Office supplies seller Staples, Inc. is in the “early innings of a dynamic and pronounced strategic repositioning,” which includes raising its stakes by doubling down on Staples Business Advantage to win mid-market business customers in North America, Interim CEO Shira Goodman said Wednesday during the company’s second-quarter earnings call.
During the call, Goodman said Staples defines mid-market as business customers with 10 to 200 employees.
Goodman said Staples competes for B2B sales against a very broad competitive set, including everything from dealers, to Office Depot, to online players such as Amazon, to warehouse clubs. Goodman said Staples’ antes are deep assortment, competitive pricing and reliable and flexible delivery and that enables it to compete against a broad set of competitors.
Since she replaced CEO Ron Sargent on an interim basis June 15, Goodman said her top priority has been to position Staples for sustainable, long-term sales and earnings growth. Goodman says Staples has been doing that via its Staples 20/20 strategy, which was announced in May after a federal court judge ruled in favor of the Federal Trade Commission’s decision to block Staples’ proposed merger with Office Depot.
“I’m confident that our future is bright and the reason I’m so confident is because our strengths so far outnumber our challenges,” Goodman said. “And over the coming year, as we execute 20/20, we will dramatically change the profile of our company.”
Goodman said the strategy includes a dramatic change in Staples’ mindset and operating model, and has three other critical strategic priorities: preserving profitability in North American stores, taking aggressive action to further reduce costs and drive efficiency across the organization, and narrowing its geographic focus to North America by exploring strategic alternatives for its European operations.
The Staples 20/20 strategy includes moving from a product focus to a customer focus, moving from a retail culture to a delivery culture., evolving from a high/low pricing strategy to more everyday value pricing, and transitioning from a products company to a products and services company, Goodman said.
“More than 95% of our sales will come from North America,” Goodman said. “More than 80% of our sales will be delivered and more than 60% of our sales will come from categories beyond office supplies.”
Goodman said Staples has closed stores that traditionally lost money, and what is left in its portfolio is stores that are primarily cash flow positive. So with close to 750 leases coming up over the next three years, it gives Staples a degree of flexibility to assess the store network.
“And to what extent do we continue to focus and invest in [stores] and to what extent do we even put more focus on our delivery business,” Goodman said.
Goodman said Staples has a differentiated approach to serving mid-market customers where technology and innovation are at the core of its offering. The approach combines the personal touch of its salesforce with digital selling tools and robust data on customer behavior and preferences.
“These customers are often large enough that they have sophisticated needs, but too small to have the expertise or resources for all of their needs in-house,” Goodman said.
Historically, Goodman said Staples’ key differentiators in the mid-market have been deep assortment, very competitive pricing and fast delivery. However, those differentiators have become “table stakes,” and Goodman said Staples needs to do more to win.
Staples’ second-quarter mid-market sales grew in the mid-single digits vs. last year, and Goodman said this was fueled by double-digit growth in categories beyond office supplies, as well as strong customer acquisition. Staples has also enhanced its digital marketing and sales support capabilities and by doing so, are shortening the customer acquisition process and can significantly reduce the cost of acquisition, Goodman said.
“We’re accelerating our mid-market growth by leveraging our expertise and evolving our approach to customer acquisition,” Goodman said. “Now we’re not only modifying how we acquire customers, but we’re also enhancing what we offer them.”
Goodman said a growing percentage of Staples’ mid-market customers are taking advantage of its membership programs, which provide customized discounts and differentiated levels of service. Goodman said the results are very encouraging, and that Staples is seeing increased spend and loyalty from tens of thousands of businesses who have signed up for our membership program so far.
Additionally, Staples is planning to use mergers and acquisition as a growth catalyst. Goodman said Staples has restarted its process of pursuing acquisitions to accelerate its mid-market strategy, and is actively managing a “strong pipeline” of opportunities.
Goodman said Staples also plans to double its mid-market salesforce over the next few years and year to date have already added over 100 mid-market sales reps bringing our total to about 1,300 of mid-market sales headcount.