Should Staples and Office Depot merge?
Earlier this month, Wall Street smiled warmly on the stock prices of Staples and Office Depot when analyst Gary Balter of Credit Suisse said that the rival companies should merge.
Such a merger “makes significant financial and operational sense,” Balter wrote in a note to investors Sept. 2. It could cut costs by $1.44 billion and double, or better than double, a merged company’s operating profit by 2017, according to Balter.
“Retail is losing share to online and many managements are either wearing blinders or are ignorant to that, and you need someone to wake them up,” Balter told Bloomberg later.
Balter also noted that such a merger would likely pass antitrust scrutiny by the Federal Trade Commission, because both companies are closing stores and further consolidation in the market is likely.
This sent the share price of both companies, which have seen their recent performance falter, soaring.
Been here before
The FTC actually didn’t like the idea 18 years ago, when Staples and Office Depot announced plans to merge. At the time, the agency cited evidence that prices of office supplies were lower in areas where both companies operated stores. Back then, in hopes of winning approval, both companies also agreed to sell 63 of their stores to third rival OfficeMax.
The fact that a Staples-Office Depot merger is being contemplated — even only from the outside right now — just months after Office Depot completed its acquisition of rival OfficeMax is a testament to the stiff competition from the likes of online giant Amazon, and others.
Room for more consolidation
Even post OfficeMax merger, Office Depot remains a small rival to Staples, and both are closing stores nationwide. Staples plans to close 225 North American stores by next year; Office Depot has announced plans to close 400 through 2016.
One victim in that merger was 132-year-old Canadian office-supply chain Grand & Toy, which was bought by OfficeMax in 1996. The chain shuttered its doors last year after OfficeMax was no more, although OfficeMax Grand & Toy continues to operate through its e-commerce site.
Also last year when the merger was announced, many observers said that the resulting consolidation could be a boon to Staples in certain areas. But if Balter is right, there’s room for yet more.
Others getting in the game
In addition to a few local office-supply chains that have a specialty, or at least a loyal following, more web-based companies are getting into the game. Wayfair, which has sold office furniture and other office supplies for a while now, recently announced its “Wayfair Supply Premier Program” that provides businesses of all sizes with free shipping and an awards program.
And online companies like Poppin (whose products are also found at Staples) cater to the home office and funky-chic office crowd. Office supplies, of course, can also be found at general retailers like Sam’s Club, Wal-Mart, Overstock, and others, both on and offline. And, always, always there is Amazon.
So it’s not just that people require fewer office supplies in a world that has less need for paper and pens. It’s also that there’s often little need to buy them in a store. After revolutionizing the office-supply business by creating superstores that offered ultra-low prices, it’s now e-commerce that is revolutionizing the office-supply business.
While there was once a need for competition among office-supply superstores to keep those prices low, perhaps it’s time for them to come together and compete for that retail segment against a new batch of competitors.
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