Another Bricks-and-Mortar Biz Biting the Dust

The metaphorical pen is mightier than the metaphorical sword, but unfortunately that doesn't mean there's a great market for either item these days. Staples (Nasdaq: SPLS  ) released a raft of bad news yesterday, highlighting big questions about the future of bricks-and-mortar office supply retailers. I'm feeling so negative about Staples' long-term survival I'm willing to back up that bearish opinion with an official CAPScall.

Is there room for this business on the consumer landscape?
If you think electronics giant Best Buy (NYSE: BBY  ) has it rough, or that bookseller Barnes & Noble faces an uphill climb, these retailers aren't alone in being relegated to serving as showrooms for the place where tons of transactions very often are actually completed: Amazon.com (Nasdaq: AMZN  ) .

Yesterday, Staples announced a restructuring plan, an initiative that will involve reducing store count here and overseas. The office supply retailer will close 30 stores in America, downsize 30 other American locations, and shutter 45 European stores.

Staples plans to cut $250 million in costs annually until 2015 and focus more of its retail efforts on the online space. And of course, small businesses probably aren't heartbroken to make the shift to the far more convenient world of e-commerce. Given the sales figures in the industry, it appears many have (or are struggling to keep afloat in the first place). Rivals OfficeMax (NYSE: OMX  ) and Office Depot (NYSE: ODP  ) are even weaker than Staples, given declining revenue compared to Staples' anemic sales growth over the last several years. (However, Staples' sales have decreased in the last 12 months.)

Things may look bleak for e-disrupted retailers, particularly purveyors of culture like Barnes & Noble, but yesterday's Staples news points to an even worse outlook for some retail areas. Suffice it to say, most consumers don't sigh nostalgically about the tactile experience of browsing for file folders for hours on end, nor do they spend much time fretting about the day they may not be able to access the ambience of the office suppliers' physical retail space.

I tend to be a bit of an office supplies junkie; I adore unusual paper clips and obsess about conundrums like exactly why "gel" pens are overcoming good old-fashioned ballpoint pens these days, but I'm pretty sure this is a quirk on my part and not exactly common consumer behavior. Meanwhile, the written word will always survive, but the era of pen-and-paper has seen better days.

Granted, I've made it clear that I believe Best Buy is speeding to the bottom, and although I haven't written the words in quite a while, I still stand by the call I made last December: I wouldn't place money on Barnes & Noble either. The retail landscape is becoming increasingly difficult and the amount of e-space disruption seems to be accelerating, even though for more than a decade it has seemed like everyone could coexist. So much for that idea, especially given our macroeconomic problems that have been playing out for years now.

Can Staples keep it together?
Staples joins the aforementioned on my "no-go" list for investors. Staples may look like a beaten-down value stock trading at just eight times forward earnings, but I see some pretty ugly writing on the wall (scrawled with ominous e-ink). It says that this is yet another area where consumption will thrive online, but that won't necessarily benefit Staples or afford it any particular growth. In fact, investing in Amazon is probably the strongest way for investors to capitalize off the seismic shift that will really injure physical retailers that don't innovate.

I'm backing up my bearish opinion on Staples with an "underperform" CAPScall in our community intelligence database, Motley Fool CAPS. You can see my longtime track record here.

Leave your thoughts about the future for Staples in the comments box below (I'm sure some of my Foolish colleagues disagree with my call, since it's a newsletter choice and a real-money portfolio pick). If you'd also rather avoid Staples, check out our in-depth analysis on the e-commerce monster that's devouring retail by clicking here for the Fool's premium report on Amazon.

Alyce Lomax does not own shares of any of the companies mentioned in her personal portfolio. The Motley Fool owns shares of Staples, Best Buy, and Amazon.com. Motley Fool newsletter services have recommended buying shares of Amazon.com and Staples. Motley Fool newsletter services have recommended writing puts on Barnes & Noble. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


Read/Post Comments (4) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 26, 2012, at 12:17 PM, CrozFool wrote:

    So, what happened to SPLS being the second largest online retailer next to AMZN that I've read on these pages? We buy all of our office supplies from Staples, usually online. I think the selling of the stock over the last 2 days is way overdone. Private equity companies evaluating the company is a good sign of undervaluation.

  • Report this Comment On September 26, 2012, at 12:55 PM, snommis69 wrote:

    My thoughts exactly, Croz. Staples has pretty firmly established itself online - even if the b&m version folds, the brand should live on, and quite possibly be more profitable.

  • Report this Comment On September 26, 2012, at 8:15 PM, rnicolau wrote:

    I think vertically integrated office supply companies that focus on design (like poppin.com and others) have the right formula. The big box guys have made this a painful experience.

  • Report this Comment On October 01, 2012, at 10:45 AM, chadscards1274 wrote:

    Consider this as my counter-point argument: http://beta.fool.com/mhenage/2012/09/28/too-easy/12846/

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