Staples 2005 Annual Report Download - page 58

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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 merchandising 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 need 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 domestic retail supply
chain performance as we looked to develop integrated systems and 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. As a result of this program, we have made significant progress in improving supply chain reliability
and inventory in-stock levels. At the same time, we have reduced our overall investment in inventory. We expect to reap
further benefits in 2006 and beyond in our North American Retail business and to continue to apply some of these
learnings to our North American Delivery business. These improvements benefit sales, inventory turns and operating
margins. We have increased sales through higher levels of merchandise in-stock, better store execution and improved
attachment selling. We have reduced inventory and increased inventory turns by improving product ordering,
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 deliver improvements in overall costs and inventory
productivity.
We operate centrally located retail distribution centers and delivery fulfillment centers across North America to
service the majority of the replenishment and delivery requirements for North America. 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. As of January 28, 2006, four distribution centers, located in California, Connecticut, Indiana
and Maryland, supported our U.S. retail operations and 30 fulfillment centers supported our North American delivery
operations. Of our 30 North American delivery fulfillment centers, 11 locations service more than one of our delivery
businesses and four of the 11 locations support all of our delivery businesses. We plan to expand our multi-business
capabilities by adding two delivery fulfillment centers in fiscal 2006.
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 more closely to our target customers.
We continually work with our vendors to improve vendor reliability. We offer a web site for our vendors,
StaplesPartners.com, which provides suppliers with access to important supplier information, including supplier metrics,
purchase order data, sales and inventory data, EDI information and transportation routing information. This web site
improves the speed and accuracy of information, reduces our communication costs and improves our suppliers’
understanding of doing business with us.
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