Staples 2005 Annual Report Download - page 57

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5
South America represents an emerging market that is expected to become important to Staples’ long-term growth.
We believe there is significant potential in the South American office products market, and in 2004, we acquired
Officenet S.A. to gain access to Brazil and Argentina through a delivery business with operations in Sao Paulo, Brasilia
and Buenos Aires that shares Staples’ commitment to best-in-class customer service and operational excellence.
In 2004, we also entered Asia through a joint venture in China, which operates a delivery business based in
Shanghai. This investment gives us the opportunity to access the large, fast growing Chinese office products market. In
2005, we expanded our presence in China, launching operations in Beijing. We have begun to roll out the Staples brand
in China and have infused the “Easy” brand promise into our marketing campaigns.
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 International 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
approximately 50,000 SKUs to our customers through the Internet, including Staples.com 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 merchandising team constantly reviews and updates our product assortment to respond to changing
customer needs and to maximize the performance of our key categories: ink and toner, paper, business machines and
copy and print services.
Our product offering includes Staples, Quill and other proprietary branded products which represented
approximately 18% of our total sales in 2005. Staples brand products 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 have brought to market hundreds of new
Staples brand products, many of which are innovative and exclusive to Staples. Several new products launched are a
result of our Invention Quest™ program, a contest which solicits 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
and print center model which builds customer awareness of our offerings in this area, improves the training and service
capabilities of our copy and print center associates, offers a quality guarantee in our copy and print centers and upgrades
our technological capabilities. In 2005, we added to our array of services, allowing for electronic submission, and turned
our attention to marketing our copy and print centers to increase customer awareness of our expanded capabilities.
These efforts have resulted in increased sales and average order size as well as improved gross margins as our copy and
print 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 28, 2006 January 29, 2005 January 31, 2004
Office supplies and services .................. 40.5% 40.1% 41.5%
Business machines and related products ....... 30.4% 30.7% 30.3%
Computers and related products............... 22.2% 21.9% 21.0%
Office furniture ............................. 6.9% 7.3% 7.2%
100% 100.0% 100.0%