The planned merger with Office Depot Inc. no longer an option, Staples Inc. is moving ahead with plan B. And key to its future growth are multichannel sales and services across an expanded range of product categories to small and mid-sized businesses—a market it currently underserves, CEO Ron Sargent says.
“Today we have very low market share with mid-market customers and categories beyond office supplies,” Sargent said in a conference call with stock analysts last week, according to a transcript provided by Seeking Alpha. The call followed the release of the company’s fiscal first quarter ended April 30.
But he added: “The needs of those mid-market customers align closely with our strengths. These customers need a wide assortment of products and services, the support of category specialists who have expertise, and easy online shopping as well as quick and reliable delivery. We have expertise in a wide range of products and services. We have world-class supply chain and next-day delivery capability. Our digital expertise provides a differentiated customer experience.”
Staples’ recent financial performance underscores the importance of its business customers, as the company’s sales to businesses have grown faster than sales to consumers. Sargent added that, despite disappointment over its inability to complete the planned merger with Office Depot, Staples is confident it can move ahead as a stronger competitor selling office supplies and other business products and services.
In a tough market for office supplies, amid expanding online competition and a decline in demand for core products like paper, pens and printer ink as business and consumers rely more on electronic communications, Staples eked out a slight increase in domestic online sales. Revenue was up 0.3%, to $2.116 billion in its North American Commercial B2B business unit that handles online orders to larger business customers. Meanwhile, total sales declined 3.0%.
The North American Commercial unit focuses on web sales to businesses with more than 10 employees through its e-commerce sites StaplesAdvantage.com (now also known as Staples Business Advantage) and Quill.com. For business customers with 10 or fewer employees, Staples encourages them to shop on Staples.com, which caters to consumers and small businesses.
The B2B division accounted for more than twice the net income attributed to the retail division, and it was the only business unit to report an increase in net income. North American Commercial’s net income increased 10.4%, as net income attributed to the North American Stores & Online unit fell 17.33%. The company’s only other business unit, International Operations, reported a net loss.
Staples attributed the increase in sales in its B2B division primarily to more sales of promotional products, such as customized signs and brochures, office furniture and supplies like cleaning products, tape dispensers and snack tables used in corporate facilities and breakrooms. It added that such sales helped to offset declines in sales of such traditional office supplies as printer ink, toner and paper.
Staples expects sales of products beyond its core office supplies will help it compete against competitors—including Amazon Business—as it seeks to build market share on its reputation for providing the products business customers need. “I think our differentiation going forward not only against the Amazon Business, but anybody, is we’re able to differentiate this based on expertise that we can provide in the mid-market,” Sargent said. He added that Staples is also considering acquiring companies that specialize in providing business services, but didn’t elaborate.
Staples also reported for the first quarter ended April 30:
Total sales declined 3% to $5.101 billion from $5.262 billion a year earlier;
Net income attributed to the North American Commercial unit, including StaplesAdvantage.com and Quill.com, increased 10.4% $148 million from $134 million;
Sales at the North American Stores & Online unit, including Staples.com and Staples retail stores, decreased 5.2%, to $2.247 billion from $2.372 billion, as net income fell 17.33%, to $62 million from $75 million;
International Operations, reported a 5.6% drop in sales to $738 million from $782 million, and a net loss of $18 million, compared with a year-earlier loss of $20 million.
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