Office-supply giant Staples (NASDAQ:SPLS) has been struggling recently due to the secular decline of major categories like PCs, ink, and paper. North American comparable-store sales declined 4% last year. With sales falling, Staples has found that it has far too much space in its stores, and it is therefore looking to downsize to smaller formats.
In the search to better utilize its real estate, Staples began a pilot program with the USPS last fall to offer mini-post offices in 82 stores. In addition to selling stamps, these stores sell domestic and international mail and package services, including Priority Mail. Unlike the Post Office, Staples offers these services seven days a week with evening hours.
However, the largest USPS union -- the American Postal Workers' Union -- has protested vehemently against the agreement allowing Staples employees to sell postal services. The union has picketed numerous Staples stores, and it is now working with other unions to organize a boycott of Staples.
Protecting high-paying jobs
It's pretty obvious why the APWU is putting so much effort into pressuring Staples to end its mini-post office pilot (known as the Retail Partner Expansion Program). Postal clerks are paid an average of $25 per hour according to the union; meanwhile, a typical Staples store employee makes less than $10 per hour.
With the USPS consistently losing money and mail volumes declining, the postal service is always looking to cut costs. If the USPS were to outsource a significant amount of mail handling to lower-paying subcontractors, it could significantly cut its costs. As a result, the APWU sees low-paid Staples employees as a serious threat to its members' jobs.
Accordingly, in April the APWU organized protests at 50 Staples stores across 27 states. The union has portrayed the Staples pilot as the first step toward privatizing the post office, despite promises to the contrary from USPS management. It has also criticized Staples employees as being unqualified to handle the mail, whereas USPS employees "swear an oath to protect your letters and packages."
(To be honest, many of the postal workers I have interacted with over the years have been nice -- some not. Most have seemed competent -- a few less so. But none of them looked like they would be willing to take a bullet for the mail. As the saying goes, this dispute is "all about the Benjamins.")
Since the protests didn't manage to derail the Retail Partner Expansion Program, the union is escalating its tactics. The APWU is now encouraging its members to boycott Staples stores. Several teachers' unions that are also under the AFL-CIO umbrella have signed on in solidarity. This is important because Staples stores do a big business in school supplies.
Staples is in a bind
The allure of the USPS pilot for Staples should be clear. Foot traffic at Staples stores is falling, and opening postal counters in stores could bring in customers who might shop the rest of the store. Additionally, it makes better use of floor space in stores and leverages store labor that is needed anyway.
However, the APWU recognizes that Staples is struggling almost as much as the USPS, and it is using that vulnerability to put pressure on Staples through picketing and a boycott. While a full rollout of the Retail Partner Expansion Program to all U.S. Staples stores would make sense from a business perspective, Staples cannot afford to lose millions of potential customers to a boycott.
Unfortunately, Staples doesn't have a very good way to stop the damage. The APWU wants Staples to hire official postal workers -- at official postal worker wages -- which would quickly put Staples' mini-post offices in the red. If boycotts are hurting Staples more than the mini-post offices are helping, the company will have to cave in and drop the pilot program.
Foolish bottom line
When Staples signed up for the Retail Partner Expansion Program last fall, it probably saw the move as a nice way to shore up customer traffic while making better use of store resources. Instead, it has provoked the wrath of the American Postal Workers' Union, prompting protests and a growing boycott that is also supported by several teachers' unions.
Staples simply cannot afford to have a weak back-to-school season. It needs to try to figure out if calls for a boycott are actually being heeded. If so, Staples needs to drop out of the pilot and ensure that the boycott ends. If the boycott doesn't seem to be hurting sales, than Staples should continue this experiment -- at least long enough to gauge its potential benefits.
Warren Buffett's biggest fear is about to come true
Warren Buffett just called this emerging technology a "real threat" to his biggest cash cow. While Buffett shakes in his billionaire boots, only a few investors are embracing this new market, which experts say will be worth over $2 trillion. It won't be long before everyone on Wall Street wises up, that's why The Motley Fool is releasing this timely investor alert. Click here to learn more about what's keeping Buffett up at night and the one public company we're calling the "brains behind" the technology.
Adam Levine-Weinberg has no position in any stocks mentioned. The Motley Fool owns shares of 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.