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
have computers, fax machines and desks even when there is no business
conducted in the home.
Table 1 Breakdown of Staples Revenue by Size of Customer
Source: Company Estimates
Furniture
All but the Express stores (Small Staples Stores) carried furniture, with a typical
floor display of around 1500 sq.ft. plus adjoining shelving. Including all color
and style variations, Staples offered nearly 200 skus in the furniture category.
Exhibit 5 illustrates pages from the Staples catalog including all of those that
depict furniture. Most furniture skus are depicted or described. Table 2 describes
sales and profit information at a typical store. Furniture sales from the Staples
catalog at Express stores were mostly of standardized items such as chairs,
banquet tables and filing cabinets. Such orders were about 3% of Express store
sales.
Table 2 Sales and Contribution Information for a Typical Store
Survey of Staples Customers

In the spring of 1991, Staples conducted a survey of its customers to discover
their attitudes towards the stores in general and to the furniture department in
particular. The survey team identified a sample of about 500 Staples members
each of whom had purchased some office supplies within the previous 12
months. The sample was constructed so that about half of the members had
purchased office furniture (“Purchasers”) from Staples in that period and half
had not (“Non-Purchasers”). Table 3 lists some results from the study.
Table 3 Some Results From the Survey of Staples Customers
The Office Furniture Industry

In 1992, office furniture was an $8 billion business1 for U.S. manufacturers, with
Steelcase ($2billion) and Herman Miller ($850 million) the industry leaders. Until
the fairly recent burgeoning ofthe home office market, distribution had been
almost exclusively through wholesalers and dealerships. Wholesalers provided
distribution and a warehousing function. Dealers were traditionally
independently owned, though often tied to a particular manufacturer. Dealers
had showrooms, knowledgeable and well motivated sales help, and provided
extensive installation, delivery and repair services.
A significant change in the office furniture industry began during the early
1980s. In the home furniture market, a number of manufacturers developed
ready-to-assemble (RTA) furniture to meet a growing demand for lower price
items. Many people first purchased these products to meet domestic needs of
microwaves, VCRs and computers. Dealers were reluctant to carry RTA furniture
because it was cheap, required no installation or delivery, and was not
manufactured by their normal vendors. Those that did, often stocked only RTA
computer furniture, since no comparable item wasthen available from the
traditional vendors.
By 1992 mass merchandisers had 14% of the office furniture business with office
superstores having an additional 7%. The traditional wholesaler/dealer network
was reduced to 60% with catalogs (5%) and direct sales (7%) being other major
channels.
Sales of RTA office furniture received their impetus from the home office market.
As a consequence, cost conscious executives, who were familiar with the
availability of RTA furniture in their role as consumers, often found the same
goods suitable for their office. The median RTA desk in1991 sold for $199, as
compared to $1000 for a case goods desk bought through a dealer.
Discussion Questions
1. Is furniture, at present, a liability to the company?.

2. How should the merchandising of furniture be improved?
3. Would it make sense to have free-standing furniture showrooms?
4. If furniture is withdrawn from the stores, what should they do with the
resulting space?

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Staples, Inc.

Source: Company Estimates

Table 2 Sales and Contribution Information for a Typical Store

Survey of Staples Customers

Table 3 Some Results From the Survey of Staples Customers

The Office Furniture Industry

1. Is furniture, at present, a liability to the company?.

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