The wrong call on Staples
It has been nearly a month now since the $6.3-billion merger between Framingham office supplier Staples and Florida-based Office Depot fell through after a bitter fight with the Federal Trade Commission. In the end, concerns of a monopoly market share for the combined firms squashed the deal, and the bad news for the MetroWest company and the community continues to roll in: 50 store closing expected, an income loss of 30 percent, and its long-time CEO of 27 years, Ron Sargeant, who had pinned his strategy on a successful merger, is stepping down later this month.Anyone who has walked into a Staples or an Office Depot store in the last five years can tell you retail office supply is not a booming business anymore. The digital age has sunk a big hole in the retail part of the business. While grocery stores and even electronics retailers can fight the Amazons of the world because they sell perishables – and consumers still like to touch and test certain products before buying them – office supplies don't fall into that category. A box of pens or paper clips is the same in the store and online. While Staples has a dominant online presence, it faces tough competition from the likes of Amazon and others, driving downward pressure on digital profit margins.
The merger of the Staples and Office Depot would likely have created a viable company that could have withstood the erosion of retail sales and the digital onslaught by consolidating operations, finding efficiencies in consolidated, more efficient retail spaces, beefing up its own online presence, and exploring new streams of revenue inside and outside of the office supply and printing markets. Instead, we are left with two struggling companies that will continue to limp along.
So what was the FTC thinking? Did they really have to be reminded about the intensity of online competition in the office supply space? This is 2016, not 2006, ands consumers and businesses have been buying more products online every year with an increased number of choices for a decade. Yet, the FTC seemed to rely on the now outdated logic that says the struggling Staples and Office Depot would somehow create a Godzilla-like monopoly that must be stopped. There were also stated concerns about government contracts – which Staples tried to mitigate – but the main message here is federal regulators still don't understand the diminished role of in store retail sales and the fierce online competition that assures no one of market dominance, except perhaps Amazon, in the digital age.
Now the two companies are left to figure out how to survive in the office supply super niche that was largely invented by Staples 30 years ago when it opened its first store on May 1, 1986. The next time a similar concern over a merger or business regulation comes up in front of the FTC, the government would do better if it sought to understand the whole competitive marketplace, and not overly focus on the combined market share of two struggling major players.
WBJ Web Partners
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