon criticized. In late 2003 the Dow Jones News Service released results from a survey that determined which corporate slogans were most recognized by the American public. Out of the survey's 1,021 respondents, not one correctly identified Staples with "That was easy." Nonetheless, Staples executives considered the slogan worthwhile and continued using it after parting with Martin/Williams.

A PAPER CLIP IS A PAPER CLIP

Competitive pricing between America's largest office-supply chains, Staples, OfficeMax, and Office Depot, was credited with lowering the nationwide cost of office supplies. Kurt Barnard, president of Barnard's Retail Consulting Group, explained to the Providence Journal Bulletin that the stores did this by treating office supplies as commodities. "A paper clip is a paper clip is a paper clip is a paper clip," Bernard said. "It doesn't matter where you buy it. It doesn't come with aroma. It doesn't come in flavors. It's like selling pork bellies."

FURTHER READING

Adams, Steve. "Easy Does It: Staples Sued over Phrase." Quincy (MA) Patriot Ledger, April 16, 2003, p. 36.

Arndorfer, James B. "Stretching into an Icon." Advertising Age, May 31, 2004, p. 3.

Bulik, Beth Snyder. "Martin/Williams 'Easy' Approach to Ads Pays Off." B to B, March 8, 2004, p. 28.

Cardona, Mercedes M. "Staples' Holiday Wish List: Humor." Advertising Age, July 19, 2004, p. 8.

Conklin, Melanie. "Pressing People's Buttons." Madison (WI) Capital Times/Wisconsin State Journal, November 20, 2005, p. A2.

Deutsch, Claudia H. "Big Office Supply Retailers Try to Build a Smaller Box." New York Times, August 12, 2004, p. 1.

Eckelbecker, Lisa. "Staples Is Now World Leader." Worcester (MA) Telegram & Gazette, March 6, 2003, p. E1.

Elliott, Stuart. "ING Retires Fresh Thinking to Focus on the Simpler Life." New York Times, January 12, 2006, p. 4.

―――――――. "Staples Is Changing Its Slogan to Stress the Ease of Shopping for Office Supplies in Its Stores." New York Times, February 27, 2003, p. 6.

―――――――. "Staples Plans to Replace Martin/Williams." New York Times, May 3, 2004, p. 8.

Gatlin, Greg. "Staples Rethinks, then Resurges." Boston Herald, April 24, 2003, p. H13.

Hanrahan, Tim. "When Worlds Collide." Wall Street Journal, April 28, 2003, p. R1.

Lee, Thomas. "It's An Ad, Ad, Ad, Ad World." St. Louis Post-Dispatch, January 26, 2004, p. A1.

Randy, Ray. "Is It Mainly Because of the Tag Line?" Toronto (Ontario) Globe and Mail, November 7, 2003, p. B11.

Vranica, Suzanne. "The Advertising Report: 'RubberBand Man' Breathes New Life into OfficeMax." Wall Street Journal, August 11, 2004, p. B5.

Williams, Helaine R. "Let's Talk Wanted: Big Button to Make Life Easier." Arkansas Democrat-Gazette, October 16, 2005, p. 61.

                                            Kevin Teague

YEAH, WE'VE GOT THAT CAMPAIGN

OVERVIEW

Staples, Inc., was one of three office-supply-superstore chains to emerge in the 1980s, each vying to differentiate itself from the others. In 1994 Staples launched its first full-fledged television campaign, airing a pair of 30-second spots produced by its new ad agency, Cliff Freeman & Partners, New York. Targeting people who worked at home, the spots used the tagline "Yeah, We've Got That," a phrase that expressed the breadth of products a Staples superstore had to offer. In 1997 Staples would use the tagline as an anchor for a national campaign.

The "Yeah, We've Got That" campaign targeted small-business owners but also hoped to appeal to general consumers, such as parents shopping for school supplies. While the campaign included radio spots, it was primarily a television campaign. The humorous TV spots attempted to use real-life situations to appeal to their audience. Perhaps the most popular of all the commercials was the back-to-school spot that featured upbeat parents, dour children, and the song "It's the Most Wonderful Time of the Year" playing in the background.

The "Yeah, We've Got That" campaign ran for eight years. It won several advertising awards and played a major role in driving Staples' sales beyond the $10 billion mark. A change in management and a desire to reposition the brand led to the departure of Cliff Freeman and the introduction of a fresh marketing campaign in 2002.

HISTORICAL CONTEXT

Staples was the original office-supply superstore in the United States. It opened its first store in 1986 and grew rapidly, by the end of 1996 operating about 600 stores throughout the United States and Canada. It also had 40 stores in the United Kingdom and 16 in Germany. Depending on the location and the services they offered, the North American stores were called Staples, Staples Express, Business Depot, or Bureau En Gros. In 1997 Staples had the second-largest market share in the United States, behind Office Depot but ahead of OfficeMax, and was the largest operator of office superstores in the world.

Staples filled a market need by providing office supplies, furniture, computer hardware and software, and related items for small businesses at the same substantial discounts previously available only to large corporations. In addition, it offered Staples Direct delivery service, a mail-order business, and contract stationer operations called Staples Business Advantage and Staples National Advantage, which mainly served large companies.

