Adventures in Retailing Part V:
Office Superstores

by

Ross M. Miller
Miller Risk Advisors
www.millerrisk.com
April 25, 2005

Staples was present at the creation of the "big box" store concept and I was not far behind. I distinctly remember when the original Staples store opened in 1986 on Soldiers Field Road in the Brighton neighborhood of Boston just down the road from my office at Boston University and I dropped in to scope the place out during the first week they were open. The founders of Staples came from the supermarket industry and Staples started out like a supermarket warehouse store of stationery and random business supplies. If memory serves me as well as I would like it to, Staples sales receipts used to indicate the "Amount Saved" relative to theoretical retail prices at the bottom.

That first store is still there and I prefer it to the typical Staples store. It was (and still is) huge with a great selection. Back in the 1980s the prices were lower across the board than those in Harvard Square or at Boston University's bookstore/vertical mall. The store sported a large parking lot that rarely had more than half a dozen cars when I visited it. A gas station sat in middle of the parking lot and it was flanked by a liquor superstore. Liquor superstores may be peculiar to places like Boston and New Jersey, but office superstores have caught on with a vengeance. As Staples prospered, however, its new stores become smaller, its prices rose, and it has sprouted nominal competitors.

I will focus on Staples and OfficeMax because they are the office superstores that I frequent. I have visited an Office Depot or two in my time while on business trips—they cultivate a Home Depot with office supplies look—but I really have nothing much to say about them. Actually, all three chains are remarkably similar and not well-differentiated to the typical consumer. Still, Staples is the one that knows what it is doing and OfficeMax appears to be floundering along aimlessly.

OfficeMax shares the Wal-Mart philosophy of not renovating their stores, but what seems tacky at Wal-Mart comes off as almost charming at OfficeMax. (Because these columns are not vetted by legal counsel, I will not carry the comparison beyond this. Suffice it to say that the merest adverse mention in one of my commentaries can presage criminal indictments or SEC investigations on unrelated matters.) Local stationery stores tend toward the dilapidated, so the vintage OfficeMax stores seem more authentic than the neater, more Target-like, Staples stores. Office superstores may not be perfect, but I find that either at home or on the road it has become vastly easier to stay stocked with all manner of office-related supplies than it was in the "good old days." This is progress.

None of the office superstores appears to have particularly high customer satisfaction—a casual Googling will uncover horror stores involving all three major chains. Most of this bitching stems from unreasonable expectations. People believe that the sales personnel should know what they are talking about or that rebate terms should always be honored. I expect very little from any of these stores. I am never disappointed and can be pleasantly surprised.

The basic difference between my two local chains is that Staples has marginally higher quality goods at marginally higher prices and OfficeMax has better clearance sales items. (One of my local OfficeMax stores has had its "Largest Clearance Sale Ever" sign up for the last year and every few months I get a coupon from OfficeMax offering an extra 10% off clearance items. I am a member or both stores loyalty programs and OfficeMax offers better freebies.) The Staples clearance items are more of an afterthought. Indeed, one way to game the system at Staples is on those rare occasions where a reasonably big-ticket item goes into clearance mode and sells out right away, you can often find other Staples stores that have not bothered to reticket the item with the clearance price, yet still have the sale price in their computers. State item-pricing laws do not change the reality that the price is whatever the computer says the price is.

One of these days, after a few million more of my neurons have dimmed out, I think I will take my students on a tour of the OfficeMax clearance area. It is a case study in bad product ideas. For example, you might think that if you made a pencil good enough, then people would gladly pay $1 for one and $3 for a package of three pencils with a bonus "free" eraser. Back in the heady days of 1999, that is what German pencil maker Faber-Castell thought when they invented the Grip 2001 pencil and Business Week named the pencil one of its Best Products of 2000. The company was so proud of this marvel of pencil science that they ever created a 12-meter version. OfficeMax must have discovered that their typical customer had more sense than to spend $1 on a triangular pencil with black dimples and a crummy eraser and now I have a bunch that I got for $2.80/dozen, which is still more than the reliable Ticonderoga. Speaking of Ticonderogas, somewhere I have a dozen of the jet-black millennium edition of that pencil, also courtesy of the clearance area.

My pen collection is more sizeable than my pencil collection because I actually use pens on a daily basis. Every formula in every book or article that I have ever published (along with the handful of pitifully unpublished ones) started out being scrawled with a pen. Fortunately, during their salad days of industrial domination, the Japanese mastered the design of affordable pens. Over time, I have bounced back and forth between Pilot and Uniball pens and my current favorite is the Uniball Vision Elite. It is really smooth and does not leak even at low cabin pressure. It is not in the clearance area now and I doubt that it ever will be. I am also a big fan of Cross porous point pens, but one has to be much more careful of them and they have a tendency to dry out even when tightly capped.

While writers and assorted scribblers have an almost fetish-like attraction to pens (didn't Freud say that sometimes a pen is…oh, never mind), the old stationery stores have two big advantages when it comes to pens. First, because they stock pens that are not blister-packed, one can try new pens out in the store. Second, stationery stores tend to carry exotic pens that either take months to show up at the chains and sometimes never reach them at all. In days past, I discovered some of my favorite pens at the Caltech bookstore (geek central in Southern California) and Waldeck's in San Francisco. Manhattan still has a number of good haunts for penophiles, including Kroll across from Citigroupland and Lincoln Stationers across from Lincoln Center. Of course, Staples has colonized a good chunk of that island with a variety of smaller stores. Fortunately, the two types of stores seem able to coexist peaceably.

While OfficeMax is perpetually doomed (anti-trust laws kept Staples and Office Depot from divvying it up some time back and then it merged with Boise Cascade to keep the game going), the office superstore concept looks like it can stick around for some time. Although Wal-Mart did serious damage to Toys 'R Us, neither it nor does Sam's Club seem to understand the office supplies business because they are unable to get into the obsessive-compulsive mindset. That said, both stores can certainly do some real damage by nibbling away at select items, especially ink and toner for the more popular printers, which are big profit centers for the superstores. Target does a bit better, at least its stationery section is neatly organized, but other than the Peter Graves stuff its offerings are mundane. (Target does, however, seem to understand the clearance concept—it liberally sprinkles clearance items around the periphery of the store.) While Amazon.com provides online office supplies, they could have trouble competing with the aggressive couponing campaigns of the three majors.

The big thing missing from the office superstores is coffee. Sure, you can buy coffeemakers and bags of Starbucks coffee at Staples, but an embedded coffeehouse, like those at the big bookstores and some Targets, could help stimulate traffic. The SOHO types who frequent office superstores make a natural community and coffee would fit nicely into the concept. And the coffee smell would mask the toxic fumes coming from the copier area. Indeed, given that none of the superstores excel in making anything more than the most rudimentary copies (a month does not pass when I do not get a $10 coupon from Staples trying to bribe me to use their copy center), converting the copy area into a coffeehouse would improve the olfactory ambiance considerably.

Next up, I debut my first Financial Engineering News piece, "Be Careful What You Model," which is a look at the Cox-Ross approach to derivatives valuation. (Don't worry, my next FEN piece, which appears in early July, will be a "review" of a science-fiction movie about a future in which everyone is securitized. Seriously.) Another adventure in retailing is on its way this summer just as soon as I make it back to the new Wal-Mart Supercenter.

Copyright 2005 by Miller Risk Advisors. Permission granted to forward by electronic means and to excerpt or broadcast 250 words or less provided a citation is made to www.millerrisk.com.