I'll be honest with you right up front. I'm a fan of Staples
During these types of meetings, management is expected to speak glowingly about all the things it's doing right and how much more impressive the future will be. While there was certainly plenty of optimism from Mahoney, there was also plenty of candor, in the form of admissions about what the company could have done better in the past.
Staples is well aware of its fiercely competitive business segment and the challenges it faces from the likes of Office Depot
Staples defines its business in three major units; North American Retail, North American Delivery, and International. North American Retail is its largest and most established unit and consists of more than 1,600 stores. Its North American Delivery business has been its fastest-growing segment and generated $6 billion in sales last year. Its International unit operates primarily in Europe and is exploring further opportunities in Asia and South America.
Expanding close to home
Despite its large footprint in the market, Staples is constantly finding new ways to expand its reach.
Although most of its retail locations are the well-known superstores of around 20,000 square feet each, the company also operates some Staples Express stores -- essentially smaller versions of the superstores, with about 4,000 square feet per unit. Still packed with plenty of merchandise, the Staples Express locations allow the company to achieve what other big-box retailers, including Wal-Mart, have found difficult: It's further expanding its customer base by entering more densely populated urban markets.
One example of the honesty you don't often get from management was Mahoney's mention of a major disappointment it endured in the first quarter. In essence, Staples put forth a large effort in reconfiguring its stores to give its tech business more presence, and it spent time and money in marketing efforts all in anticipation of garnering new business as a result of the Microsoft
However, Staples continues to push forward with its technical offerings. In an effort to attract even more home and small-business customers, Staples offers Easy Tech services. Much like Best Buy's
It's all in the delivery
Staples' North American Delivery business consists of Staples Contract, Staples Delivery, and Quill. And at 15% growth, this has been the fastest-growing portion of Staples' business. Successful acquisitions have allowed Staples to expand its customer base, and it has held on to its new customers. Management credits its retention ability to taking its time integrating acquisitions and ensuring that the customer comes first. The proof of this approach is in the service awards the company has received.
Staples Delivery consists of the company's catalog business and its website. In 2006, Staples reported nearly $5 billion in sales via its electronic channels. That made it the second-leading Internet site for commerce, trailing only Amazon.com
Staples has been steadfast in its efforts to ensure that customers are satisfied with its website and delivery services. It has spent significant time and money consolidating its smaller fulfillment centers into larger facilities, producing higher-quality, more consistent services for its customers in the process.
Overseas, Staples has its largest presence in Europe, with more than 260 stores across five countries. But things haven't been totally easy. After cruising from 2002 through 2004, Staples picked up the pace of its European expansion, making an acquisition in the U.K. and stepping up its French Delivery business, but it quickly realized that it didn't have the resources on hand to manage such rapid growth. Since then, the company has built a stronger foundation and is back to expanding its business by focusing on small-business customers.
Learning from its mistakes in Europe, Staples hopes to transition into other markets in South America and Asia (including India) more smoothly. It now recognizes the need to develop partnerships with those who are more accustomed to each region's unique culture. One example of success in this area took place in China, where Staples set up a joint venture and improved sales from $20 million to $100 million in three years. With China set to host the Olympics in 2008, Staples should be well positioned to develop its brand, since it's already a sponsor of the Olympics through its Chinese business.
The Foolish bottom line
Mahoney expects to be able to steadily improve margins and cash flows while also giving back to shareholders via share buybacks and dividend increases. He hopes to continue to feed off his company's success from its "Easy" brand concept to distinguish itself from the competition. Meanwhile, it will continue to make smart acquisitions and develop its brands to maintain growth.
Staples has been consistently successful at growing each of its business segments while keeping pace with customer demands and providing high levels of service. With its diverse product and service offerings, I see no reason why that trend shouldn't continue.
For more on Staples, check out:
Wal-Mart and Microsoft are Motley Fool Inside Value recommendation. Best Buy and Amazon.com are Motley Fool Stock Advisor selections. Both newsletter services handily outperform the market, and you can check out either one free for 30 days.