Proposed merger with Office Depot opposed by Feds.
Office supply giant Staples recently announced plans to shutter 50 stores in the face of a downward spiral in sales and a contentious battle to take over its main industry rival. News of the impending closings came as the company shared the results of another lackluster quarter that witnessed a decline in same-store sales by 5% and a boost in online sales of only 1%.
Staples has been treading water in the earnings department for some time. Over the past two fiscal years, the company has shuttered 242 North American locations, bringing its total down to 1,607 stores. The 50 new closings should occur before the year’s end, a move hoped to slow the impact of declining sales. In addition to its shrinking same-store sales, the company also reported a dip of 1.4% in its business segment services, and it estimates another decline in current quarter earnings.
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The belt tightening for Staples comes as the retailer is continuing its bid to buy out competitor Office Depot. The $5.5 billion cash-and-stock deal has drawn fire from the Federal Trade Commission, which sued to block the merger. The FTC contends the combined company would have a corner on about 70% of the corporate services market, giving Staples an unfair advantage over competition. Staples countered in court that competition from such players as Amazon and Amazon Business is vigorous. The trial is set to start in March.
Cornering the market or not, a Staples and Office Depot pairing might not add up to the win that some anticipate. Office Depot also has taken a sales beating in recent years as Walmart and Amazon have jockeyed to take a bite out of the online market. Office Depot’s situation admittedly is a bit rosier than Staples’, with same-store sales flat in the fourth quarter and for the past year. However, Office Depot’s business solutions segment suffered a sharp 6% decline in fourth quarter sales.
While Staples estimates $1 billion in savings within three years of an inked buyout deal, most likely through store closures, layoffs and consolidating distribution centers, some analysts remain skeptical that the pairing will turn around the numbers.
