Staples, Office Depot and the changing face of retail

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Remember CompUSA and Circuit City? How about Borders or Office Max?

They're names out of the not-so-distant retail past; “big box” stores that focused their business model on delivering goods in a particular niche. CompUSA and Circuit City, which sold computers and consumer electronics, are now part of online and catalog retailer TigerDirect. Borders, which had hundreds of bookstores across the United States, filed for Chapter 11 bankruptcy protection in 2011, and Office Max was a competitor to both Staples and Office Depot before the latter bought it in 2013.

Take a walk through your local mall this summer and you'll be unlikely to see that Radio Shack store now that the long-time retail chain, founded in 1921, has filed for Chapter 11 bankruptcy protection and announced an aggressive shuttering of many of its stores.

Now, Staples, based in Framingham, is about to buy Office Depot, its chief rival, and consolidate what had been three companies into one giant firm with projected annual revenue of $39 billion. That could be enough to vault Staples into the Fortune 100 and likely make it the top public company based in Central Massachusetts.

How long it stays at that lofty a level will depend on how effectively Staples can expand beyond its narrow niche of office supplies. The survivors in other niche retail segments — such as Best Buy (electronics) and Barnes & Noble (books) — may not be thriving, but they have taken steps to broaden their appeal. The bottom line is all these retailers are finding their stiffest competition not only online with Amazon and others, but from massive all-purpose retailers such as Wal-Mart and Target.

Staples CEO Ron Sargent, in announcing the Office Depot deal, said as much, when he said Staples will be able to “more effectively compete in a rapidly evolving competitive environment.” (He also cited another benefit, one that's generally assumed when two rivals become one: finding at least $1 billion a year in cost savings within three years after the deal closes.) “This is a transformational acquisition (that) enables Staples to provide more value to customers,” Sargent said.

The retail landscape has transformed as well, and the road ahead will certainly have some potholes for Staples to avoid. During the week the merger was announced, many experts panned it, and others speculated the deal may not pass muster with the Federal Trade Commission because of antitrust concerns.

“This merger benefits the major stockholders and Wall Street,” industry analyst Frank Riso wrote on RetailWire Blog. “The only other retailers left in the segment are regional and single-store owners.”

That underscores the increasing power of electronic commerce and the changing habits of American consumers, who are more likely to let their fingers do the shopping from the convenience of their couch or, crunched for time, buy everything they can at the likes of Wal-Mart, Target or Costco. To be fair, Staples already holds a strong position on the Web. The website Internet Retailer ranks it third among U.S. firms in Web sales, behind only Amazon and Apple. Office Depot ranks ninth.

Cathy Hotka, another retail industry analyst, summed up the Staples-Office Depot deal on RetailWire Blog with this: “I'm not certain that we need even one office supply chain with physical stores. 2015 is certainly going to be the year that multiple brands drop from view. How long will the new Staples be viable?”

That, indeed, is a good question. The advantage for Central Massachusetts is that it stands to emerge as the home of the surviving entity, which is important for the thousands of employees at the Framingham headquarters and their families, as well as the many other area businesses who serve as vendors. How Staples continues to transform itself will be interesting to watch, and of great importance to this region and the retail industry.