Canada: New Staples Canada president sees company shifting to services amid digital onslaught
During her 19 years in senior leadership at Staples Canada Inc., Mary Sagat has witnessed the dramatic changes brought on by the rise of e-commerce.
But Sagat, who took over as president of the specialty office supply chain’s Canadian division on Sept. 7, is optimistic the company can survive the digital onslaught despite the closure of 25 Canadian stores in the past two years and blowback from the failed merger of parent company Staples Inc. and rival Office Depot.
“The merger would have had a big impact for us,” she said in an interview from the Canadian retailer’s Toronto headquarters. “It would have been positive for us, obviously.”
Though Office Depot has no stores in Canada, it owns the Grand & Toy business that remains a major supplier to corporate offices across the country. “We compete with Grand & Toy, but we also have a unit that focuses on (business-to-business) and it’s doing well. We were anticipating the merger, so that made us change focus a little bit.”
In February 2015, Staples agreed to buy its smaller rival for US$6.3 billion. But in May a U.S. federal judge blocked the retailer’s attempted purchase after the Federal Trade Commission argued merging the two would lead to higher prices. In the second quarter, Staples paid Office Depot a US$250 million breakup fee and its stock is sitting at a close to 20-year low in the aftermath of the failed merger.
Big-box retailers such as Staples have seen their business advantage erode as a one-stop shop with endless selection for consumers due to the rise of digital retail. Books, DVDs and music stores were the first casualties, and businesses that carry some commodities have taken a hit because of online shopping migration and lower mall traffic.
“Traffic is not growing, for sure, so it is a challenge,” Sagat said. “How we are addressing it is by focusing on conversion: making sure that we intercept every person who comes into the store and providing service when they do show up.”
Canadian sales at Staples have fallen in the past two years, to US$2.3 billion in 2015 from US$2.9 billion in 2013, as the retailer cut stores to a base of 305 outlets across the country. Sagat remains pleased nevertheless with its same-store sales results, which strips out the effects of network square footage changes.
“We are happy with our performance — it has been solid,” she said, but the retailer does not break out how it is faring compared to its struggling U.S. counterpart. In the second quarter results in August, Framingham, Mass.-based Staples Inc. cited a four per cent drop in its overall North American same-store sales. Earlier this year, it said it would close 50 of its 1,607 North American stores in 2016.
“The category is really susceptible to e-commerce because a lot of the things you need for an office are suited to auto-replenishment — paper, toner — and people do not really need to go into stores for that,” said Catherine Saul, a retail strategist at Toronto-based Catherine Saul Strategies, who also cited Amazon’s burgeoning office supply business as a threat to Staples in the U.S.
“But e-commerce in Canada is not as developed as it is in the U.S., so that could be working for (the Canadian unit) in the short term. (Enhancing) services could also help them, particularly with customers who are not buying as much online. But as Canada becomes further along in e-commerce, they are going to be increasingly at risk.”
Staples’ retail store sales still account for 80 per cent of revenue in Canada, with about 20 per cent of its business conducted online.
While more store closures in Canada are not imminent, the overall direction of the parent company undoubtedly affects the subsidiary.
“We don’t have a strategy right now around changing the store base, but we have continued to make decisions as they come,” Sagat said. “It’s more day-to-day business decision-making rather than a strategy on the network. We are pretty happy with our network right now.”
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She said the retailer has tried to beef up its existing store businesses with the help of a front store manager who encourages customers to try out different areas of Staples’ business.
“We have a lot of customers, but they don’t all shop in multiple parts of our business — we have supplies, we have technology, we have furniture, we have copy and we have tech services. We have challenged our stores to go a little bit deeper in the relationships with customers. Usually customers are quite open to that; often their business with us is not in all five areas and they are more than willing to trust us with more, they are just not aware that we can do more.”
Source: Financial Post
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