BETA
This is a BETA experience. You may opt-out by clicking here

More From Forbes

Edit Story

Does Staples Rebranding Foretell The Fall Of Another Retailer To Private Equity?

Following
This article is more than 4 years old.

Staples Press Release

Staples announced a major rebranding effort which was accompanied by flurry of snazzy new product offerings and the customary PR push. At front and center was a handsome new logo featuring a highly stylized staple, which (not accidentally) could also be construed as a table. The promotion declares "It's not just copy paper, it's not just a chair, it's a comfortable, happier and more productive colleague." At the same time a new brand watchword emerged, that of “Worklife"  This is a gesture to anti-commoditization; a moving from away from pushing “product” and toward creating “solutions”, a higher-level calling.

Immediately my store designer alter ego began calculating the cost of applying this tasty new logo to new signage across the estimated 1,200 stores in North America, along with the package redesign of the tens of thousands of private label SKUs that fill their stores. Two things resulted. First, my calculator couldn’t produce numbers that large, and second, my healthy skepticism (or cynicism) caused me to come to a full stop. Let’s rewind the tape.

Sanford Stein

Context Please

In attempting to contextualize the Staples news, I did a memory refresh back to when an antitrust action prevented the merger of Staple and Office Depot several years back. A move that would have resulted in trimming back the significantly over-stored sector. Not long after, the private equity group Sycamore Partners made a successful bid of $6.9 billion to purchase Staples, which up to that point had a very manageable $1 billion in dept. Sycamore anted up $1.6 billion and the rest came from debt.

It’s also important to know that at the point of the purchase in 2017, $10.6 billion of Staples sales were delivered, compared with about $6.6 billion being sold in its stores. Business-to-consumer sales had been in contraction mode, while business-to-business was growing. The internet, and more specifically, Amazon had been wearing away at store sales, as well as margins, and the office supply category killers were getting killed; so, they began fortifying their business to business sales. Additionally, they initiated other "business solution" offerings to compensate.

Kantar Retail, eMarketer

Bulking Up on B2B

Digging deeper into the Sycamore deal, it’s noteworthy that immediately after the Staples purchase, they announced plans to break the company into three separately financed entities: U.S. retail, Canadian retail, and corporate-supply businesses, the latter already generating the lion’s share of income. The three groups were to remain under the same corporate umbrella. Sycamore’s structured acquisition of Staples was the strongest indication that it would eventually wind down Staples' weaker retail operations. The dye had been cast, and every subsequent move only served to support the writing on the walls.

In September of 2018 it was announced that Staples' $600 million North American Distribution (the corporate division) would buy Essendant, the largest U.S. wholesale distributor of office, technology, janitorial, and office furniture products, generating $5 billion a year. Initially the deal faced antitrust charges but after some back and forth, an agreement was reached with the FTC, giving the go-ahead. Staples had become the largest vertically integrated reseller of office products in the country.

Exploring a Fix for Over-Storing

It’s fair to say the internet has disproportionately impacted the entire office supply retail business. Overstoring and the shift toward B2B yielded anemic near $200-per-square-foot sales across the category. All the players were closing scores of stores by mid-decade. Besides store closures, the category was searching for other means of store downsizing. Just prior to Sycamore’s 2017 takeover, Staples cut a deal with Workbar, a co-working company, in a move intended to repurpose excess store square footage into complementary, co-working space. Some industry experts noted that while the idea was timely, the store’s predominantly suburban locations and discount feel couldn’t compete with the ambiance and co-tenant profiles of the more successful, urban co-working ventures.

In late February of this year, Staples and Workbar announced a separation, and press accounts indicated that both groups would continue their co-working "offerings." “We look forward to building upon our current platform by integrating coworking into a broader range of small business service offerings, including onsite legal, marketing and human resources consultation, among other features,” said Staples Chief Merchandising Officer Peter Scala.

Staples TheLoop

Decoding the Brand Speak

On April 2, when Staples unveiled its new logo, and brand repositioning, it also announced the creation of a bevy of new co-brands, tied to both product and service offerings. It also introduced TheLoop, a carefully choreographed "digital guide"; the stated purpose was “to inspire creativity and energy throughout the everyday Worklife experience." Again, “brandspeak” for the shift from commodity/product focus to a solution/service-based positioning. The whole initiative was beginning to look like preparation for a “roadshow."

What was missing from the whole kit and caboodle was any reference to the company's stores. Even the sole application of the new logo was on an office building and not on a store. Taken together this is a very clear reinforcement of their B2C to B2B transition. Since the Sycamore takeover 18 months ago, there has been reporting of the retailer’s focus on reducing the companies brick-and-mortar sales from 40% to 20% by 2020, which is likely to be realized.

Seen This Movie Before

Almost simultaneous with the new PR media splash, were murmurs that Sycamore Partners was looking to cash out of Staples altogether, beginning with a $1 billion recapitalization. This would leave the firm with about $600 million in equity, along with a corporate debt load of approximately $5.3 billion. Observers believe a 2020 IPO is in the offing. The recapitalization and IPO would focus on the corporate supply entity,  North American Distribution.

In an IPO scenario, it’s hard to envision that the thousand-plus stores would be a highly valued asset, at least as they currently exist. The more likely scenario is that a lion’s share of stores would disappear. Perhaps a new, considerably smaller prototype evolves, one with a highly edited suite of products and business services offerings. Maybe even a co-working component annexed to it, like their recently launched Canadian Staples Studio. I simply don’t believe there is any scenario where the sexy new logo and brand identity gets emblazoned on a thousand-plus U. S. Staples stores.

Sarjoun Faour via Staples Canada

 

Follow me on TwitterCheck out my website