Office Supplies Market Update – March 2018

Following the failed merger of Staples and Office Depot in mid-2016, both office supplies chains are being forced to find ways to forge new paths in an increasingly competitive landscape with pressures from many sides, including the digitization of office environments and the proliferation of e-commerce sites like Amazon.

With office supplies spend decreasing across the breadth of their customer bases, retail stores declining in sales year-over-year, and the sell-off last year of both organizations’ international business units, each organization believed that major changes were necessary to remain competitive in an increasingly competitive landscape.  In late 2017, both companies have signaled their responses to these pressures and taken steps toward major market-shifting strategies that demonstrate how they may plan to face the future.

Office Depot / CompuCom Merger
In late 2017, Office Depot acquired technology services provider CompuCom for $1 billion. Traditionally, office supplies companies have viewed themselves as one-stop shops for office spaces.  However, this concept focused primarily in highly-commoditized areas, like paper/printer supplies/filing, etc.   As businesses have become increasingly diverse and broad, their operating needs have expanded outside of traditional office products, and price pressures in these areas have forced traditional office suppliers to look outside of standard products for growth. Office Depot believes that, in the long term, businesses and consumers alike will need technology support on a more frequent basis.

In this sense, Office Depot’s purchase of CompuCom serves as a way to both increase their product offering outside of traditional office products and serve the continually digitizing nature of businesses today. Furthermore, in creating a dependency by clients through their IT products/services, Office Depot could see less attrition of accounts on the product side (office supplies, facilities supplies, furniture, etc.) to competitors with an exclusive product focus.  This strategy for broadening its lines of business through the lens of technology exists in competition with Staples’ strategy of expanding its touch points with its customers through broadened product offerings alone. Only time will tell which strategy offers the best path forward but expect Office Depot and Staples to try to find more touchpoints to latch onto within their customers’ spend stacks.

Sycamore Partners Acquires Staples
Announced in mid-2017 and finalized in late 2017, Staples was acquired by the private equity firm Sycamore Partners for $6.9 billion. Sycamore Partners, a private equity firm that still believes in the power of the retail store, has holdings in Belk, Dollar Tree, Hot Topic, and Talbots among others. As its largest buyout to date, Sycamore Partners is betting big on Staples and its retail presence.

In a quickly changing office supplies market with only two large players, it is yet to be seen how Sycamore Partners plans to alter Staple’s sales strategy and product offering. Although this acquisition has generally been reported on in a positive light, Staples did have to take on over $4 billion in debt to finance this transaction. How Staples handles this new debt and the strategy shifts brought about by Sycamore’s leadership will prove to be important points to monitor in the coming months.

InsightGPO will continue to monitor how these changes affect business-to-business sales, group purchasing strategies, and the overall competitiveness of the office supplies industry. As new opportunities arise from these companies broadening their value propositions, InsightGPO will be evaluating how to incorporate these new offerings into the existing InsightGPO office supplies program and, ultimately, drive value for our clients.  Please reach out to us if you have any questions, and we will continue to keep you updated on this ever-changing market.