Staples goes head-to-head with Amazon on selection and cost. Can they win?
Staples (the office supplies store) recently launched a new eCommerce site with a new merchandising strategy that significantly extends beyond their traditional “office supplies” niche. In addition to standard eCommerce capabilities and new product merchandising, they have introduced a lot more products and marketplace capabilities for 3rd party sellers. It is a big eCommerce jump.
Staples’ new website includes the expected office supply products, but now also includes industry specific products. They have started with just a few industries (Retail Store, Education and Healthcare) but they have expressed an intent to add more and they have built their navigation to support more. With this approach, Staples is adding the infrastructure and a user experience needed to offer a broader range of products. A typical Staples store has around 7,500 SKUs and the Staples eCommerce site has about 200,000 SKUs. Over time they will be significantly increasing the number of SKUs to more than 1 million business related products. To supply the large number of new products, they will be opening up their site to 3rd party sellers in a very Amazonian fashion.
The Reason For The Changes
When it comes to competition, it is difficult (a clear understatement) to compete with Amazon on price. One of the main reasons, is that the laws of public companies that apply to Staples, don’t seem to apply to Amazon. Amazon barely breaks-even or loses money quarter after quarter, and their stock price continues to go up. They can price close to cost and thrive on high volumes with very low margins. In Q3 2013, Amazon lost $41m on $17b in sales and their stock price went up. In contrast, Staples, with its online and offline presence is considered more of a traditional retailer and is held accountable to the market’s profit expectations. In Q3 2013, Staples made $135m on $6.1b in sales. Given Amazon’s recent push into B2B eCommerce (Amazon Supply) encroaching on Staples’ core business and strategic base, Staples had to react.
Staples cannot consistently match Amazon’s margins and meet investor expectations. So, they need to leverage their core B2B capabilities to provide an online/offline offering that is not solely price based. Rather, it leverages their deep B2B eCommerce experience, Staples private label product lines, brand ubiquity and access to a lot of small, mid-sized and large companies across vertical industries.
The Staples Twist & Opportunity
Competing with Amazon at their game (i.e. low cost marketplace) may seem like a bad strategy, but Staples does have some major differentiators that mitigate Amazon’s low costs. Staples is branded as THE business supply company. They have a Concierge services (try reaching a support person at Amazon), they have the multi-channel benefits that many online buyers prefer and they have a strong “office supplies” brand position. To extend their multi-channel eCommerce, Staples is also rolling out new new Omnichannel stores. These concepts stores allow in-store purchasing with kiosks that support purchasing of all the Staples.com SKUs. Most with pick-up in store or delivery overnight. Staples also has private label brands for their most popular products, products that they will not have direct price competition on. In addition, they have significant existing relationships with local businesses (provided by their supply beachhead), and finally they have a B2B orientation and the tools needed to support businesses (e.g. commercial billing, reordering, rewards, credit center, etc.). Staples has a fight ahead of them, but they will not be a walkover.
The Bottom Line
For the most part, buying office supplies is not an exciting activity and business users go to Staples with a goal in mind. Buying offices supplies is part of their job and is a “must do” activity, not a “want to do” activity where they are typically price conscious hunters, not gatherers. So, to meet the eCommerce needs of this B2B user segment and win, Staples will need to be price competitive with the Amazon’s of the world, while leveraging their B2B programs to make business purchasing easy. Staples long-term success is no sure thing, but their recent moves will ensure that they have a chance to maintain leadership in their segment.