Sycamore Partners plans to separate the U.S. and Canadian retail chains of Staples as independent operations, leaving the North American Delivery unit—including StaplesAdvantage.com, Quill.com and Staples.com—the remaining business within Staples.

Staples Inc. will separate from its retail chain and operate primarily as a seller of office supplies and other products to businesses, the company says in a financial statement filed last week in relation to its pending acquisition by investment firm Sycamore Partners.

The remaining business within Staples will consist solely of the North American Delivery business.

Staples says in the 8-K filing with the U.S. Securities and Exchange Commission that its U.S. and Canadian retail businesses—including about 1,230 stores in the U.S. and 300 stores plus the e-commerce site Staples.ca in Canada—will operate as “independently managed and capitalized” Sycamore-affiliated entities once the acquisition is completed as expected by the end of this year.

“The remaining business within Staples will consist solely of the NAD business,” Staples says in the filing. NAD, or North American Delivery, includes the flagship Staples.com, which sells to small businesses and consumers, and StaplesAdvantage.com and Quill.com, which sell to businesses with 10 or more employees. Sycamore has agreed to pay about $6.9 billion for Staples.

Staples.com caters to businesses with fewer than 10 employees through a program it calls Business Rewards Plus, which includes “business-exclusive pricing on thousands of items” and next-day delivery of certain orders valued at more than $25. Staples.com also allows customers to pick up online orders in Staples stores, but a spokesman says it’s too soon to say how such a service would work after the planned separation.

Larger businesses that place orders through Quill.com and StaplesAdvantage.com can get such things as customized pricing and account management services. StaplesAdvantage customers can also opt to pick up some small online orders at Staples stores, but few do, the spokesman says. “We do offer that, but haven’t seen a ton of demand for it,” he says.

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Staples is No. 22 in the B2B E-Commerce 300 and No. 5 in the Internet Retailer Top 500.

Shira Goodman, CEO,
Staples

The plan to separate Staples’ B2B operations from its retail businesses coincides with prior statements the office supplies company has made in the past year. Staples CEO Shira Goodman has referred in recent months to the Staples Business Advantage unit as the “growth engine of our company.” In addition, Staples has been expanding beyond its traditional line of office supplies like paper and ink to include office furniture, janitorial and work-safety supplies, breakroom products, promotional items imprinted with business customers’ logos, and a wider range office technology products and related services.

It has also been calling attention to its B2B focus in other ways as well. Earlier this year, Staples launched an “It’s Pro Time” advertising campaign that focuses exclusively on business customers. In its recent SEC filing, it inserted prominently at the top of the filing document its trademarked “It’s Pro Time” slogan under a red Staples logo.

And in a move to address increasing competition from
Amazon Business and other online sellers of office supplies, Staples in June rolled out same-day delivery to businesses and consumers in Boston, Dallas and New York, and announced plans to include Chicago, Houston, Los Angeles, San Francisco and Seattle by the end of this year.

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In the form 8-K SEC filing last week, Staples broke out pro forma total sales for the NAD unit—slated to become the new Staples following the close of the acquisition—at $10.108 billion for the 52 weeks ended April 29, 2017. NAD also had a gross profit of $2.231 billion and a net loss from continuing operations of $123 million. Contributing to the net loss was $264 million in restructuring charges. A “pro forma” estimate is designed to give a fair projection of what a business will look like after a restructuring.

In comparison, the two retail units planned for separation (referred to as “Carveout Transactions” in the SEC filing) had combined sales of $6.912 billion, a gross profit of $2.179 billion and a net income from continuing operations of $389 million.

Staples also said in the SEC filing that it expects NAD sales for the fiscal second quarter ended July 29, 2017, to be between $2.495 billion and $2.585 billion, down from $2.588 billion for the year-earlier period. It noted that growth at Staples Business Advantage, including sales through contracts and via StaplesAdvantage.com, increased while Quill.com and Staples.com posted “modest” declines. (The year-earlier period includes $150 million in combined sales from Staples.ca, which is slated to become part of the separate Canadian business; and from Staples Print Solutions, a business Staples sold last year.)

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