Staples says "it's retail footprint it too vast and its locations are too big." These are two reasons why the office-supplies retailer plans to close over 200 stores. Staples downsizing is following in the footsteps of smaller outlets like RadioShack and J.C. Penney. Although Staples is scaling back, the CEO wants to make it clear that they are not getting out of the retail business.
One of the country's biggest retailers sounded a worrying call for the future of brick and mortar: Staples Inc. SPLS 0.00% is not only closing a big swath of its North American stores, but it also wants those that remain to be half the size.
With more than 1,800 outlets in the U.S. and Canada, Staples plans to close up to 225 stores over the next two years after a weak holiday quarter convinced executives its retail footprint was unsustainable. The cuts add to the 40 locations Staples shuttered last year and 40 stores that were shrunk, moves that eliminated more than 1 million square feet of floor space.
"I want to make it clear that we're not getting out of the retail business," said Ron Sargent, Staples' chairman and chief executive, during a conference call with analysts. "That said, stores have to earn the right to stay open."
The downsizing follows similar moves from smaller outlets like RadioShack Corp.RSH 0.00% and big department stores like J.C. Penney Co. JCP 0.00% as companies grapple with increased online purchases and declining shopper foot traffic at malls and shopping centers. The shift has hit retailers of electronics, appliances and office supplies the hardest because those items have moved online more quickly than other goods, according to data from Kantar Retail.
Even with a robust ecommerce operation—Staples is the nation's second-largest online retailer by sales behind Amazon.com Inc., according to trade publication Internet Retailer—the company said its retail footprint is still too vast and its stores are too big.
"I travel and go to a lot of stores and they feel too big," Mr. Sargent said. "We're going to be aggressively trying to reduce the size of all of our stores going forward."
Smaller store formats should improve the company's profitability, Mr. Sargent said, because the rent costs half as much while maintenance, wages and other expenses are reduced. Staples has also found its 12,000 square-foot stores still sell nearly as much merchandise as stores that are twice the size.
Shares of the Framingham, Mass., office supplier fell 15% to $11.35 Thursday.
The company reported its North American comparable-stores sales dropped 7% during the holiday quarter. Staples' same-store sales in North America have declined for six of the last seven years as the broader office supplies market suffers from evaporating demand. Staples expects overall sales to continue sliding in the current quarter.
Staples built out a large online operation offering office supplies to corporate clients. In the last year it has quintupled the number of items available online, now offering half a million items for sale. Internet sales accounted for nearly half of Staples' $23 billion in yearly revenue, the company said.
Staples expects to break some leases as it exits less-profitable locations. The company is trying to concentrate its presence in smaller stores as huge showrooms are no longer needed to display large desktop computers and monitors.
In the stores that remain, the company plans to swap as many as 1,000 of its worst-selling offerings for a wider variety of products like break-room supplies, office gifts and early education products, in a bid to attract more sales from small businesses. The product expansion, scheduled to begin later this month, will include 1,600 new items.
The shift to new products could muddle Staples' old identity as a one-stop shop for office essentials, as some slow-selling supplies go online and the chain stocks more varieties of profitable items, like "organizational accessories"—such as binders and storage bins—that appeal to a wider audience.
Mr. Sargent hasn't been eager to compete toe-to-toe on price with other mass-market retailers. Sales of electronics, for instance, plummeted over the holidays because the company wasn't willing to match deep price cuts from rivals like Best Buy Co. BBY 0.00%and Wal-Mart Stores Inc. WMT 0.00% to grab more consumer traffic.
For the three months ended Feb. 1, Staples's profit rose to $212.4 million from $78.1 million a year ago. The year-earlier results suffered the drag of one-time debt payments and the termination of a joint venture in India. Overall sales fell 11% to $5.87 billion, though the year-ago period included an extra week.
—Michael Calia contributed to this article.
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