Staples Inc

Staples, Inc.

In August 1992, Staples continued on the fast track it had established since its founding in the fall of 1985. Store number 155 had just opened in Manhattan and stock analysts declared the shares to be a good buy at 30 times earnings. Henry Nassela, president of Staples (and former president of Star Market), spoke of their accomplishments. “The initial format of one-stop shopping for office supplies was such an instant success, we concentrated on expanding our store base, both to seize a first mover advantage and to build a critical mass of stores to make maximum use of our strategy of central distribution. But as the market begins to be saturated we must also continue to increase our same store sales in order to grow. Within the last year or two we have radically changed our approach to the merchandising of office equipment; we carry more brand names, a wider selection and we provide more knowledgeable sales help. Our next task is to fix the furniture department.”

“We get good margins from furniture, but endless problems. Customers expect high quality furniture at low price points; it can’t be done. To meet expectations we generally offer products at $300 and below, usually requiring assembly, and occasionally requiring delivery. As an experiment we have taken three stores in the Boston area and upgraded the furniture department considerably with price points anywhere from $100 to $1000. In these stores we display furniture in small office settings as you might see in a more formal furniture store and in one store we even have carpeting. It remains to be seen whether this solves our problem.” Solving the “furniture problem” had strategic implications beyond pure merchandising. “In an 18,000 sq.ft. store we are allocating nearly 4,000 sq.ft. to furniture,” said Tom Stemberg, founder and chairman of Staples. “We have not figured out whether this is the correct space allocation or if it should be halved, doubled or eliminated. The answer has implications for how big we make our stores going forward. Perhaps we should have one or two stores in a region dedicated to selling furniture, and drop the category from the others.” “The problem is,” added Henry Nassela, “no one knows how to sell office furniture.”

Buyer Behavior

Jim Forbush (HBS MBA ‘78), Vice President of Marketing, recited some statistics about a typical Staples store. “It has a base of 10,000 customers (people who have shopped within a year) though many of these are occasional shoppers only. The repeat customer comes about twice per quarter and spends about $ 37. “Behavior varies quite a bit by the size of the customer’s company. Our bread and butter business comes from very small companies. A big surprise in this business is that a large portion of sales are to home offices with zero or one employee (see Table 1). I say zero because many homes now