Staples finalizes its sale, beginning a new chapter
The end of a 28-year run as one of the premier public companies in Massachusetts came quietly for Staples Inc., in a perfunctory vote approving its nearly $7 billion sale to a private equity firm.
For shareholders who’ve endured a decade of diminishing returns, their approval Wednesday seemed like a concession that a new owner can, without the prying eyes of Wall Street, reclaim the glory of what was once among the business world’s dominant companies.
Business specialists said Staples basically had few options: Facing competition from Amazon and unable to acquire a longstanding rival, Staples management needed the freedom that a private owner can provide to think long term.
“Private equity groups tend to make their mark in industries undergoing a wrenching transition,” said Josh Lerner, an investment banking professor at Harvard Business School. “And this has all the characteristics of a wrenching transition.”
For a company that opened the world’s first superstore for office supplies, the humbling was a long time coming for Staples. The Framingham company was unable to fully capitalize on the seismic shift to online sales. Its revenues peaked near $25 billion in 2011, and since then Staples has been closing stores, selling off branches, and pursuing a second ill-fated purchase of rival Office Depot. From a high of nearly 2,300 stores, Staples is down to 1,500 or so retail outlets, and revenues last year were $18 billion.
Chief executive Shira Goodman’s current strategy is to further streamline Staples’ retail operations and concentrate instead on business customers by bulking up its sales force. Goodman insists an upward trajectory isn’t far off.
“We just have got to tilt it to the positive,” Goodman said. “Once we get that flywheel going, it will grow.”
The sale to Sycamore Partners is expected to close in the next several weeks. Sycamore declined to comment on its plans for Staples, and it releases little information on its strategies. However, with much of American retail struggling, Sycamore is spending billions acquiring troubled brand names with an eye to a turnaround — such as the Limited, which it acquired in bankruptcy proceedings earlier this year.
Sycamore’s first investment fund, dating to 2011, has an annualized net return since inception of 58 percent, putting it among the tops in its class, according to data from Bloomberg. One success, so far, is the Hingham-based retailer Talbots, according to Bloomberg News. One notable stumble was its purchase of hundreds of Family Dollar stores, which the company unloaded after concluding they could not operate viably as a separate business.
Its concentration in retail and consumer businesses, business specialists said, allows Sycamore to share strategies among its companies.
“What the private equity world does,” said Stuart Cable, a mergers and acquisitions lawyer at Goodwin Procter, “is they study industries as much as they study companies.”
Bob Pozen, a senior lecturer at MIT’s Sloan School of Management and former executive chairman of mutual fund giant MFS, said a firm such as Sycamore can use financial techniques to buy Staples time.
But Pozen notes there are downsides to private buyouts. Among them: Staples can’t woo executives using stock options and other performance-based incentives that public companies have at their disposal.
For now Sycamore is planning one important organizational move, breaking Staples’ corporate structure into three pieces: North American delivery, US retail, and Canadian retail. The purpose, ostensibly, is to make it easier for Sycamore to borrow the money it needs for the deal. But the three Staples groups are expected to work closely together at the Framingham headquarters.
Staples is still in the retail business — witness its latest back-to-school advertising blitz. But with less than 40 percent of its revenue from retail sales, Goodman wants Staples to become even less dependent on the brick-and-mortar stores with the big red-and-white signs.
It has already ditched the once ubiquitous slogan, “That was easy,” to one more geared for business clients: “It’s pro time.” Its target audience are harried office managers — “Jackies,” as Staples refers to them, as in, “jack of all trades” — and not so much stressed-out parents loading up on school supplies.
That means Staples is banking on people like Jessica Sanders, administrative assistant at Con-Vey Keystone, an Oregon-based supplier to the lumber industry. The company is enrolled in a program called Staples Business Advantage that provides customers with personalized service.
“If I have questions or concerns about something, I can actually speak to a person without having to go through much rigmarole,” Sanders said.
A key to keeping business customers satisfied is expanding Staples’ delivery program, which provides the kind of personalized touch from a company employee that can help build loyalty.
“We have very explicitly said that delivery is our growth arm going forward. We have organized around that,” said Goodman.
She has some experience in this area. Goodman helped get Staples into the delivery business in the first place, first working as an adviser with Bain & Co. in the early 1990s before joining the company. She became CEO last year when Ron Sargent left after the proposed deal for Office Depot collapsed when US regulators raised antitrust concerns in court.
In its defense of the Office Depot deal, Staples had argued that Amazon loomed as a powerful competitor in the office supply market and will act as a check against the combined company. But the federal judge hearing the case sided with the federal government on that matter.
Amazon’s threat has only grown since then. The retail giant is investing heavily in delivery operations — warehouses and fleets — that could be enlisted for clients of its Amazon Business services.
“This is a staggering shift that two years ago probably wasn’t as relevant,” said James Thomson, a retail consultant who helps clients sell products through Amazon. “You’re going to see Amazon Business and Amazon Prime now together be in a position that can make an awful lot of trips to the retailer completely irrelevant, including going down to the local Staples.”
So long as Staples can win over more customers like Amber Brucato, it will have a fighting chance against Amazon.
Brucato said her employer, Consolidated Industries in Cheshire, Conn., joined the Staples Advantage program in 2014. The administrative assistant appreciates the quick service that includes the deliveryman coming to the office and stocking her closet with new supplies. Consolidated can order everything it needs, from copy paper to fungicide spray to those plastic bear-shaped honey bottles, from Staples.
“I don’t even bother going to the Amazon Business website unless I’m told to,” Brucato said. “Staples comes through.”