3 Tips for CPOs on the Possible Staples-Office Depot Merger

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In less than two weeks, the Federal Trade Commission is expected to release its decision on the proposed Staples-Office Depot merger. But for now, as the deal sits in limbo, we have rounded up our recent coverage on Spend Matters and Chief Procurement Officer on what steps procurement organizations, and CPOs specifically, can take to prepare for a possible merger.

1. Do Your Research

Understand what a possible merger of the “Big 2” office supply companies could mean for your procurement organizations and the prices you pay for office supplies. Pierre Mitchell, Spend Matters chief research officer, suggests reading a white paper published this summer by The American Antitrust Institute: “The Proposed Merger of Staples and Office Depot: Lessons from History and New Competitive Concerns.”

While the paper clearly seems to be against a Staples/Office Depot merger, it does provide insight on why such a deal is anticompetitive, Pierre said over on Chief Procurement Officer. As Pierre wrote, CPOs need to be wary of implications and be prepared for countermeasures. If the FTC decides to give the green light to the deal in a week or so, procurement needs to be prepared.

2. Don’t Expect Cost Savings

While Staples may try to promote any price savings coming from the merger as getting passed down to the customer, this is unlikely to actually happen. The question isn’t if there will be a price increase in supplies following a merger but how big that increase will be, Pierre has said regarding the deal. Pierre also recently wrote how a lack of competition will no doubt be a result of a Staples-Office Depot merger. “A ‘Big 1’ means the race to the bottom slows,” he said, which means possible competitors, such as Amazon Business, won’t need to slash prices as much to compete.

CPOs can start trying to lock down pricing now, Pierre suggests, or have your group purchasing organization (GPO) do so. Resistance is likely though:

“...[Y]ou may want to review your Office Depot/Office Max contracts for how well those rates you locked in on SKU X will transfer to SKU Y in a Staples catalog,” Pierre wrote. “And of course, you should beware when you punch out to their website, they have lots of stuff to offer up to you beyond your core items, and even if you lock that down, there’s always the p-card channel. And there’s even more things they can do (e.g., lower the quality for the same SKU), and if you somehow manage to lock down everything and actually become a non-attractive client, it’ll show up in the account profitability analysis, and they will unwind the contract any way possible. They’re not mean, but they have a business to run!”

In discussions Pierre has had with procurement leaders and category experts, he hears how procurement organizations seem to be underestimating the headache the possible price increases the merger might cause. This, by the way, offers more proof for why CPOs need to pay attention to No. 1 listed above and prepare properly.

3. Define Your Market Basket

“Markets are not just about suppliers and their products. They start with demand stemming from specific market baskets that satisfy the needs of individual firms,” Pierre wrote in another recent article.

Defining your market basket and how you select suppliers against it matters for a few reasons, Pierre explained. It matters for the short term for your immediate needs, in the medium-term for renewing contracts and in the long-term as supply markets evolve and meet requirements of other large buyers. Pierre continued: “In the short term, there is nothing wrong with finding new ways to segment and supersize your spend, but if your objective is to minimize your supplier counts (per billion of spend) and try to maximize your aggregation leverage and purchase price savings (per billion of spend), then don’t be surprised if you have buyer’s remorse – or “spaver’s remorse” – when your ‘winner-take-all’ strategy backfires in procurement systems as well as in office supplies over the longer term.”

There is much more ahead from Pierre on how CPOs can “rip apart their supersized market baskets when the price increases eventually come rolling in.” Stay tuned to the Spend Matters Network for continued coverage of the proposed Staples-Office Depot merger and what the procurement organizations need to do to prepare.

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