February 03, 2015

Staples / Office Depot / Office Max

I get criticized, a lot, when I suggest that omnichannel will lead, not to sales gains, but to store closures.

And then, we hear of this little gem ... Staples may merge with Office Depot / Office Max (click here).

When Office Depot / Office Max merged, four hundred stores were scheduled to be closed (click here) ... a "unique opportunity to consolidate", as the press release said. Who doesn't crave a unique opportunity to get smaller? Or who doesn't love the opportunity to "optimize the store portfolio" (click here)? That same article outlines how employees enjoyed pay cuts following the merger ... imagine getting your pay cut at $8/hour, or at a manager's salary of $14.02 an hour? Omnichannel!!! That's some serious optimization going on!

Of course, the experts said that Staples was "poised to grab market share" in such an event (click here). Well, how did that work out? If the predictions were true, Staples wouldn't be looking to merge to accelerate further cost savings, would they?

Digital hates inefficiency.

Yes, these folks are trying to compete with Amazon and Wal-Mart.

But there is something so much deeper going on - and few of us wish to think about it, because if you think three steps ahead, you get depressed. So instead, our industry focuses on the glib concept of omnichannel, putting our hands over our ears, hoping to not hear the future coming.

The Story: Digital hates inefficiency. Digital creates price transparency. Digital creates a disincentive to get in a car and drive to a store.

  • Inefficiency.
  • Price Transparency.
  • Disincentive To Shop Stores.
For Staples / Office Depot / Office Max, the trifecta is crippling.
  • Amazon / Wal-Mart can generate profit and/or market share (often the latter) by creating "basket opportunities" ... you can buy the same 1,000 sheets of white printer paper there, but also pick up five quarts of 10w30 ... something you cannot do at a big box office supply store (hint - merchandise). This takes sales away from the big box office supply store, eroding in-store profitability.
  • Digital leads to customers not driving to a store - instead buying the items online from a big box office supply store if brand loyalty exists. This further erodes in-store profitability.
  • Digital leads to price transparency - further eroding in-store profitability.
  • This causes stores to appear unprofitable.
  • This causes mergers.
  • Mergers cause store closures.
  • Store closures cause sales declines.
  • When sales decline, sales go to Amazon / Wal-Mart, making them bigger, fueling a feedback loop that further hurts retail.
You cannot fix the feedback loop by making the in-store experience "more digital". Making the in-store experience "more digital" just accelerates the feedback loop.

Digital hates inefficiency. Ask catalogers, they'll tell you. They've been there.

We're rapidly approaching a time when I need to write a booklet about this feedback loop, because the feedback loop is not well understood, albeit painfully apparent.