What is the Next Step for Specialty Retailers (Staples and Office Depot)? A Technique to Enhance Customer Loyalty, Drive Growth, and Build Durable Competitive Advantage.

Executive Summary:

Specialty retailers such as Staples and Office Depot have encountered challenging times due to the disruptive business models coming from the likes of Amazon, Walmart and Target. In this thought piece, we assert that both companies could significantly benefit from leveraging local SMB service providers as valuable customers and partners.  As a customer, the SMB community is a large market with many unmet needs related to operating their business online.  As a partner, the SMB community can provide valuable complementary services which can be “networked” through the specialty retailer (similar to Apple’s iTunes store) to complement their traditional product sales.

With this strategic direction, specialty retailers can capitalize on their traditional strengths (brand, employee force, and nationwide retail presence) with a cloud-based, SMB optimized platform (their ITunes) to build a business with high-margin revenues and durable competitive advantage.   

Details:

Specialty retailers such as Staples and Office Depot have built very successful businesses in the area of office supplies. However, recently both companies have hit on hard times as evidenced by the closure of approximately 250 Staples stores and 400 Office Depot/OfficeMax locations.

Ref:  Statista Chart of Day

Figure 1:  E Commerce Space

Both companies are caught in the middle of two powerful forces, ecommerce and colossal scale one-stop retail.  With ecommerce, Amazon provides a compelling solution for customers who are looking for convenience and are willing to wait for the shipped product. Meanwhile, retailers such as Walmart and Target provide low prices and the convenience of one-stop local shopping experience. Companies such as Staples and Office Depot must build differentiated value statements beyond specialization and discounting  to pull customers to their stores.   As a result of these trends, the foundational business around products (especially consumables or commodity) is eroding quickly. What is the answer?

Initially, both companies have been trying to expand their ecommerce through their own brands. As figure 1 shows, Staples has seen some success with this model, and Office Depot also has a presence. However, their long-term durable advantages against Amazon/Walmart are not clear. This begs the question:   What competitive advantages can Staples and OfficeDepot leverage to service their customers? In our view, they are:

1. Strong Brand with unique access to the small and medium sized business market
2. Nationwide retail presence to interact at the local level.
3. Perception of a Technology Savvy Staff  

Why does focusing on SMB market make sense?

The SMB marketplace is a massive (over 28 Million in US alone), and has significant needs which can be addressed by Staples/Office Depot. Based on our research, SMB decision makers have the following characteristics:

1. Very Busy and Time Constrained.
2. Older and not comfortable with technology (especially internet technology), but recognize the need to imperative to engage on the Internet to get to their customers.
3. Highly interested in methods to grow their business, however they feel like they are the row-boat in the ocean. They are looking for partners.
4. Looking for affordable services to offload their time and gain access to expertise.
5. Looking for a face-to-face interaction model.
6. The vast majority do not have a mobile-optimized website, nor the knowledge to leverage the internet more fully for their business.
7. The vast majority of SMBs are providing local services so product oriented platforms such as Amazon/Ebay fall short of being very useful..

Hence, targeting the massive SMB market seems natural both from a customer and partner perspective. SMBs are looking for a brand and technology platform partner to help differentiate themselves in a highly fragmented market while at the same time SMBs are looking for a trusted source of affordable services to offload their time and gain subject matter expertise. Staples/Office Depot can fulfill both needs for SMBs. How ?

Imagine a cloud-based platform (let’s call it SMB-Core for now) where Staples/Office Depot SMB customers can either through a self-service portal or work hand-in-hand  with Staples/Office Depot staff  to easily build a sales/marketing and operations infrastructure for their SMB in under a half hour. The cloud platform would provide the SMB:

1. Home-page web presence optimized for user interaction, search, and mobile devices.
2. Ability to build Offerings  which can handle products as well as complex services working models (scheduling, questionnaires)
3. Capability for SMBs to network with each other to propagate trust and build larger value statements for the customer
4. Built-in inventory fulfillment engine (with automatic reorders to Staples/Office depot )
5. Connections to the other standard cloud-based platforms used by the business (constant-contact, quickin, etc)

After the SMB is on the platform, there can be an additional ability to use the Staples/Office Depot brand to drive traffic to the SMB with an “itunes/app store” style model.  In this way, Staples/Office Depot can become the central organizer for local small businesses virtual communities. 

With such a platform, Staples/OfficeDepot can build a strategic relationship with the SMB customer with several significant differentiating features:

1. SMB customer will value the core capability, and once adopted, the system will become part of the core process flow of their company.  Staples/Office Depot will be seen as the foundational underpinning which enables their business.  Staples/Office Depot could charge for this capability ($25 to $50/month) or build a Trojan horse strategy.
2. As the customer updates his/her marketing approach, they will ask for updates on their internet infrastructure, this creates many value-added touch points with customer to sell other goods/services. This is higher value method to drive traffic as opposed to direct-mail coupons.  
3. With automatic fulfillment of consumables, Staples/Office Depot would have differentiated access to these businesses for their office supplies. Today, the customer can get consumables/commodities is one of a number sources.
4. Staples/Office Depot can charge a royalty for any traffic coming from their websites that generate a sale. (Apple Appstore charges 30%).

The strategic implications of the above approach are significant:

1. Staples/OfficeDepot brands are leveraged in a market (SMB) where it already has brand equity 
2. Staples/Office Depot brands are leveraged in the consumer market for the benefit of the SMB.
3. SMB customers crave physical contact which is a good hedge vs Amazon, and the perception of technical knowledge of staff reinforces the engagement.
4. Staples/OfficeDepot can now sell services along with its products for a complete solution.  This will not only create incremental high-margin revenue, but also fortifies their traditional products business.

At Ocoos, we have been tirelessly building such a platform to help SMBs successfully grow their businesses. We have a fast, simple and powerful cloud-based solution that can bring significant efficiencies to a very large fragmented arena.  For more information on the solution, please contact  [email protected] .