TARGET MARKET

Most people who shopped at Staples fell into one of three categories. The company's primary customers were from 27 to 54 years old and owned small businesses, with many having home offices. Staples estimated that it had 3.5 million customers in this category. "We mostly target the small-business customer, because that's really what Staples is all about. We're sort of the champion of the small-business person," said Dwight Garland, vice president of retail advertising. Staples calculated that small businesses were growing at four times the rate of large businesses and that half the households in the United States would have home offices by the year 2000. Other people shopped at Staples for items such as school supplies for their children. These customers created a strong seasonal market for certain products. In addition, the company's contract and commercial division served large regional and national businesses. These three categories left ample room for growth in the office-supply business. The company noted in its annual report that the U.S. office-products market was estimated at $205 billion and was increasing by 10 percent each year.

HUMOR SELLS

Cliff Freeman & Partners, the ad agency that developed the "Yeah, We've Got That" campaign for Staples, was known for its use of offbeat humor. The agency had done a campaign for the Little Caesar pizza chain in which a cartoon Caesar cheerfully said, "Pizza! Pizza!" According to a survey by the Wall Street Journal, that campaign was the best remembered and most popular in the United States in 1992. The agency also created a well-known campaign for Wendy's in which a woman examining a competitor's hamburger demanded, "Where's the beef?" In addition, the agency developed the "Sometimes You Feel like a Nut, Sometimes You Don't" campaign for Mounds and Almond Joy candy bars and the "Get the Sensation" campaign for York peppermint patties. The agency's chairman and chief creative officer, Cliff Freeman, had won 22 Clio Awards for excellence in advertising, including three awards for the best campaign of the year.

The primary target of the "Yeah, We've Got That" campaign was small businesses and individual consumers. "The idea is to engage these targeted customers by touching on real-life situations," Garland explained. The commercials conveyed the message that Staples understood its customers, and the use of gentle humor worked to create a friendly, helpful image for the company. The stores offered a wide variety of products to help customers organize and streamline their businesses and work, and the prices were typically lower than those of most competitors, an important selling point for owners of small enterprises. Some Staples locations also featured Federal Express shipping stations, photocopy centers with printing capabilities, and bindery equipment, thus providing one-stop convenience. "It comes back to the mission of finding ways to cut the prices and hassles for our customers," said Garland.

COMPETITION

According to Time magazine, when the "Yeah, We've Got That" campaign began, Office Depot was the number one office-supply superstore in North America, with about 6 percent of the market, and OfficeMax was third, with about 3 percent. Staples was second, with 4 percent of the $92 billion retail market and 2 percent of the $63 billion contract and commercial market. There also were numerous independent office-supply stores and retail outlets that sold computers and other office machines. In addition, large chains such as Wal-Mart sold office supplies, business machines, furniture, and related products.

During 1997 Office Depot ran a marketing campaign that featured the popular comic-strip character Dilbert, known for his wry observations on the absurdities of office life. The tagline was "Business Is Crazy, but Office Depot Makes Sense." USA Today's Ad Track found that the ads were slightly less popular than the average campaign surveyed, with 7 percent of women and 14 percent of men saying that they disliked the commercials. Office Depot maintained that its research indicated that the Dilbert commercials were popular with its target market and that they had increased brand awareness for the company. Nevertheless, in 1999 it shelved Dilbert, concluding that the popular cartoon character overshadowed the brand and did not produce the desired results.

OfficeMax was founded later than Staples and Office Depot, but it enjoyed a strong run in the first half of the 1990s. Although by 1995 it ranked second behind Office Depot, it was soon eclipsed by Staples and relegated to the number three position in the office-superstore category. Not until the first decade of the new millennium did OfficeMax begin to develop its own brand identity, aided in large part by the creation of its Rubberband Man character, who served to anchor its marketing efforts.

MARKETING STRATEGY

With its "Yeah, We've Got That" campaign, Staples focused on customers who owned small businesses. During 1997 the commercials placed new emphasis on the fact that Staples offered low prices as part of its basic mission. Since the campaign's inception in 1994, there had been slight variations in the message and target audience for some of the advertisements, but the general concept had remained the same. Garland explained that the commercials were developed with a clear goal—to create an image for the company. When customers laughed at an advertisement, they would be apt to make an association with Staples and expect to find a friendly attitude there. The slogan "Yeah, We've Got That" at the end of each commercial referred especially to the company's wide selection of merchandise and attention to customer service. "Cliff Freeman came up with that tag line, and we still use it today," Garland said. "We've done research in many markets, and people remember it." The tagline was mentioned at the end of every broadcast spot but was used in only a few print ads, because its effectiveness depended to a large extent on voice inflection and facial expression. Garland said that customers also tended to comment on the sequence at the end of the commercials, in which a "kchink, kchink, kchink" sound accompanied the visual of a stapler spelling out "Staples."

