Staples 2004 Annual Report Download - page 65

Merchandising
We sell a wide variety of office supplies and services, business machines and related products, computers and related
products, and office furniture. While our buying and merchandising staff uses integrated computer systems to perform
centrally the vast majority of our merchandise planning and product purchasing, some of our business units, particularly
Quill, our Canadian operations and our multiple European businesses, leverage our global buying and merchandising
staff along with their own staff to meet their more localized buying and merchandising needs.
We have approximately 8,000 stock keeping units (SKUs) stocked in each of our typical North American retail
stores and approximately 15,000 SKUs stocked in our North American Delivery fulfillment centers. We offer approxi-
mately 40,000 SKUs to our customers through the Internet, including Internet access points in our North American retail
stores. In order to minimize unit costs and selling prices, we sell many products in multi-unit packages.
Our product offering includes Staples, Quill and other proprietary branded products which represented more than
15% of our total sales in 2004. We have focused on the quality of our Staples brand products and our objective is to have
quality equal to or better than national brands. Staples brand products also offer great value to our customers with prices
that are on average 10%-15% lower than the national brand. These products also generate higher gross margins on
average than national brands. In 2004, we began to redesign our packaging to make it clear and impactful with a focus on
making shopping easier for our customers and standing out from other brands. We are also introducing new innovative
products, like the One Touch Stapler↩ and Wordlock↩, under the Staples brand. Wordlock, a combination lock that uses
letters rather than numbers, was the winner of our Invention Quest↩ contest to solicit new product ideas from our
customers to make work life easier.
We also offer an array of services, including high-speed, color and self-service copying, other printing services, faxing
and pack and ship services. The multi-billion dollar copy and print market is highly fragmented, and we believe we have a
significant opportunity to gain share in this market. In 2004, to capitalize on this opportunity, we rolled out a new copy
center model which builds customer awareness of our offerings in this area, improves the training and service capabilities
of our copy center associates, offers a quality guarantee in our copy and print centers, and upgrades our technological
capabilities. These efforts resulted in increased sales and average order size as well as improved gross margins as our
copy business has much higher than average margins.
The following table shows our sales by each major product line as a percentage of total sales for the periods
indicated:
Fiscal Year Ended
January 29, 2005 January 31, 2004 February 1, 2003
Office supplies and services ................ 40.1% 41.5% 41.7%
Business machines and related products ....... 30.7% 30.3% 30.5%
Computers and related products ............. 21.9% 21.0% 20.9%
Office furniture ......................... 7.3% 7.2% 6.9%
100.0% 100.0% 100.0%
We select our vendors based upon quality, price, delivery reliability and, where appropriate, customer brand
recognition for all of our sales channels. As a result of the volume we purchase and our centralized distribution facilities,
we are able to obtain favorable pricing from our vendors. We purchase products from several hundred vendors
worldwide, and we believe that competitive sources of supply are available to us for substantially all of the products we
carry.
The foundation of our merchandise strategy is based on a portfolio approach to managing our product categories.
Merchandising management principles are utilized to establish category roles and growth objectives based on historical
performance, customer loyalty and needs, and changing market dynamics. We allocate resources based on the category
roles and growth objectives and monitor the performance of our product categories against established targets.
Supply Chain
In fiscal 2003, we began to implement a comprehensive three-year program to improve our supply chain perform-
ance as we looked to develop integrated systems and improve our processes across all functions. The main objectives of
the plan include improving our sales demand and inventory management processes and optimizing our distribution
network. As a result of this program, we have made significant progress in improving supply chain reliability and
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