Ongoing weakness at Staples' North American retail division has resulted in the planned closure of 225 units as part of a larger expense savings program and increased emphasis on digital initiatives.
The store closure announcement, part of a larger plan expected to save $500 million by the end of 2015, was announced in conjunction with the release of fourth-quarter results and new insights regarding the company’s online business.
Profits during the 13-week fourth quarter ended Feb. 1 increased to $212 million, or 33 cents a share, compared to the prior year’s 14-week fourth quarter, which saw profits of $78 million, or 12 cents a share. Despite the profit improvement, the sales picture at Staples remained challenging during the fourth quarter. During the period, total sales declined 3.8% to nearly $5.9 billion while sales at the North American Retail division declined 5.7% to $2.9 billion, excluding an extra week from the prior year reporting period. Same-store sales declined 7% and operating profits for the division fell to $176 billion from $317 million.
According to the company, sales declines in business machines and technology accessories, office supplies and computers, were partially offset by growth in facilities and breakroom supplies, paper and copy and print.
The newly announced closures follow a net store count reduction of 34 units last year which left Staples with a total of 1,846 stores in the U.S. and Canada at year end. Even with the elimination of 225 stores this year, Staples will continue to have a sizable retail footprint it can leverage to offer shoppers an omninchannel experience.
"A year ago, we announced a plan to fundamentally reinvent our company," said Ron Sargent, Staples' chairman and CEO. "With nearly half of our sales generated online today, we're meeting the changing needs of business customers and taking aggressive action to reduce costs and improve efficiency."
Sales at Staples.com increased by 10% during the fourth quarter as the retailer offered a dramatically expanded online assortment which increased to 500,000 products at the end of 2013 compared to 100,000 at the beginning of the year.
Sargent’s assertion that half the company’s total sales are generated online, while technically accurate, tends to overstate the situation with its physical stores. That’s because the company’s digital penetration rate is skewed by the dynamics of its nearly $2 billion North American commercial division, which focuses on large corporate clients whose interactions with the company are virtually all online.
In addition to saving related to store closures, Staples said additional savings would come from unspecified initiatives in the areas of supply chain, labor optimization, non-product related costs, IT hardware and services, marketing, sales force and customer service.