With one acquisition, Staples doubles up on competition

Framingham, Mass. —Staples’ already comfortable lead over rivals Office Depot and OfficeMax has widened substantially following the recent acquisition of Corporate Express, which created a $27 billion global powerhouse with operations in 27 countries.

“The deal transforms Staples from a predominantly retail company into a global distribution company with a strong retail network,” chairman and ceo Ron Sargent said during a conference call to discuss the integration process that lays ahead of the companies. “Before the acquisition, 60% of our sales came from our bricks-and-mortar locations and the other 40% from delivery operations. Now that ratio is reversed.”

Not only is Staples now significantly larger than Office Depot and OfficeMax, whose combined sales last year totaled $24.6 billion, but it is also in a position to widen the financial performance gap it has long enjoyed. Staples produces 9.5% operating margins from its retail business, and its delivery business is even more profitable with a 10.8% operating margin.

As the company turns its attention to integrating the $8 billion Corporate Express business with operations in 21 countries into its existing $20 billion business with operations in 22 countries, it will be looking to apply its profitability formula to the Corporate Express business in North America. Conversely, in Europe, where Corporate Express is stronger, Staples will be looking to improve upon the 3.6% operating margin generated by its weakest business unit.

The improvements will take time—approximately three years, according to the company—but eventually, synergies in the range of $200 million to $300 million are expected to be realized, with much of that coming from improved purchasing.

“We’re currently reviewing and comparing all vendor contracts that Staples and Corporate Express had in common, and where differences are found we will expect our suppliers to provide the more favorable terms,” Sargent said. “Additionally, we are now twice the size of our closest office superstore competitors and this should offer us great competitive advantage due to economies of scale, and will help us obtain better terms from vendors in future negotiations resulting in better prices for our customers.”

The acquisition is the latest in Staples’ history, and to ensure the integration process goes smoothly, Shira Goodman, Staples’ evp of marketing, and Tim Beauchamp, senior vp of customer care and distribution operations with Corporate Express, were assigned to oversee the integration and more than a dozen committees that were created to identify and capture synergies.