Staples Case Answers for Management Capstone Course
1. The office supplies industry was highly fragmented at the retail level but had huge big players. The industry constituted of manufacturers, wholesalers, dealers, and retailers. The manufacturers ranged from paper manufacturers, office furniture makers, to manufacturers of paper, pencils, and computers. The wholesalers consisted of a few large players and bought in bulk and sold to business clients and small retail establishments either directly or through network of dealers. The dealers ranged from one-person company to large firms that sold through central warehouses.
The retail industry was saturated with supermarket chains that already had well established market share and were financially sound. Any new entrant that priced lower than its competitors risked engaging in a price war with financially well off companies that ended up driving down profit margins. The supermarket retail industry ended up being heavily competitive, along with higher property prices and lower margins, thus making it unappealing to invest. In the mid-80's, there was a dramatic demographic shift. The unrealized office supplies industry on the other hand presented bigger profit margins. The U.S. economy was recovering from recessions of late 1970's and early 1980's, and new technology was driving demand for office supplies. As downsizing became increase common place in the corporate world, many unemployed started their own business which resulted in more than 11 million new small businesses in the country.
2. Staples target market was small businesses with less than 20 employees. Stemberg found that companies with less than 100 employees were being ignored by big dealers (who were supplying this market) and that large businesses were being offered discounts as large as 80 percent of the list price. Small businesses were lucky enough to get 10 percent discount. One of the reasons this particular target market was attractive because the small businesses were more concerned with product availability rather than product price, and they themselves weren't aware how much excess they were paying for office supplies. Stemberg felt that by making customers aware that they were being charged more, and that they could get their desired products at lower prices, he could establish a successful company based on this target market.
3. The business model of Staples was to offer a wide selection of merchandise in a warehouse-type setting with prices deeply discounted from those found in mom-and-pop retailers. The concept also required it to be a self-service supermarket rather than full-service supermarket. In order to have the concept take off, Staples needed staff trained in office supplies so that they could provide customers with advice. Staples also need to figure what kind of location it stores should be based in as the office industry was a novel idea, along with the number of stock keeping units the store should offer. The store also had to educate customers about their spending habits on office supplies and how they can save money. Staples also need a state of the art information system that would minimize inventory and provide gross margin on each product rather than average gross margin of each product mix.
One of the potential sources of economic returns was that the new information systems would enable Staples to reduce inventory thereby reducing working capital needs. If Staples turned inventory 12 times a year and delay payment to vendors for 30 days, the company's inventory would essentially be financed by vendors.
4. In order to have a successful company Stemberg knew that he needed experienced management. Stemberg turned to his ex-colleagues from Jewel Corporation or other managers from Boston-area retailers. In order to attract them and have them give up their high paying jobs, Stemberg offered them stock options. The company ended up giving its management 2.5% stake in the company. The new management also worked from 7 in the morning to 9 or 10 at night refining the concept, or laying down business plans.
5. The success of Staples format led to immediate copycats, with Office Depot being first. The reason many of the new entrants weren’t successful was because they focused on expanding as quickly as possible and ignoring the execution of project. As a result, companies ended up having numerous stores but weren’t able to service them properly. The stores wouldn’t have products customers required or had products customers didn’t want. Essentially most new competitors weren’t managing their inventory efficiently.
6. The expansion of Staples into the delivery business does make strategic and economic sense because the retail market is now consolidated in the US and further growth in this segment is possible only overseas. Additionally, the delivery market is still highly fragmented and very large; as such it makes it a very commercially viable market to invest.
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