A year ago, amid ongoing challenges—steady declines in comparable-store sales on the retail side and declining sales of core products like computers and paper—Staples agreed to be sold to the private equity firm Sycamore Partners.
The transaction, which took place in June 2017, was dubbed by Bloomberg as a $6.9 billion wager that Staples can once again thrive. The perceived potential of Staples’ B2B (business-to-business) unit is a primary reason that Sycamore acquired the company.
How has new ownership affected Staples’ corporate accounts or potential new business accounts? We have found that Staples has become less flexible in their pricing structure and service adjustments. In the past, the company was more willing to negotiate pricing options. As for service, if a client made a request such as a morning delivery, Staples would routinely accommodate it. Now they say they will try, but special requests are not always fulfilled.
The biggest changes we have witnessed are more strategic, involving two areas: acquisitions and expansion beyond office supplies.
Midsized office supply dealer acquisitions
With Sycamore’s intention of building out its B2B operations, Staples has been actively buying medium-sized, private office supply dealers in 2018. In June, Staples announced its acquisition of HiTouch, gaining a network of forty sales offices and distribution centers across 25 states. HiTouch sells a full range of office products, including office and break room supplies, equipment, furniture, promotional products, printing and forms for every workplace environment.
HiTouch will become part of the Staples Business Advantage delivery program. Its e-commerce platform will exist independently, but with the status of being a Staples-affiliated distributor. Staples bills its Business Advantage program as a total solution for small and midsized businesses (SMBs) across a wide range of industries, including healthcare, banking and finance, education and retail. If offers enterprise-like benefits to smaller organizations, like a wide assortment of products, simplified invoicing and savings on supplies purchased from one source. Industry observers have seen Business Advantage as one of the few positive notes of the Staples brand.
Also over the summer, Staples acquired another business product supplier and its regional distribution network, Texas-based CPI One Point.
More recently in September, Staples made a bid for Essendant, a Chicago-area distributor of over two million products extending beyond standard office supplies and equipment to industrial supplies and tools and products for automotive repair and body shops. The bid is pending shareholder approval, though the latest update from global business supply industry resource OPI is that four leading independent dealer organizations in the US have joined forces to voice their concerns to the Federal Trade Commission (FTC) regarding the acquisition. TriMega, Independent Stationers (IS), AOPD and NOPA have joined forces, hiring an anti-trust law firm in order to detail specific arguments against the acquisition and provide guidance on conditions that should be imposed if the transaction is not blocked outright.
Essendant is one of only two wholesalers selling to other office-supply dealers. If the deal is approved, small and midsized dealers will likely be concerned about the potential of rising prices and diminished service from remaining office supply wholesaler S.P. Richards Company out of Smyrna, Georgia.
Prior to the Sycamore acquisition, Staples had reported its North American annual sales at $10.1 billion. With Essendant, Staple would strengthen its position in B2B sales by gaining an additional $5 billion in sales and a network of distribution centers, enabling overnight shipment of most products to over 90% of locations around the United States.
Repurposing retail space and reaching new markets with co-working
Staples had developed a partnership with Massachusetts co-working company Workbar in 2016. This move placed Staples ahead of the curve in transitioning its brick and mortar locations to other uses. Co-working is shared workspace and conference rooms, with wireless internet, printing and other services provided. It gives people and teams a professional work setting without the expense and constraints of traditional office leases.
Staples saw Workbar as an effective way to respond to declining foot traffic in their retail stores by giving them a way to utilize excess space. And, since co-working is marketed to gig-economy freelancers, startups and small businesses, it also gives Staples a conduit for selling office supplies and other services to this splintered but growing market segment.The U.S. market for coworking space is forecast to double in numbers between 2017 and 2022, reaching over 1 million, according to a study by Emergent Research.
These recent acquisitions will strengthen Staples’ positioning in B2B markets, while the company’s foray into coworking could prove successful in repurposing underperforming and excess retail space. As the two largest players, Staples and rival Office Depot are best-positioned to compete, as they account for most of the sales in a highly concentrated US market for office products.
Meanwhile, I’ll do another update next year to see how this bet works out for Sycamore Partners and for business buyers of office products.