August 23, 2012
An Uncertain Future for the Office Superstore Format
When is the last time you circulated a paper memo around the office? Everything’s done digitally now, right? No, we’re not totally paperless (and may never be) but just imagine what digital communication is doing to the demand for office supplies. Think of legal pads, folders, file cabinets, copiers, fax machines, white boards, paper clips, staples, staplers… Heck, think about offices. Businesses are cutting back all around.
Sure, the big three — Staples, OfficeMax and Office Depot — have tried to fill in the losses with sales of digital devices, but competition in CE is arguably even tougher than in traditional office supplies. The digital revolution is just one trend negatively affecting office superstores. Certainly the economic downturn hasn’t helped. Lots of companies have closed offices, trimmed supplies budgets and/or asked workers to telecommute and deal with the expenses themselves. And then there’s the competition from general big box superstores, Amazon.com and warehouse clubs.
Staples recently reported a 32 percent plunge in second-quarter earnings, according to MarketWatch (and that figure included an unusually high tax refund). A big factor was the hit they took internationally, especially in Europe where the company plans to trim 300 jobs.
Staples used the term "sales trends" in explaining its troubles, suggesting long-term problems, according to David Penn, a Forbes contributor. In addition to the economy, Mr. Penn sees "larger tectonic movements that have been rearranging the retail sector in ways that have, and will likely continue, to work against the Staples, Office Depots, and OfficeMaxs of the world."
"We’re taking a hard look at each of our businesses, and we plan to make significant changes to improve results," said chairman and chief executive Ron Sargent as reported by MarketWatch. "We’re also building a plan to reallocate resources, take advantage of our best growth opportunities, and drive increased cost savings."
Discussion Questions
In today’s crowded, channel-blurred retail marketplace, what continuing role do you see for office superstores? What lessons might they draw from other vertical channel superstores, e.g., pet or home centers?
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In a world where products are increasingly becoming (a) obsolete; (b) commodities; or (c) all of the above, the only real hopes for survival are proprietary products and/or services which, by their nature, copyrights and/or contract terms, competitors cannot offer.
True, office superstores benefit from individual convenience shops (as in I need a printer cartridge NOW!), but that market niche is better serviced through smaller stores, not giant warehouses disguised as retail outlets.
Services, authority, expertise — call it what you want — is a large part of what keeps pet stores and DIY home centers in business. Of course, both those categories are able to leverage the notion of intimacy (you have to live with the paint color or pet choices for a long time) while most purchases in office superstores are inherently obsolete wither because they are perishable — Post-It Notes, legal pads, etc. — or because the products themselves are subject to ongoing evolution and improvement — computers, phones, cameras, etc.
As long as there are offices, people will presumably need some form of office supplies. Where they source them, however, is likely to change radically and in the near term. The challenge is to find ways of adding value on the customers’ — whether that’s an individual or a small to large business’ — terms.
I still like to sit in an office chair before I buy it and talk to someone about the printer I need (admittedly to print a few pages a month). Can you honestly tell the difference between Max and Depot? Seems there is a need for at least one of them to go away.
There is only one differentiator in this space and that is service and knowledgeable associates. The 3 office superstores and others sell the same stuff, so it isn’t uniqueness that draws in customers — it’s the hope that someone is manning the store that can help with the buying decision, whether it be a product or service.
The interesting trend at the Pet stores is the focus on services…boarding of animals, training of animals, grooming, etc. Maybe that trend is worth looking at more deeply in the OOS channel.
The office superstore services — custom letterhead, shipping, etc., are a new draw that is working. Might help to trim back the broad product assortments that eat up so much space.
PetSmart should be the operation to map to for the office stores. The Pet Hotel, boarding, vets on-site, etc., are all the additionals that create PetSmart’s unique market positioning.
These stores have adapted pretty well over the past decade or so (although some, especially Staples, took a more direct path than some of the others). Note investments in B2B e-commerce, new services, changing real estate strategies, and their store product mix.
The bad news is you don’t get a lot of points for history. The pricing and coincident operational pressures will continue. Like a lot of the larger footprint retailers rooted in large quantities of on-hand inventory, the future is likely new real estate models (smaller, non-conventional) with multichannel operating models.
The question is, how fast can they adapt? I agree that there may not be room for all three of today’s leading players.
There will continue to be a role. Matter of fact, we are going to place an order for supplies this afternoon. Sure the numbers are reduced. Sure they have to be made up through other sales channels. Chances are they will never reach the sales numbers from the past. Maybe we are looking at the next retail funnel that will be reducing the size of their footprint.
As long as there will be offices and even home offices, there will still need to be office stores. They just probably won’t need to be so “super” any more. We’ll continue to see them downsize their stores, and we’ll likely see consolidation in the industry.
I don’t think we’ll see the same in other vertical channel superstores. They aren’t under the same pressure from technology and competition as the the office and consumer electronic stores are.
This isn’t an ‘office superstore’ format issue exclusively. It is a global issue that every retailer and business must address. Would you rather be a magazine publisher, a pharmacy, or an office superstore? They’re all going to morph into something different. Or cease to exist like Borders, Blockbuster, etc.
Technology, the economy, and the recalibration of consumer’s values changes everything. Regardless of your business, it’s likely your business model/format is broken, under attack, or antiquated.
Irrelevance is rarely effective or profitable.