Staples Takes "Make it Easy" to a New Level and Lots More to Come
With their “That was Easy” button, Staples (SPLS) took control of the highly competitive big box office products market. Office Depot and Office Max are almost nowhere to be found as Staples now dominates the once competitive officer products landscape.
You may recall that number two Office Depot successfully acquired number three Office Max in 2013 and the $6.3 Billion merger proposal of Staples and Office Depot is awaiting Federal Trade Commission (FTC) approval.
As the world moves to on line retailing, Staples is well positioned for both brick and mortar and online. Anticipating the proposed merger of Staples with its biggest rival Office Max is approved, the combined experience and buying power should allow the merged company to take on their more general purpose rivals like Walmart and Amazon.
I see Amazon as the real challenge as they roll out more and more innovative ways for shoppers to buy an every widening array of products. Does anyone really got to Walmart or Walmart.com to buy office products?
Adding Products and Expanding the Product Offerings
What got my attention recently was an offer to use a $20 off coupon and when I visited the online store, discovered more products than I expected. Sure they had paper and shredders and all the stuff you would expect, but musical instruments?
I was pretty well loaded up on office supplies except I did grab some sheet protectors and then went looking for what else I might need. I have all the musical equipment I need for now, but did discover a decent quality studio microphone that is now on its way to me via some kind of drop shipping arrangement. The more traditional Staples products showed up the next day and of course saved me the trip to the store.
All this got me interested in Staples as a possible investment opportunity. The world is buying Amazon and it is reflected in their price per share. As an essentially contrarian investor, I look for stocks that may be temporarily depressed but have the wherewithal to recover.
I think Staples fits in that category, so did my homework. Here is what I discovered.
As an “also ran” number 15 with 2.5 % market share in the Retail Discretionary Industry Sector, they have plenty of room for upside when they accrete all their new assets. Bloomberg Business speculates that the merger will receive approval and as they point out, “thanks to the ubiquity of the Web, even niche retailers can reach a mass global audience.
How about a niche retailer with a rich history, demonstrated marketing expertise, a large war chest and an ever increasing array of products?
What to Watch
Obviously watch the news for merger updates. One has to believe that approval is imminent and it should have a significant impact on share price. What the impact will be is anybody’s guess, but I think that when the dust settles, there will be a nice upturn in profits, share price and overall success.
Recent Stock Performance
So let’s take a look at share performance over the past several months since the merger was announced and try to anticipate what may happen next. Prior to the February 4, 2015 merger announcement, Staples was trading just under $17, briefly spiked to $19 and then settled in at $16 and change.
The details of the merger say that both boards gave unanimous approval and the pro forma annual sales of the newly merged company will be $39 Billion.
Staples' chairman and chief executive officer Ron Sargent says “This is a transformational acquisition which enables Staples to provide more value to customers, and more effectively compete in a rapidly evolving competitive environment . . . We expect to recognize at least $1 billion of synergies as we aggressively reduce global expenses and optimize our retail footprint. These savings will dramatically accelerate our strategic reinvention which is focused on driving growth in our delivery businesses and in categories beyond office supplies."
As a long time Staples customer, I am looking forward to the new company he describes and will “put my money where my mouth is” this time.
When the merger is approved, I fully expect the share price to go up by at least fifty percent once the dust settles and management is able to launch their new and exciting new offerings.
Competition Heating Up in Online Discretionary Retail
Amazon is eating everyone’s dust right now, but there are several other big players who have their sights set on a share of the burgeoning online market.
Consumers vote with their money and the options are increasing every day. In the market for a home security system? You can now buy one at Lowe’s, Best Buy, Amazon, EBay, Sears, etc. etc. etc. Seems like whatever you want to buy, there are plenty of choices as everyone wants to get in the game.
The Internet of Things will drive more sales in this space and see my next article to learn how you can make money planning that explosive new sector.
The Importance of Brick and Mortar
Does the brick and mortar presence of Staples give them any advantage in the new world order? I will admit to no crystal ball here but think that at least for the foreseeable future, there are advantages to having people come browse the store, shop at holiday time, talk with resident experts and stop buy on the way to the office that Staples offers.
They are open early and late and there seems to always be cars in the parking lot any time I drive by there at even odd hours. It is certainly not the kind of place people go to window shop either. They go to Staples to buy. They are the epitome of a destination store and many people make it their destination.
Strike Price and My Plan to Buy
I intend to add them to my portfolio at a strike price of $16. I’m in no big hurry and if I miss it, that’s okay. I’m bargain hunting and expecting to hold this for a while to let them sort things out and get their online retailing strategy hitting on all cylinders.