Staples sings a siren song: 'California, Here I Come.' - discount office products retailer

Discount Store News, Oct 16, 1989 by Arthur Markowitz

Staples Sings a Siren Song: `California, Here I Come'

NEWTON, Mass. - Staples has a new growth song. It's "California, Here I Come."

The discount office products retailer has targeted Southern California as its new growth hub for the early '90s. It plans to open eight to 10 stores there by April 1991, with 32 to 34 in operation two years later.

Staples' decision to invade California came on the heels of its launching a test of a Mail Boxes Etc. postal, communications and business center in its Woburn, Mass., store. The MBE section is seen as a new service designed to differentiate the chain from its rivals.

Besides entering Los Angeles as a new market, Staples also stepped up its expansion program for its current Northeast hub that ranges from Washington north to Boston and west to Cincinnati. The retailer added six stores to its original plan of opening 14 to 16 units in the fiscal year ending next April, by which time it expects to have 44 to 46 stores.

The goals of Staples' two-fold strategic expansion, mapped out by its board earlier this year, are to "build a large, defensible base of stores in the Northeast as quickly as possible," and "to develop a second growth hub for the 1990s."

The board's growth committee picked Southern California as the second hub for several reasons:

* California's economy remains one the most robust in the country, with much of the growth fueled by small-and mid-sized firms that are Staples' prime customers; * The region has one of the highest levels of office products consumption in the nation due to the large number of businesses there; * The cost structure of operating in California - rents, labor and media - are similar to Staples' Northeast home market; * Staples' central processing and distribution and proprietary direct marketing approach, should enable it to gain significant cost advantages in the high-cost Southern California market; * An attractive competitive environment that is large enough to successfully support several competing chains.

Despite the seeming attractiveness of the Southern California market, it is understored from the office products megastore point of view. Staples identified its "significant" competitor as Office Club, which opened its 10th store in Southern California in West Los Angeles at presstime. (Office Club expected to have 35 stores in seven Southwestern and Western states by the end of this year.)

HQ Office Supplies is the other major office products chain in Southern California, with at least 14 stores - including four acquired from WORKplace - due there by the end of the year.

In citing Office Club as the key competitor, Staples noted major differences between the chains in format, market approach and targeted customers. Staples, however, didn't profile HQ Office Supply, whose format falls between Staples and Office Club.

Staples noted it carries 5,000 sku's, doesn't require membership and does 76 percent of its business with companies that have up to 20 employees. Office Club carries 2,200 sku's, sells only to paid members and does 35 percent of its sales with firms that have up to 20 workers. Staples stores average 16,000 square feet, while Office Club's are 4,000 square feet larger.

(HQ Office Supplies, which opened its first store just eight months ago, carries about 8,000 sku's in stores averaging at least 25,000 square feet.)

Staples won't just compete with other discount office product chains in Southern California. It will face over three dozen membership warehouses - Price Club, Costco, PACE, and Price Savers - which carry much fewer office product sku's, but at sharply lower prices. Staples already competes with wholesale clubs in the Northeast.

A Staples executive noted that there were "minimal" overlapping sku's between discount office product chains and membership warehouse clubs: "We will open next door to a membership warehouse any chance we get because of the traffic a club draws."

Staples plans to open a distribution center for its California stores when it has about 20 stores in the state, sometime in 1992. It's unique among office supply superstores in using a DC, while other chains drop ship goods direct to their stores.

The California hub, and growth planned for the Northeast, would boost the chain's projected store count from about 45 in the current fiscal year ending April 1990 to between 137 to 139 in the fiscal year ending April 1993.

At the end of the current fiscal year, Staples expects to have 15 to 16 stores in metropolitan New York, eight in metropolitan Philadelphia, seven to eight in metropolitan Washington, seven in metropolitan Boston and five stores in Ohio - three in Cincinnati and two in Columbus. Three other stores - two in Connecticut and one in Rhode Island - fill in smaller communities in New England.

The long-range growth plans for the Northeast hub calls for 20 new stores each in fiscal years '91, '92 and '93, to hit a total of 105 by April 1993. The California program projects eight to 10 stores in the fiscal year ending April 1991 and 12 units in each of the following years to reach 32 to 34 stores.