Staples Is Trying to Become Amazon for Businesses, And It Just Might Work

Staples is transforming its business by offering a broader selection of products, and the company is trying to become a one-stop shop for businesses. With Office Depot trying to become a viable competitor, and online retailers like Amazon posing a threat, the path certainly won't be easy for Staples. But competitive advantages give Staples a good chance of succeeding.

Mar 27, 2014 at 1:51PM

Shares of office supply company Staples (NASDAQ:SPLS) recently sank after the company reported an 11% decline in revenue during its fourth quarter. Along with the announcement of 225 store closings over the next two years, Staples appears to be a company struggling to remain relevant. But a look beneath the surface shows that something big is happening at Staples, and it's clear that the company is very different from other troubled retailers that were also forced to shutter stores. Staples is transforming itself into a one-stop-shop for businesses, an (NASDAQ:AMZN) for businesses, and I like its chances.

Spls Easy

Source: Staples

An online powerhouse
Staples is already the second biggest online retailer, behind only Amazon, and online sales represent nearly half of Staples' sales. This puts Staples' annual online sales in excess of $10 billion, making the 10% year-over-year growth in the fourth quarter all the more impressive.

This online growth was driven by a vast expansion of the number of available items available on Staples' website. At the beginning of 2013, about 100,000 different items were available online. At the end of the year, this number jumped to 500,000, with new categories like facility supplies, furniture, restaurant supplies, and retail store supplies greatly diversifying Staples' online offerings. During 2014, Staples plans to triple this number to 1.5 million items, giving the company the ability to serve far more industries than ever before. More than 80% of sales on are to businesses.

While Amazon has become a one-stop online shop for consumers, Staples is aiming to do the same for businesses. This involves downsizing its retail operations, including closing 225 stores over the next two years and downsizing others, and focusing on growing the commercial business and online sales. The retail stores are still important, with about 50% of revenue coming from business customers, but it's clear that there are too many office supply stores in the United States.

Along with expanding the number of items available online, Staples is working to make the online purchasing experience better for its customers. Last year, Staples bought tech start-up Runa, and it plans to use the company's technology to generate personalized offers for customers and to ensure that prices are competitive compared to the competition.

Competitive advantages
There's a reason why Staples has managed to become the dominant office supply company, driving rivals Office Depot (NASDAQ:ODP) and Office Max into a merger. Even with the retail stores suffering a sales decline during the fourth quarter, Staples' North American commercial business still managed to grow, adjusting for an extra week during the fourth quarter of 2012. Staples has a 3,000 person sales force and existing relationships with over 10 million small business customers and 25 million Staples Rewards customers, and these relationships have helped make Staples' new product categories a success. Online growth of 10% for a $10+ billion online operation within in an industry suffering from weakening demand is a testament to the loyalty of Staples' business customers.

Customer service is a big differentiator, and with its sales force able to offer customized pricing and work with its business customers directly, Staples has an advantage over online-only competitors like Amazon. Staples' fleet of 1,400 trucks and a mature distribution network allow Staples to offer free next-day shipping to its business customers, something that likely isn't cost effective for Amazon. While Staples has control over the entire process, from distribution to delivery, Amazon relies heavily on UPS, FedEx, and the USPS. Amazon can ship packages out of its distribution centers quickly and efficiently, but its reliance on third parties to make deliveries diminishes any advantage it may have in that area. Amazon could offer next-day delivery to businesses, but it would be an expensive proposition. In this case, Staples' focus on serving business customers gives it an advantage over more general retailers like Amazon.  

Spls Truck

One of Staples' 1,400 trucks. Source: Alex on Flickr

A turnaround play
While Staples' profits have declined recently due to weak demand for traditional office supplies, Staples' success with broadening its product offerings so far suggests that its goal of becoming a one-stop-shop for businesses is well within reach. Unlike other struggling retailers, Staples is still quite profitable, with free cash flow of about $740 million, or $1.13 per share, last year. This puts shares of Staples at about 10 times free cash flow, and although the free cash flow has been guided lower for next year, the momentum of Staples' new product offerings will eventually more than make up for weakness in core office supplies. Once this happens, Staples will return to growth.

This all depends on online rivals like Amazon being unable to steal business customers away, as well as the newly merged Office Depot being unable to become a more viable competitor. If Staples' competitive advantages hold, and business customers remain loyal to Staples, then the stock is currently a bargain.

The bottom line
Staples is transforming itself into a one-stop shop for businesses much like Amazon has done on the consumer side, and while short-term results will be pressured by declining demand for traditional office supplies, the long-term story is a promising one. My favorite kind of turnaround is a company that remains profitable throughout the process, and Staples' continuing profitability gives it the flexibility it needs to successfully transform its business. I like Staples' chances.

Other opportunities in retail
While Staples' turnaround efforts offers an opportunity to investors, there are plenty of other solid retail companies to consider. To learn about two retailers with especially good prospects, take a look at The Motley Fool's special free report: "The Death of Wal-Mart: The Real Cash Kings Changing the Face of Retail." In it, you'll see how these two cash kings are able to consistently outperform and how they're planning to ride the waves of retail's changing tide. You can access it by clicking here.

Timothy Green owns shares of Staples. The Motley Fool recommends The Motley Fool owns shares of and Staples. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers