Staples to shutter up to 225 stores
Staples Inc., the big office supply retailer trying to reinvent itself in the face of intense Internet competition, plans to close up to 225 stores and slash $500 million in annual costs by the end of next year.
The Framingham company has closed about 40 locations and shrunk the size of another 40 superstores in the past year. The more aggressive plans detailed Thursday follow disappointing sales results for the Christmas period and forecasts for more business declines.
“Now I want to make it clear that we’re not getting out of the retail business,” Staples chief executive Ron Sargent said in a call with analysts. “That said, stores have to earn the right to stay open, and we are committed to making tough calls when it’s necessary.”
The planned cuts will reduce the number of Staples stores in North America by about 12 percent. There are 75 Staples stores in Massachusetts. It was unclear how many could be affected by the new plan.
Staples first revealed plans to radically reshape its business in 2012, reacting to heightened competition and a diminishing demand for such core products as paper, ink, and toner in the digital age. The company unveiled a multiyear plan to reduce its retail footprint and emphasize online and mobile sales.
Staples intended to close some stores and shrink others while retaining most of the business conducted at those locations with more robust online sales of its own. But the retail world was changing faster than Staples itself and the company failed to keep pace with steep declines in sales and customer traffic in stores.
“Today was one of the first days that they have been more or less realistic about the environment,” said Oliver Wintermantel, an analyst with ISI Group. “They are recognizing that the US is overstored and its a necessary step in the right direction. But they continue to have too many stores and they aren’t closing fast enough.”
Wintermantel said Staples would be better off closing 500 stores in the next two years before getting out of retail entirely and focusing on its contract business. He argues that although some stores still make money, traffic is declining.
“It’s a dying business,” he said.
Competition from online retailers, especially Amazon.com, has put relentless pressure on Staples and other brick-and-mortar sellers of office supplies. Still other kinds of retailers with stores of their own — such as Target Corp. and Costco Wholesale Corp. — have also jumped into the office supply market.
“Some business is moving online, and there has been cannibalization in the marketplace because you have competitors who are broadening out their offerings,” said Scott Tilghman, senior analyst at B. Riley & Co.
That squeeze helped prompt the recent merger of two traditional Staples competitors, OfficeMax Inc. and Office Depot Inc. That merger may actually give Staples a boost because the combined competitors plan to close many of their own stores.
But the latest business report from Staples was troubling. Sales at comparable Staples retail stores in North America declined by 7 percent in the company’s most recent fiscal quarter, measured against performance during the same period a year earlier.
Overall company sales, which include Internet revenues, overseas business, and lines selling directly to commercial customers, declined by 4 percent during the quarter.
Staples, which employs about 80,000 workers worldwide, still runs a profitable business, earning $212 million from continuing operations in its latest quarter. But the broad business decline — and the company’s own reduced forecast for the current quarter — remains troubling to analysts who follow Staples.
“This continues what seems like a continuous spiral toward lower and lower results,” wrote Gary Balter of Credit Suisse.
Staples stock fell more than 15 percent Thursday, dropping $2.05 to $11.35 per share.
“We’re certainly not happy with our fourth quarter results, but we are making progress as we reposition Staples as the destination for every product businesses need to succeed,” Sargent told analysts. “Our customers are using less office supplies, they’re shopping less often in our stores and more online, and the focus on value has made the marketplace even more competitive.”
Staples plans to shutter stores as leases end and break other leases to close underperforming locations. The company is also cutting some of the largest 24,000 square foot stores in half, creating what they tagged “omnichannel’’ stores.
The company introduced about 30 of these smaller stores last year, blending mobile, online, and in-store shopping. The stores, which operate with fewer products, are stocked with kiosks that connect consumers to Staples.com to buy items they can’t find on the shelves.
The company said it will also diversity its retail offerings with more products in categories such as facilities and breakroom supplies, maintenance items, gifts and cards, and early education toys. The new products are expected to be in more than 1,000 stores by June.
Tilghman of ISI Group said the addition of more categories will help Staples offset the decline in office supplies, but it’s unclear whether the company will succeed in transitioning in-store sales online.