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Staples is ramping up investments in its ‘Pro’ product categories as it kicks off Phase Two of its 20/20 strategic plan.

Staples is ramping up investments in its ‘Pro’ product categories as it kicks off Phase Two of its 20/20 strategic plan.

12 months after the company unveiled the 20/20 plan following the collapse of the Office Depot merger attempt, Staples CEO Shira Goodman said the company was evolving the plan, namely by adding a new “strategic plank” in the form of a focus on Pro categories: facilities and breakroom supplies, furniture, technology solutions and promotional products.

These are essentially what the reseller has been calling its BOSS (beyond office supplies) categories, and while the ‘BOSS’ term has not been dropped entirely – internally, at least – Staples is aligning its vocabulary with the new ‘It’s Pro Time’ marketing campaign it unveiled a couple of weeks ago as it tries to shake off public perceptions of it being a peddler of products such as staples and sticky notes.

The update to the strategic plan comes as one of the four main components of the original plan – the focus on North America – has largely been completed following the closing of the sale of the Staples Australia and New Zealand operations to Platinum Equity at the end of April. Staples expects its remaining non-North American businesses in Asia and South America to be sold within the next the next year.

The Pro categories push will involve hiring sales and product specialists, widening the product assortment – including scaling up on own-brand products and stocking more SKUs – and improving the digital customer purchasing experience. Goodman said that Staples would basically use the playbook it developed to grow facilities supplies into a $2 billion category for the company.

There will also be more emphasis given to how Staples communicates its capabilities in this broad range of categories. “Staples is already a market leader in each of these categories, but our market share is in the low single digits and most of our customers still don’t source these products from us,” she said on yesterday’s earnings conference call. “We are looking to better communicate and get credit for what we already do so well today.”

While Staples is aiming to grow these Pro categories with “business customers of all sizes”, the initiative is going hand in hand with perhaps the most important strategic component of the 20/20 plan: the focus on growing in the North American mid-market segment which comprises companies of 10-200 employees.

The early signs are encouraging for Staples and will act as a heads-up for the independent dealer channel (IDC) whose customer sweet spot has traditionally been in the mid-market.

Mid-market sales at the Staples Business Advantage contract unit increased 10% year on year in the first quarter, with 7% coming from last October’s acquisition of Florida dealer Capital Office Products and the rest from organic growth.

Much of this organic mid-market growth was in Pro categories which increased 7% year on year, excluding a further 5% impact from the Capital acquisition. Another key metric for Staples is the number of mid-market membership customers it is attracting; the company ended the first quarter with 91,000 mid-market members, adding a record 34,000 new accounts in the quarter and 70,000 in the past 12 months.

There is also a strong message about developing better relationships with customers and bringing together products, services and expertise – that almost sounds like arguments the IDC has used for years to differentiate itself from the big-box players. Goodman has talked for some time about changing the mindset at Staples, and if it is able to execute on developing an IDC-type approach to customer relationships backed up with the scale of its supply chain and $18 billion in purchasing power, then it will no doubt be a growing threat to local dealers.

Other takeaways from Staples Q1 results and conference call:

Online pivot

As the trend for more online purchasing gathers momentum (just-released Q1 figures from the US Department of Commerce point to an increase of almost 15%), sales at Staples’ websites – Staples.com, Staples.ca and Quill.com – have been sluggish, to say the least. Online sales were down in the first quarter, but it now appears this is part of a plan to shift the focus away from transactional, promotion-driven business towards the ‘stickier’ customer relationships seen in the mid-market push.

Goodman said the “modest” Q1 online declines were planned as Staples makes this “strategic pivot” in its consumer-facing e-commerce sites towards “a model designed for customers who value relationships and service”.

The first main page banner on the Staples.com website now encourages visitors to “take it to the next level” and sign up to a membership scheme available to companies with ten or more employees. This is right in line with the mid-market strategy, and Staples appears to have conceded the consumer and one-man-band type business customer space to the likes of Amazon and the mass-market channel.

Core OP continues to decline

Last year, it appeared that declines in traditional office supplies and ink/toner were stabilizing and even flattening out. That trend was short lived. Traditional office products declines were highlighted several times during yesterday’s conference call and things are not expected to improve for at least the rest of this year.

Retail profitability improving

Year-on-year quarterly operating profit at Staples’ North American Retail (NAR) network improved for the first time since the second quarter of 2015. This was achieved despite an 8% drop in NAR sales that included a 6% same-store sales decline, and came on the back of lower costs and less promotional activity.

This focus on profitability is consistent with the 20/20 plan and there was progress on the three key retail metrics: customer conversion, services growth, and store count. Nevertheless, there was a sharp drop in customer traffic, and there are doubts about how sustainable Staples’ retail strategy is if visitor numbers keep falling as they have done.

It will be interesting to see what Staples does in this year’s back-to-school (BTS) season. BTS has always been a key period for the Staples retail network, but the customer profile and heavy promotional activity no longer appear to tie in with the company’s B2B imperatives and profitability goals.