Staples 2006 Annual Report Download - page 75

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Europe is an important growth platform for Staples. We expect that over time we will achieve the level of
profitability we have attained in North America with our strong multi-channel offering by improving execution,
expanding penetration of own brand products, and capitalizing on potential synergies in procurement, supply chain
activities and shared administrative services. In our retail business, we are implementing strategies that were successful in
North America, which focus on developing relationships with small business customers and home offices by driving
steady sales of consumable office supplies. We plan to open approximately 10 new stores in Europe in 2007, compared to
6 new stores in 2006, and 8 new stores in 2005. We believe our delivery business in Europe is a significant growth
opportunity. With our acquisitions over the past several years in the delivery channel combined with our Staples branded
delivery business, we believe that we are well positioned for success as a multi-channel distributor of office products in
Europe. We plan to continue to grow our delivery business rapidly through improved execution, enhanced segmentation
of customers, an improved on-line offering and increased sharing of best practices.
Although small today, Staples’ businesses in high growth markets in Asia and South America are expected to
become meaningful to our long-term growth. 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. We also entered the Asian office
products market in 2004 through a joint venture in China, operating a delivery business primarily based in Shanghai. In
2005, we launched delivery operations in Beijing, and we entered the Taiwan market in 2006 operating a delivery
business through a joint venture with UB Express. We also announced a joint venture with Pantaloon Retail Limited in
India in January 2007.
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 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.
We have approximately 8,000 SKUs stocked in each of our typical North American retail stores and approximately
15,000 SKUs stocked in our North American Delivery fulfillment centers. 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 20% of our total sales in 2006. We offer more than 2,000 own brand products, delivering value to our
customers with prices that are on average 10% to 15% lower than the national brand. These products also generate
higher gross margins on average than national brands. Our own brand strategy focuses on offering national brand quality
at lower prices with a full range of marketing initiatives including clear and impactful packaging, in-store displays,
sampling and advertising. We have brought to market hundreds of new Staples brand products, many of which are
innovative and exclusive to Staples. Our long-term goal is to grow own brand products to 30% of total product sales.
We also offer an array of services, including high-speed, color and self-service copying, other printing services, faxing
and pack and ship. 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. Over the past three years, we have upgraded the technology, signage,
labor, training and quality processes in our copy and print centers across the chain. More recently we invested in
marketing and pricing offers to drive customer awareness of our 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.
Another important service opportunity is in the technology services arena, a fragmented market largely served by
local independents. We provide a full range of installation, upgrade, and repair services, as well as data protection,
privacy, and security services through our “EasyTech” program. In fiscal 2006, we added a resident tech in every store
and will continue to invest in our technology services infrastructure to further develop our range of capabilities.