Staples, as reported on Boston.com, will close 225 stores “as it seeks to trim about $500 million in costs annually by 2015...nearly half of its sales are now generated online, so it will aggressively cut costs to become more efficient”.
Despite the title of this article, we don’t claim to be fortune-tellers. However, as you know from reading KeyPoints, our annual KeyPoint Reports on retail markets, and our daily Retail RoundUp, we are dedicated to research, and we know that our readers and subscribers rely on us to provide detailed market and industry knowledge, as well as practical insights. We’ve made it our business, in these pages, to keep track not only of what is happening with key retailers, but also what might happen. A few of the companies we’ve written about in this regard include Sears, JCPenney, Circuit City, Borders, and others. We’ve seen several of our presentiments borne out - and we’re seeing the same thing happen now. It didn’t take a fortune-teller to foresee the difficulties faced by both Radio Shack and Staples, and their product categories, in today’s environment. We’ve been keeping a wary, weather eye on their relative fortunes, and warning about their possible fates, for quite some time.
In our February/March, 2009 two-part commentary Redefine and Recommit for Recovery, we noted several retailers that were in critical danger unless they somehow transformed themselves: “Only the most, creative, nimble businesses – those that are willing to take extraordinary actions to re-define themselves or re-commit to their core strengths - will survive the current Darwinian atmosphere” Among those we cited: Radio Shack and Staples.
In With Borders Gone, Who's Next? in August 2011, we once again mentioned Staples in relation to e-commerce and other challenges facing office supply retailers: “Staples is another retailer that’s in the midst of downsizing. Computers and office machines currently account for only 46% of sales after generating as much as 52% of the revenue as recently as 2006. With 500 leases expiring over the next three years, and on the heels of disappointing sales, Staples going-forward plan is to open smaller stores”.
In Dealing With the 900 Lb. Gorilla in our February 2013 issue, we said: “The current inclination of larger brick-and-mortar retailers is to develop smaller prototypes; simply put, big stores are getting smaller. There are several reasons for this – higher unemployment, the economy in general, changing technology - but the biggest factor has a great deal to do with the large, menacing creature mentioned in the title – the looming, gargantuan presence known as e-commerce...while the Commerce Department doesn’t specifically report e-commerce sales of office supplies, you can be sure they’re significant”.
In that article, by the way, we devoted some space to discussing the office supply category and the dramatic downsizing plans of Staple’s major competitors, Office Depot and Office Max - which have since become one company.
As recently as January of this year, in You Can’t Help but Notice, we commented on “the divergence between reported internet sales and total retail sales. Mid-double digits vs. low-single digits have been the norm. For many retailers, it’s largely moving money from one pocket to another, from its brick-and-mortar stores to its online business...chains have that been shifting toward smaller stores include Best Buy, Kohl’s, Staples, Old Navy, Michael’s, and Walmart. To pick up the slack, many retailers are making e-commerce sales a priority, and this has been paying off”.
In light of Staples’ statement, in its latest closings notice, that nearly half of its sales are now online, this was a bit of a prophetic statement. We went on to note that “no brick-and-mortar retail category will be entirely insulated from the impact of e-commerce. As a result, it is reasonable to expect that...retail’s overall physical footprint will continue to contract”.
Brian Sozzi of Belus Capital Advisors, quoted in the Miami Herald this month, and noting that in addition to Staples and Radio Shack, “Even retailers that recently have been in expansion mode are trimming their store counts...Aeropostale is planning to close 175 stores in coming years, and The Children’s Place, while continuing to open stores, will shutter 125 of its weakest shops by 2016”. Sozzi also used the term “a tsunami of store closings” to describe what we should expect. Radio Shack and Staples are part of that wave, and the tide is rising. Who’ll be left standing? It’s hard to predict. After all, we’re no fortune tellers. But we’ll keep watching.
Chris Cardoni, Marketing Manager
CCardoni@KeyPointPartners.com
