Tom Stemberg calls the office - Thomas G. Stemberg, founder, Staples Inc. office supply - company profile

Nation's Business, July, 1990 by Michael Barrier

Tom Stemberg Calls The Office

In almost every photo, Thomas G. Stemberg looks like someone who is permanently disheveled, with hair tangled, tie askew, and short socks clinging desperately to his ankles. When you meet him in person, sure enough, that really is the way he looks--the stereotypical frazzled entrepreneur. "Things are always a little crazy," he says of his business, in what is probably an understatement. He talks fast, in a half-mumble, and his office, in a converted industrial building in Newton, Mass., is not so much cluttered as littered.

You will probably not see Stemberg on the cover of Gentleman's Quarterly any time soon. But what Tom Stemberg has done--ah, now, that is slick.

Through Staples, the company he and Leo Kahn founded less than five years ago, Stemberg has radically changed the office-products industry. In 1985, he noticed a yawning gulf between office-products retail stores and their warehouse-club competitors. The traditional retail stores offered a wide selection and personal service, but at comparatively high prices; the clubs offered much lower prices, but a sharply limited selection and no service to speak of. Large companies could negotiate prices with contract stationers, but for many small firms, on many items, mail order was the only alternative to the traditional stores.

Stemberg's solution: deep-discount "office superstores," which are to traditional office-products retailers what Toys "R" Us is to traditional toy stores. The similarity is intentional: Although Stemberg says that "we've had a lot of role models," he singles out Toys "R" Us as the most important.

Staples owns 48 stores, all in the Northeast. They resemble a typical warehouse club in miniature--towering metal shelves, the merchandise in piles--but with brighter lights and plenty of eye-catching red signs. As at warehouse clubs, customers shop with grocery carts, loading them with items frequently bundled, for economy's sake, three or more to a package.

Prices at a Staples store may not always be as low as those of a warehouse club, but they are indeed low--an average 50 percent below list price, Staples claims--and the selection is much broader. A Staples store offers around 5,000 different items, including furniture and office machines, compared with a few hundred at a typical warehouse club. Egghead Discount Software runs a licensed software department at about half the Staples stores.

Identifying a market is one thing, holding onto it is another. Many innovative companies discover markets, only to lose them to more aggressive rivals. As soon as Staples opened its first "superstore" in May 1986, other entrepreneurs picked up the scent, and office-superstore chains sprang up in every part of the country. Office Depot, a chain concentrated in the Southeast, has opened almost twice as many stores as Staples. That gap may not mean much, though. Stemberg has devoted a great deal of money and effort not simply to opening stores, but to laying a foundation for future growth.

"We will win only because we have better execution," he says, "not because there's this huge wall that keeps other people out of the industry. We knew that from Day 1."

From the beginning, Stemberg has thought in terms of what will be required to run Staples successfully when the company is much larger. He has surrounded himself with managers who not only worked for very big companies--Wal-Mart, the Jewel grocery chain--but in many cases supervised more employees and larger budgets than they supervise at Staples.

Says Christopher E. Vroom, an analyst with Alex. Brown & Sons, a Baltimore brokerage: "Staples has built a management infrastructure that is very capable of running a multibillion-dollar organization right now. They have taken a very thoughtful approach toward expansion, and they have made sure that they have more than adequate management to control it."

When Staples enters a city, it can take a few months for its stores to get off the ground. Potential customers, habituated to other methods of purchasing supplies, can be slow to visit. When the first Staples "superstore" opened in Brighton, Mass., just outside Boston, Stemberg could not even pay people to come in. Staples sent coupons good for $10 worth of merchandise to 35 office managers in the area, but it took more than a month of pleading to get any of them into the store--and even then, only nine showed up.

Breaking down such indifference always requires, Stemberg says, "a huge amount of marketing energy and dollars." But soon, as awareness of Staples grows, the need for that kind of marketing push falls away.

"People start shopping us in funny ways," Stemberg says. "A doctor swings by on a Sunday, buys a few things, and tells his office manager about it. The office manager already has a supplier, and she doesn't do much about it." The doctor has filled out an application for a Staples membership card, however, which entitles him to additional discounts on popular items such as copier paper, diskettes, and envelopes. By getting the card, he has given Staples a critical marketing tool.