Sycamore Partners to Acquire Staples: What is the Broader Strategy Here?

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Private equity firm Sycamore Partners announced Wednesday that it would acquire office supply company Staples for $6.9 billion, though rumors of the deal had been swirling for a week. The acquisition comes after the Federal Trade Commission quashed a Staples-Office Depot merger on antitrust grounds a year ago, which Spend Matters covered extensively:

Like many brick-and-mortar retailers struggling to compete with e-commerce, Staples has seen its sales steadily drop over the past few years. In March, the company announced it would close 70 stores in North America, after having shuttered 48 stores in 2016. However, this is also happening alongside Staples’ pivot toward business customers, with B2B sales comprising 60% of Staples’ Q1 revenue this year.

As the Wall Street Journal reports, Sycamore plans to split Staples into three entities: U.S. retail, Canadian retail and corporate supply units. But beyond that, it’s unclear what broader strategy Sycamore has in mind. Taking Staples private has benefits like less public scrutiny and lower costs. Private equity firms are generally pretty good at pruning non-performing assets, product lines and non-essential headcount. The best ones are also good at using procurement and supply chain efficiencies as a weapon to gain synergies in their portfolios.

Beyond that, Sycamore seems to be more oriented toward fashion and less towards general merchandise — NBG Home and Dollar Express notwithstanding. The bigger question is what the broader strategy is. Here are some thoughts:

  • Go bigger on B2B and retune the merchandise mix (e.g., more industrial supplies and promotional materials, and fewer underperforming office supplies SKUs). After all, as we mentioned above, 60% of Staples’ Q1 2017 revenue was in B2B.
  • Go bigger in B2B and add in more business services (beyond print).
  • Try the Office Depot hookup again? It’d probably work now that Amazon Business is officially in the game. Still, this move is improbable.
  • Acquire Essendant or any GPO to drive more pricing efficiency.
  • Find new business models such as franchising and highly adjustable store footprints.

If I had to guess, I’d say that Sycamore has no long-term interest (or operational capabilities) in the complexities of B2B. This move will simply be a play to “unlock value” by spinning out Staples Advantage as a short- to medium-term move and maybe sell it off to a company like Wal-Mart or Costco (or eBay, for that matter), which desperately need a B2B growth engine right now.

Quite simply, there is currently no credible horizontal B2B supplier that can compete with Amazon Business.

What do you think? Where do you think this will go?

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First Voice

  1. Bill Kohnen:

    It has always struck me that Office Depot and Staples had nice B2B commerce platforms 10 to 15 years ago (that were SaaS and Cloud Based before those terms were even invented) that all Fortune 500 companies were using but somehow they were never able to capitalize on it.

    Perhaps because despite having good digital tech solutions they still maintain the Legacy Analog infrastructure of Sales Reps, centralized warehousing with a misunderstanding that consumer behavior would impact B2B practices in the office supply space early.

    While Sycamore may not have any direct experience in B2B E-Commerce the steps seem pretty clear to stripping away all legacy systems and going totally digital.

    The idea of adding further business services seems interesting but never seems to be sustainable overtime when companies take that approach.

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