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Analysis: Staples-Office Depot Merger Could Lead to Major Industry Consolidation


By Will McKitterick, analyst, IBIS World

The office supply stores industry already exhibits a high level of market concentration, with the two largest companies (Office Depot Inc. and Staples) accounting for the vast majority of industry revenue. This merger would bring 73.6% of the total market share under the control of the newly formed entity. That could be troublesome for the rest of the industry which is mainly comprised of nonemployers and small regional chains.

The vast majority of industry operators will likely find it more difficult to compete with discounting and prices offered by this new office supplies behemoth. Reduced competition was the main reason regulators decided to shut the deal down in 1997.

But this time, regulators may give the deal their blessing. A lot has changed within this industry since the 1990s. Today, office supply stores face competition from operators in a variety of external industries including discount stores, warehouse clubs, supercenters and ecommerce websites. Typically, these competitors are able to maximize cost savings by purchasing large volumes of inventory at once, allowing them to offer heavily discounted products to consumers.

In addition, ecommerce websites, like Amazon, have a convenience advantage since consumers can shop from home or at the office. These factors could ease concerns that the merger could lead to a significant drop in competition within or outside the industry.

Forecast: A merger between Staples and Office Depot has a chance to help shore up industry revenue, which has declined steadily at an average annual rate of 0.8% over the five years to 2015. But any further consolidation within the office supply stores industry is likely to reduce the competitiveness of the rest of the industry’s operators. What is known is that any merger, even of two currently dominant companies such as Staples and Office Depot, is unlikely to stem the onslaught of competition coming from ecommerce and big box competitors such as Amazon, Walmart, Target and others.

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