STAPLES.COM

1. STAPLES.COM internet business models text and cases ANUP SHARMA

2. STAPLES.COM • Beginning • Company History • Business model • Competition • GBF • conclusions

3. Beginning • Staples Inc. was started by Tom Stemberg and Leo Kahn in 1986. • Core business was selling office products • The idea was to eliminate the middleman, the company could offer lower prices than competitors • The first Staples Office Superstore opened in Brighton, Massachusetts ,1986

4. Expansion phase • Targeted the small business market. • By 1989, 23 stores in operation including major concentration in New York, Washington D.C., Philadelphia, Boston and other northeastern USA. • Staples constructs a 32,000-square-foot delivery distribution center at its warehousing center in Putnam. 199O • 1OO stores by 1991, sales over $547 million

5. Expansion phase cont. • Expands on west coast with 1O stores in L.A itself. • Invests in Business Depot, Ltd., a new Canadian office superstore. • Expands in Florida, the home of rival office depot. • Acquires a 48% stake in MAXI-Paper, an operator of five office superstores in Germany. • Partners with Kingfisher plc to open office superstore in the U.K.

6. How did they do it? • Marketing Strategy • telemarketing to draw customers to the stores. • special discounts to secure repeat business. • invests more than $1 million to develop a database of small businesses. • negotiations with leading online portals to get featured as a lead office supplier. • Private Label line of generic office supplies at unusually low prices. • Aggressive market strategy for vast customer acquisition.

7. Acquisitions • Business Depot, for $32 million. • Two contract stationers in New Jersey and New York , D.A. MacIssac, Inc., a regional contract office supplier. • Ivan Allen Co., a regional office supplies dealer, and Quill Corp., a direct marketer of office supplies through mail-order, the Internet, and telemarketing.

8. Acquisitions Cont. • Claricom Holdings Inc., a provider of telecommunications products and services to small businesses. • Three European office supply companies--Sigma Burowelt of Germany, Office Centre of the Netherlands, and Office Centre of Portugal. • Partenership with France's Lyreco Group to access the Asian, Canadian and Europeans markets.

9. Industry and environment • Market for office supplies was blooming. • Small and larger businesses were looking for easier access to stationary and other office products. • Rate of small business creation was increasing. • Not many major players other than office Depot and office Max.

10. Competition. • Major Competitors - Office Depot and Office Max. • Local drug stores • Supermarkets and stationary stores • Major discount chain such as Wal-Mart.

11. Concerns.. • Competitors had an online presence and were stealing away market share. • Internet was becoming a major part of the businesses. • It appeared that the first in the game will win other’s stake. • Convenience as a major requirement by clients.

12. Birth of Staples.com • Main reason was to create an online presence in order not to loose the market share. • A separate business Unit for Staples Inc. • Delivery and most other processes were still integrated with the parent company. • Target customers were small office, home office or SOHO market. • Aimed at changing the way business buy office supplies • Every retailer was trying to grab a stake on the digital frontier- no matter how big their company’s market cap was.

13. Marketing for Staples.com • Jeanne Lewis, decided to market this online division in a different fashion than a regular internet start-up. • Management took the multichannel approach moving as the clients move. • Bill boards, television spots, radio and other offline media was used to get the message out there. • First step was to create a good performing website and second was to throw it in the market.

14. Financing • September 15, 1999 . Issuance of tracking stock for funding marketing plans and potential acquisitions. • November 1999, issued 5% equity stock to 5 VC’s including General Atlantic, Highland Capital Partners, and other investment firms. • Main reason for this equity distribution was to gain some outsider expertise and exposure for tracking stock.

15. Analyst Concerns… • Why would a 14 year old well established chain decide to start new model? • How would Staples.com fit in the parent company culture. ? • Would the resources of the parent company enough to share with the online division. • How about the current staff? • Would this be a complementary effort or cannibalizing own business?

16. Tom Stemberg's answers • “The way I look at it is that I am better of cannibalizing my business than waiting for one of the competitors to do it”. • “Eventually I know these already established cyber stores of Office Max etc would squeeze us out if Staples.com did not go online. They were gaining market share and offering next day delivery. That’s when I knew I had to develop a site that offered more value for the customer than theirs did”

17. Adjusting of Staples.com • Lewis decided to distinguish Staples.com from parent company. • New physical façade and creative interior design. • Employee benefits, perks and game rooms and coffee facilities. • Creating a feeling of an internet start-up.

18. Value to the client • Clients could set uptheir own homepage that could be customized with personalized shopping lists, e-mail reminders, favorite aisles and product matchmaker service. • Comparison shopping • Clients can set up group accounts. Allows multiple employees to shop on the website. • Frequent delivery and confirmation options.

19. GBF factors • Network effects- none- no relation between different managers buying products. • Scale of economies- substantial- more client does add to the opportunities to expand and cost reduction • Customer retention- substantial as well- cost of moving for the customer will be high once a member. Hence the customer lifetime value is definitely positive as major customer base is comprised of businesses and professionals who as long as they keep getting the service, will stay and pay.

20. Success Story • Staples.com achieved its goal of becoming the leading online retailer of office supplies. • Sales jumped over a million and operating profit increased through 95%. • Lewis decided to simultaneously offer business services to create competitive edge. • Aimed at becoming one stop e-commerce shop for small business.

21. Success cont. • Investment in two internet companies: Register.com, an online domain-name registry and Point.com, which sells some 2OO wireless phones and offers more than 3OOO wireless plans over the internet. • Deals allowed clients to register a domain name and keep a close eye on client’s order’s to understand spending nature.

22. Conclusions • Staples.com is a successful online retailer. • It has enhanced the core business and has added a value to it. • Staples.com management took the environment as threat and hence came out with Staples.com. • There were concerns regarding integration of this online division into the parent company but the venture was very well executed and controlled.

23. Q U E S T I O N S ????/