Investment Thesis
Staples (SPLS), like its competitor Office Depot (ODP), has many retail stores which is causing investors to misunderstand the business opportunity facing Staples. Investors associate Staples' stores as just another retailer. But this is not a true reflection of the business opportunity facing the company.
Staples is pivoting away from solely selling consumer goods towards selling office services. The business opportunity is so great that another competitor, Xerox (XRX), has also found itself pivoting towards this business opportunity. To my understanding, there are at least 3 large public companies now attempting to sell services to office customers rather than only selling office products. Not to mention smaller and independent businesses. This implies a highly fragmented and competitive market. Nevertheless, in spite of potential execution challenges, I believe that Staples is still undervalued relative to its full potential.
Business Strategy
Starting 2016 Q4, Staples broke down for investors its two operating segments in order to give investors a better understanding of its key business opportunities.
Its two operating segments are North American Delivery (including online and Staples Business Advantage) and North American Retail (more on these to follow). Staples continues to focus on its Staples 2020 strategy, which includes:
- Grow the mid-market in North America;
- Remain profitable in North American stores;
- Cut back on costs throughout the company; and
- Remain focused on North America.
As of the latest quarter, it added an additional area of focus, what it refers to Pro Categories. This includes, facilities, break room, furniture, technology solutions and promotional products. Shira Goodman, the CEO, believes that these core products are what Staples is known for selling already, but together with the company's expertise could lead to a more profitable relationship with customers.
Overall, Staples' business strategies are working as the company's gross profit increased to 26.0% from 25.5% YoY, a