The company's broader marketing plan included circulars, direct mailings, catalogs sent to customers, and other promotions in print media, but the "Yeah, We've Got That" campaign was developed for television. In addition, a few of the spots with the most focused messages were broadcast via radio. The promotions in print media gave details about the company's products, services, and prices. In contrast, the television commercials were intended to make the public aware of Staples in general. "TV is the best vehicle to generate awareness, and awareness is a key component of growth," Garland noted. The television commercials supported the print promotions by calling attention to various aspects of Staples. For example, the Staples mail-order catalog figured prominently in the "Intern" spot.

There had been about 40 spots in the campaign since 1994, and a quarter of them ran in 1997, the first year the commercials were seen on national network television. Some spots in the campaign targeted a broad audience, while others, such as "Intern," were aimed at a narrower market. In the "Intern" spot an ambitious office administrator asked a young woman what she was doing. She held up a Staples catalog and explained, "A cost analysis. I think we're spending too much on office supplies." He sent her to polish a refrigerator while he hurried to show the catalog to his boss and underhandedly take credit for the intern's work. As the two men walked past the intern, the boss said, "Oh, I see you've met my daughter." At the end of the commercial appeared the campaign's tagline, "Yeah, We've Got That." Of the 122 advertisements featured in USA Today's Ad Track consumer polls in 1997, the "Intern" spot scored among the most popular.

The first spot developed for the back-to-school season won a Clio Award and was so popular that the company subsequently ran it at the end of every summer. It featured a father, son, and daughter shopping for school supplies at Staples while "It's the Most Wonderful Time of the Year" played in the background. Although the song actually referred to Christmas, the sentiment reflected the father's elation at seeing his children going back to school. The children, however, were glum because their summer vacation was ending. "It touches an emotion everybody feels," said Garland. "This spot really strikes a chord." He added that the commercial was so popular that customers frequently called Staples at other times of the year to find out when it would be aired again. Even as new back-to-school spots were created for the campaign later in the 1990s, Staples continued to mix in this perennially popular commercial.

Later in the "Yeah, We've Got That" campaign, Staples targeted entrepreneurs with a television spot that featured a businessman standing on a mountain peak. A voice-over declared, "There is a new breed of business-person who had decided to go it alone." The man then threw his briefcase, tie, jacket, and shoes into the valley below before stepping into an SUV stuffed with Staples office supplies and driving away. Next, a hiker with a shoe imprint on his forehead was shown. "What hit me?" he asked a friend, who replied, "Wingtip." As usual, the spot concluded with the "Yeah, We've Got That" tagline.

OUTCOME

In addition to the Clio and EFFIE awards, over the years the Staples commercials won numerous other advertising honors, including several ADDYs, an ANDY, and a Mercury Award for a radio spot. The "Yeah, We've Got That" campaign was among the five most popular surveyed by USA Today's Ad Track from June 1996 to June 1997. In another USA Today survey in December 1997, the campaign's "Intern" spot received an effectiveness score of 32 percent and a popularity score of 37 percent, the highest of the 122 advertisements studied that year. Only 7 percent of respondents said that they disliked the ads. Almost 45 percent of respondents 30 to 49 years old and 33 percent of respondents 18 to 29 said that they "liked the ads a lot." The campaign was most popular with women, with 35 percent giving it high scores for effectiveness, compared to 28 percent of the men surveyed. "It's been a very successful campaign. On the whole, it's run very smoothly. We know people like the work, because we do a great deal of research," said Garland.

While the "Yeah, We've Got That" campaign drove sales, Staples continued to trail Office Depot. In 2001 Office Depot generated $11 billion in sales, compared to $10.7 billion for Staples. Believing that "Yeah, We've Got That" had run its course, Staples, which had also undergone a change in management, put its advertising account up for review with the intent of repositioning the brand. Cliff Freeman & Partners was invited to defend but chose not to participate in the process. The Minneapolis ad agency Martin/Williams won the business in 2002, and that year it released the first Staples campaign in eight years that did not rely on the "Yeah, We've Got That" tagline.

FURTHER READING

Baar, Aaron. "Staples Issues 'Apologies' in New TV Campaign." Adweek (New England ed.), October 7, 2002, p. 3.

Baumohl, Bernard, John Greenwald, Joseph R. Szczesny, and Adam Zagorin. "March of the Superstores." Time, September 16, 1996.

"The Best Awards: Family Affair Highlights Humor Ploy for Staples." Advertising Age, May 27, 1996.

Brown, Ed. "Why the FTC Needs to Chill." Fortune, April 14, 1997.

Enrico, Dottie. "Staples Nails Office Images." USA Today, June 9, 1997.

Garfield, Bob. "Ad Review: Office Depot." Advertising Age, August 19, 1996.

"How the Ad Track Ads of 1997 Stack Up." USA Today, December 29, 1997.

Sampey, Kathleen, and Ann M. Mack. "Staples Shifts Gears." Adweek (western ed.), April 15, 2002, p. 4.

Taylor, Cathy. "For Office Homebodies: Staples TV Spots Target At-Home Workers." Adweek (eastern ed.), April 11, 1994, p. 4.

                                           Susan Risland

                                               Ed Dinger

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