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Staples looks to fend off its online rivals

A big box king learns to think small

Staples kiosks allow customers to buy online what they can’t find in stores.

JONATHAN WIGGS/GLOBE STAFF

Staples kiosks allow customers to buy online what they can’t find in stores.

The Velocity Lab looks and feels like a classic Cambridge start-up, filled with researchers developing the next generation of products that will drive digital commerce on computers and phones.

Scribbled notes and pictures along a green writable wall offer clues about the next smartphone application. One researcher wirelessly syncs a phone and a computer — enabling easy access to product information and instant sales — simply by pointing the phone at a flat-screen kiosk.

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The only hint about the company behind the Kendall Square lab is practically hidden, around a corner and down a hall. It’s a single, small, red-and-white sign for Staples Inc., the Framingham office supply giant firmly rooted in the physical world with 1,536 brick and mortar superstores across the United States.

“We tell our recruits not to look at Staples as the traditional retailer,” said Prat Vemana, lab director. “We are a digital retailer.”

In fact, Staples already sells more than $10 billion worth of products online annually, trailing only Amazon.com among the world’s top Internet retailers. But the company that invented the office superstore concept in Brighton nearly three decades ago is moving fast to reinvent the way it does business by embracing online shopping inside its stores.

Giant Staples stores — some as big as 24,000 square feet — and their expensive leases may be going the way of the dot matrix printer. The company plans to cut in half most of its biggest locations as leases expire. This year, 45 of them will be transformed into sleeker new “omnichannel” stores designed to blend mobile, online, and in-store shopping.

The big idea: Shrink the stores, but hold onto nearly all the business. Staples is counting on convenient technology developed at its Velocity Lab, plus overnight delivery — free for most purchases — to make that possible.

Staples is under pressure to make changes. It is one of many big-box retailers feeling the heat from Internet competitors that can deliver the same products at rock-bottom prices. The company’s sales dropped 1.2 percent last year.

Staples towers over its leading competitors, generating more sales than Office Depot Inc. and OfficeMax Inc. combined. The other office superstore companies are also reducing their retail space but neither are promoting the idea of in-store online sales as aggressively as Staples.

“The decision to use the stores as [places that encourage online purchases] is not only smart, but essential,” said Matt Fassler, a Goldman Sachs analyst. “Consumers want options.”

A Staples in Norwood, just 20 miles away from its original Brighton store, is the company’s first location to test the new retail plan.

Customers walk in and are greeted by “The Business Lounge,” with a conference table charging station surrounded by copy and fax machines, printers, computer workstations, and a machine that serves hot Starbucks coffee. A tablet wirelessly connects to a 55-inch screen where customers can browse and buy products online. Six additional Staples.com kiosks are placed throughout the store.

Sales associates carry tablets to check inventory and help customers buy online. And new technology automatically triggers a call for a sales associate over the store’s intercom system if a customer stands in the ink section for more than a minute and a half.

Furniture, a top online seller, is eliminated from the store with the exception of chairs, which Staples’ research found that most people prefer to test in-store before they buy.

“What sets us apart from the Internet retailers is you can come in and hold and touch the product, there’s an interplay of the retail network and online,” said Demos Parneros, the president of Staples North American stores and online.

Back in Cambridge, Vemana and his team at the Velocity Lab are focused on smartphone technology that will be tested in Norwood before it is rolled out to other Staples stores. Soon customers there may be able to pay by tapping their cellphones against a credit card machine.

“If you fast forward two years from now, the penetration of smartphones will be even greater,” said Faisal Masud, a former Groupon executive hired by Staples in May as vice president of global e-commerce. “It’s very clear to us that mobile is the future.”

Staples became an early online sales leader in the office supply business because many of its customers were large companies already ordering over the phone or through catalogs rather than walking into stores. Those companies were comfortable purchasing many commodity items, such as paper, over the Internet.

“Staples is the largest office supply retailer in the world,” said Liang Feng, an equity analyst with Morningstar Inc. “If you think about the type of products office supplies are, it’s very much an e-commerce product. Once customers know what they want, they don’t necessarily need to go in store and feel the ink and paper.”

Overall, Staples plans to reduce retail space by about 15 percent by 2015 and triple the size of its e-commerce and information technology staff this year. About 30 underperforming stores will close this year.

Parneros said the company believes its smaller outlets will still retain 95 percent of sales of stores twice the size. At the same time, online inventory will continue to expand to include more products, such as hard hats, that don’t fall into the office supply category, but are relevant to the businesses Staples serves.

“We’re paying less rent and capturing the vast majority of sales in a smaller store,” Parneros said. “We can get away with a smaller store because we have the capacity to offer one hundred thousand products online and offer pick-up in store or delivery overnight.”

Taryn Luna can be reached at taryn.luna@globe.com. Follow her on Twitter @tarynluna.

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