Is Staples doomed? 7 red flags

The shopping experience is lacking, with missing products and items that don't fit the mix.

By MSN Money Partner Nov 11, 2013 1:58PM
People leave a Staples store in Broomfield, Colorado (© Rick Wilking/Newscom/Reuters)By Brian Sozzi, CEO and chief equities strategist at Belus Capital Advisors

"We are gaining momentum in many parts of our business." -- Staples (SPLS) CEO Ron Sargent on the first-quarter 2013 earnings release.

Right, gotcha. Listen, ever have an investment that completely blows up in your face seemingly out of left field? You know, things seem fine at the company and then BOOM, a massive earnings warning rains down from the financial heavens and the stock price is rocked. 

Staples could be one of those investments in the future -- if you let it. The company is a profitable big-box retailer in an age of rapid mobile adoption. It has pitched to investors that a major restructuring plan will set it up for long-term success, and hey the CEO says its "gaining momentum in parts of our business." Don't be fooled, however.

The real deal on Staples is that the stores themselves are helpful tools in understanding the company's tragic fate. Detailed below is how I decode Staples stores during random powerwalks.

1 alarming stat on Staples
Free cash flow 2012: $870 million
Free cash flow 2009: $1.8 billion

7 Explanations on why Staples is doomed

1. The stores lack an in-store experience that connects them to the huge Staples.com online store. Macy's (M), Best Buy (BBY) and Home Depot (HD) offer far superior interconnected experiences.


2. The back of the store is wildly unproductive, but still being paid for each month. Staples should not only be exiting U.S. stores more aggressively, but repurposing them so that they generate consistent profitable sales. For example, why not convert the back of Staples stores (which currently hold chairs and large open pockets of air) to small-business workstations that could be rented daily/monthly, while also keeping people in the store spending at the UPS copy station?


3.Consistent MIA product displays discourages a sale and erodes confidence in the brand. Not having attention to detail is not what a retailer badly in search of sales needs.


4. Inventory dollars are being invested in merchandise such as Tide Pods, ice melt, and paper towels. In looking at the sales and traffic trends, these initiatives are not working, explaining the constraints of the office supply business model.


5. International is a low-margin business that is now operating at sustained losses. It must be completely exited ASAP, perhaps with funds being used to repurchase shares ($1.1 billion in total between 2012 and 2011).


6. Persistent out of stocks in go-to items like paper and pens is unacceptable, and sends consumers to Target (TGT) and Wal-Mart (WMT), which have both done better jobs in office supplies.


7. Staples offers a woeful experience in Apple (AAPL) products, in terms of customer service and range of assortment, relative to Wal-Mart and Best Buy. I don't see this changing anytime soon, disappointing since all big-box retailers should play nice with a company continuing to reinvent the wheel. Imagine how Staples' electronics section (carrying declining in usage PCs) will fare when Google (GOOG) sets up shop inside Best Buy and Samsung continues to roll out its easy on the shops.


Brian Sozzi is CEO and chief equities strategist of Belus Capital Advisors. 


Disclosure: Neither I, nor my firm, own shares in Staples or any of the companies mentioned. Belus Capital Advisors presently rates Best Buy at a "buy" rating.


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99Comments
Nov 11, 2013 2:54PM
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Writer needs to go back and take High School English again !
Nov 11, 2013 2:43PM
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If their Apple experience is woeful compared to my local WalMart, then they are indeed doomed!  My local WalMart has a half empty display case, staff that is mostly MIA, and lots of empty pegs on the accessories rack.
Nov 11, 2013 2:51PM
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Rule of thumb - Count the number of third worlders 'shopping' in the store,..if it exceeds 30% the store is likely doomed to a slow but inescapable death. 

If the number of third world workers (cashiers, stockpersons, etc.) exceeds 40%, the decision at the corporate level has probably already been made to close the store - due to losses, internal and otherwise.


