Staples CEO Sees Office Supply Consolidation To 'Two Or Less'
June 03 2011 - 10:12AM
Dow Jones News
The head of Staples Inc. (SPLS) said the weak office-supply
sector will ultimately consolidate, as the three large chains
become "two or less," and he called troubled smaller rivals Office
Depot Inc. (ODP) and OfficeMax Inc. (OMX) a "natural pairing."
Ron Sargent, Staples chairman and chief executive, also lamented
that its nearly 1,600 U.S. stores can't sell Apple Inc.'s (AAPL)
popular products because Apple won't sell them to Staples. Apple
products are sold at Staples stores in Canada and elsewhere
internationally, where Apple has the need for Staples' distribution
channel, and the executive expressed hope its U.S. stores would one
day sell the iPad and other Apple wares.
Office Depot and OfficeMax would have an easier time securing
approval for a merger from the Federal Trade Commission than would
Staples if it tried to buy one of those two outfits, Sargent said
Friday morning at a Sanford C. Bernstein conference. The FTC is
often reticent to approve mergers that turn three rivals into two,
on the grounds that consumers would be harmed, but Sargent said
players like W.B. Mason, Amazon.com Inc. (AMZN) and others make the
sector much more competitive than just the three chains.
Sargent acknowledged the seeming glut of office-supply stores in
the U.S., but said there are still a handful of markets where
Staples has no presence and wants to enter. Combined, the three
chains have over 3,600 stores in the U.S.
Staples has hundreds of leases coming up for renewal in the
coming years, and Sargent said it would be aggressive in either
securing lower rents or moving larger stores to smaller locations,
as its larger stores typically have several thousand square feet
more than is optimal. As it opens stores selectively in new
markets, it will also close stores in markets where it has too
many.
For example, Sargent pointed to Augusta, Maine, which has two
Staples, the result of a move to block the entry into the market of
OfficeMax. He indicated that the two stores do more business than
just one, but suggested that two is too many and one will be
closed.
Office suppliers have struggled as consumers and businesses rein
in spending and governments cut budgets. The already slim margins
have been compressed by price cutting, a war many say can't be won
by Office Depot or OfficeMax against bigger and better operator
Staples.
Staples shares plunged last month, and roiled its competitors,
by reporting disappointing fiscal-first-quarter result and lowering
its forecast for the year. Office Depot and OfficeMax have
struggled mightily, with Office Depot posting 13 consecutive
quarters of year-over-year sales declines and OfficeMax reporting a
similar slide in 13 of the past 14 quarters, with the one positive
quarter showing only the slightest of gains.
Shares of Staples were off fractionally at $16.31, while Office
Depot and OfficeMax were down 2.0% and 1.5%, respectively, in
Friday morning trading. Staples is down 28.5% since the beginning
of the year, while Office Depot has fallen 26.3% and OfficeMax has
plunged 58.7% in that time.
-By Maxwell Murphy, Dow Jones Newswires; 212-416-2171;
maxwell.murphy@dowjones.com
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