What the L Is Staples Thinking?

Staples (NASDAQ: SPLS  ) needs refreshing. No longer is it enough to be the destination for paper, pens, and ink toner; the office supplies leader wants you to know it's really more like a maintenance, repair, and operations specialist, providing everything from hard hats and goggles to tools and cleaning products. And, yeah, you can still get rubber bands if you need them.

To drive home the message that it's no longer just a stodgy pencil pusher, Staples is launching a major advertising campaign, dubbed "What the L is going on at Staples?", to highlight just how much you don't know about its products. Along with changing the corporate tagline from "That was easy" to "Make more happen," the office supply leader will also change its corporate logo by removing the paper clip that appeared as the letter "L" in the word "Staples" to a rotating collection of products, including a hand truck, paint brush, chair, and a boot. 

As the ad above shows, Staples isn't completely shedding the popular "easy" button, but it is expanding its product lineup to enter a space normally occupied by MRO specialists like Grainger and MSC Industrial Direct. With a fragmented market in which even top dog Grainger admits it has just 6% of the $118 billion market, and the top 50 companies control less than a 30% share, it's possible for Staples to carve out a niche for itself.

Since the recession, at least, facility and breakroom supplies have been what's driving Staples' growth. Total revenues rose 1% last quarter to $2.1 billion despite the decline in sales of traditional office supplies, paper, ink, and toner. Staples notes that it's because of these adjacent categories that it's been able to expand into new segments such as technology products, medical and safety supplies, packaging and shipping, and office decor.

Yet because it's still primarily thought of as the go-to place for office supplies, it's not widely recognized that Staples has the second-biggest Internet presence behind Amazon.com in terms of SKUs offered. Even though it already features hundreds of thousands of items, it's adding thousands more every day as it continues to focus more on the online aspects of its business and less on the brick-and-mortar portion.

Staples is in the midst of cutting the size of its physical footprint while pushing for greater availability on its website. The new omnichannel stores sport fewer SKUs in a smaller format, while putting kiosks on the sales floor to help customers order from its website. At the same time, its sales associates provide customers with more product information and stocking data through use of tablets.

Still, the elbows are getting sharper in the online arena. Amazon is now a recognized competitor in the MRO space through its aptly named Amazon Supply business, while MSC Industrial launched major e-commerce system upgrades to facilitate its customers' ordering capabilities. Staples may not be stocking heavy equipment just yet, but by going well beyond just breakroom supplies and office furniture, it's venturing further outside its core competency where others already dominate.

Like its ill-timed acquisition of Corporate Express that had it wandering in the wilderness for several years trying to get its bearings, this new path being blazed in the broad maintenance, repair, and operations field is likely to have investors once more wondering what the heck Staples is thinking.

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12/18/2014 4:00 PM
SPLS $17.64 Up +0.35 +2.02%
Staples CAPS Rating: **

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