Nov 11, 2013 2:55PM
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You think Staples is having trouble, look at Office Max. Half of their store shelves are empty. I notice MSN is reporting some good news on JCPenney so now it is Staples turn to be the store going out of business. MSN Money takes great pride in predicting the failure of American companies!
Nov 11, 2013 3:10PM
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My cousin works for Staples and he just had to go to a huge meeting about the future of Staples.  It seems that they are expanding the inventory of items ( for example, ice melt and paper towels) to meet the needs of the business consumer, however large or small the business may be....they want to make it a one stop shopping experience for the consumer.  Meanwhile, they are cutting hours and staff, which is a big reason why the customer service is so bad.  They simply do not have a enough people to work and the employees they do have, get treated poorly. 
Nov 11, 2013 4:24PM
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I thought Staples had the "Easy Button".   They just need to push it.
Nov 11, 2013 2:52PM
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I stopped shopping at Staples - They are expensive and their clerks are rude. They down sized the one here - cut it in half.
Nov 11, 2013 3:34PM
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Wait....isn't this the same guy that said Best Buy was 'doomed' just a few months ago? Now they have a better 'experience' - I suppose BB must actually read this junk!
Nov 11, 2013 2:53PM
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GOOD BARGAINS:WOW !$8 an hour.You can sure support a family on that.It`s OK or CEO`S

to make millions,get fired,get more millions and the workers to get crap.Americans better wake up.

Nov 11, 2013 4:12PM
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Gee, I hope Staples CEO reads this!  Renting out space in your storeroom is like renting out space in a barn- make use of the "dead" air & get some revenue!
Nov 11, 2013 5:15PM
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I tried shopping at Staples but their snooty salespeople and high prices drove me away.
Nov 11, 2013 7:21PM
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The little Staples store near me is always busy. I never have had a complaint about the place so far. One time I called to see if they had a wireless keyboard instock. They had only a few left and there was a sale on them. When I got there I asked if they had any left, the guy I spoke to on the phone hid one for me behind the counter. He knew I was going there to pick it up. So I got my $30 keyboard on sale for $20.

Staples is doing fine in my book. 
Nov 11, 2013 2:39PM
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Staples was the company Romney used as an example of how he could create great jobs. Ones with starting pay around $8 an hour.
Nov 11, 2013 3:54PM
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What about the commercial business and the thousands of companies that get next day deliveries.  I don't know the details but I believe they would dwarf retail.  I am a cost reduction consultant ahd have done many competitive bidding exercises all of which include Staples.  They usually are not the least expensive but over the many years I have been doing this, I feel they are the best run office supplies vendor.
Nov 11, 2013 3:37PM
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The writer's skills with the written word do not conceren me. I shop Staples regularly and have to say I agree with his financial assetment of the company.   And whether he expresses that in english  Mrs. Jones would have given a "C" in 9th grade is irrelevant to the advice.
Nov 11, 2013 3:46PM
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Their Service still beats the Hell out of Best Buy.( Abucnh of ****s who do not Warranty anything)   Bevis and Buthead Idiots..

 

Nov 11, 2013 4:05PM
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Walmart can't answer many of my questions , Best Buy did better but Staples didn't have the computer i wanted to look at. I will probably buy at Best Buy, i just wish they carried the top rated virus protection devices.
Nov 11, 2013 8:15PM
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I really like the Staples I go to...really friendly and helpful employees...prices are reasonable, I always receive great service.
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My shopping at Staples has been fine.  I went to one in Washington DC and they were very patient, friendly and good with making my Business Cards.   They didn't just say here.  They offered suggestions and samples until I was happy. 

I shopped at one in Clinton MD and the Manager went the extra mile to check the deal on the network drive I wanted.  And I got it.   He didn't just say, "sorry it is not on sale nothing I can do for you."  So I left there happy as well.

I just purchased TWO MFC laser printers.  One for the home and the other for small business.  The lady in Annapolis was familiar with the product and was very informative and friendly.   When I decided to buy another associate saw me with them on my cart and offered to put them on a flat cart they use for safer travel through the store and to my car for delivery.

I'm not sure what people are looking for.  My experience with Staples has been fine. 
Nov 11, 2013 6:38PM
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The Staples near me seems to be doing a booming business, so this is surprising to read.
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