Staples 2006 Annual Report Download - page 76

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The following table shows our sales by each major product line as a percentage of total sales for the periods
indicated:
Fiscal Year Ended
February 3, 2007 January 28, 2006 January 29, 2005
Office supplies and services . . . ............... 39.0% 40.5% 40.1 %
Business machines and related products....... 31.1% 30.4% 30.7 %
Computers and related products.............. 22.3% 22.2% 21.9 %
Office furniture ............................ 7.6% 6.9% 7.3 %
100.0% 100.0% 100.0 %
Supply Chain
We operate two distinct networks to service the majority of the replenishment and delivery requirements for North
America: a network of 4 retail distribution centers in California, Connecticut, Indiana and Maryland to support our US
retail operations, and a separate network of 29 delivery fulfillment centers to support our North American delivery
operations. Most products are shipped from our suppliers to the distribution and fulfillment centers for reshipment to
our stores and delivery to our customers through our delivery hubs. Of our 29 North American Delivery fulfillment
centers, 13 locations service more than one of our delivery businesses and 5 of the 13 locations support all three of our
delivery businesses. In fiscal 2007, we plan to expand our multi-business capabilities by adding one additional delivery
fulfillment center in Denver. We also plan to open a small fulfillment center in Nova Scotia to serve our Canadian
catalog customers.
Over the past several years, we have implemented a comprehensive program to improve our domestic retail supply
chain performance as we looked to improve our processes across all functions. The main objectives of the plan included
improving our sales demand and inventory management processes and optimizing our distribution network. By
implementing this program, we have made significant progress in improving supply chain reliability and inventory in-
stock levels. We expect to reap further benefits to sales, inventory turns and operating margins over the next several
years in our North American Retail business. In addition, we have increased sales and inventory turns through better
store execution, improved attachment selling and product ordering, and strengthening collaboration with our vendors
and increasing the amount of merchandise that flows, or is “cross docked”, through our supply chain without being
stored in our distribution centers. We have also expanded operating margins by decreasing total product costs and
improving sell-through on promotional goods. We have evolved to taking an all encompassing view of our supply chain
performance, focusing on the best “total delivered cost.” We believe that our management approach allows us to make
better tradeoffs to drive improvements in overall costs and inventory productivity.
We believe our distribution centers provide us with significant labor and merchandise cost savings by centralizing
receiving and handling functions and by enabling us to purchase in full truckloads and other economically efficient
quantities from suppliers. We also believe that the reduction in the number of purchase orders and invoices processed
results in significant administrative cost savings. Our centralized purchasing and distribution systems also permit our
store associates to spend more time on customer service and store presentation. Since our distribution centers maintain
backup inventory, our in-store inventory requirements are reduced, and we operate smaller gross square footage stores
than would otherwise be required. A smaller store size reduces our rental costs and provides us with greater opportunity
to locate stores closer to our target customers.
In 2006, we turned our focus to improving our North American Delivery supply chain to sustain rapid growth and
excellent customer service. We began to implement a series of projects as part of a multi-year program to reduce
inventory while maintaining strong performance in our perfect order metric. Our goals are to drive inventory turn
improvement; leverage logistics expense; increase product margins by stocking more product in our own facilities and
driving down shrink and damages in our network; drive greater efficiency and throughput in our fulfillment centers; and
give our customers more control over how Staples services them.
Marketing
We pursue a variety of marketing strategies to maintain high brand awareness and attract and retain our target
customers. These strategies include broad-based media advertising such as television, radio, newspaper circulars, print,
and Internet advertising, as well as catalogs, e-mail marketing, a loyalty program, and a sophisticated direct marketing
system. In addition, we market to larger companies through a combination of direct mail catalogs, customized catalogs,