Staples 2013 Annual Report Download - page 4

America. We surpassed this goal and achieved over $200
million of cost reductions for the year. We reduced product
costs, streamlined our retail and contract organizations,
reduced overhead, eliminated non-product-related expenses,
and outsourced lower-complexity tasks. In Europe, we took
aggressive action to right-size our cost structure throughout
2013. While sales trends remained tough, these actions
showed up on the bottom line, and we generated a profit
in Europe for the full year. We reduced head count and
non-product-related costs, consolidated operations, and
streamlined our pan-European assortment.
Over the past year, we’ve learned valuable lessons and
built a stronger foundation to accelerate growth. While I’m
pleased that we achieved many of the goals we set out to
accomplish in 2013, we came up short in some key areas
and our financial results came in below our expectations for
the year. We’re holding ourselves accountable, and as we
enter 2014 we’re addressing our biggest challenges head on.
The performance of our retail stores has consistently fallen
short of our plan over the past few years, and we continue
to see customer demand shifting online. As a result, we are
taking more aggressive action to right-size our footprint and
create a more nimble organization that is better positioned
to rapidly respond to the changing needs of our customers.
Over the next two years, we plan to close up to 225 stores
in North America. While we don’t take this decision lightly,
we know it is the right thing to do for the long-term health
of our business as we become more efficient and increase
our focus online. Our stores are an important differentiator
versus the competition, and we remain intensely focused on
improving productivity. Based on very strong early results,
we’re accelerating store relocations and downsizes to our
new 12,000-square-foot format, and remerchandising all of
our stores in the United States by adding over 1,000 products
in categories beyond office supplies. Over time, we’ll have
fewer stores, our retail format will be smaller and more
productive, we’ll continue to increase the mix of services,
and our assortment will be more relevant to our customers.
During 2013, we also underestimated the rate of sales
decline in core office supply categories. As a result, we’re
developing a multi-year global plan that focuses on
aggressively reducing costs and changing the way we do
business. We expect to eliminate approximately $500 million
of annualized costs over the next two years, with about
$250 million coming in 2014. Our biggest opportunities this
year are related to supply chain, retail store closures and
labor optimization, non-product-related costs, IT hardware
and services, as well as marketing. We’re also kicking off
projects to drive savings across our contract sales force
and customer service organizations, which will be key
contributors to our cost reduction in 2015.
In addition to our plans to improve store productivity and
aggressively reduce costs, we plan to build on many of our
early reinvention successes in 2014. We’ll drive customer
acquisition and retention by further improving our desktop
and mobile Web sites. We plan to triple our assortment to
more than 1.5 million products at staples.com. We’ll
introduce new omni-channel capabilities. We expect to
accelerate growth in the commercial business in categories
beyond office supplies. And in Europe and Australia, we’ll
remain focused on driving profit improvement and further
stabilizing top-line trends.
In closing, I would like to thank our customers, suppliers
and other stakeholders for their continued support and trust
in Staples. I’d also like to thank our Board of Directors for
its leadership. Arthur Blank recently left our board after 12
years of outstanding service, and Liz Smith will not stand for
re-election to our Board after providing valued guidance for
the past five years. I’d like to recognize both Arthur and Liz
for their dedication to our company. Finally, I’d like to thank
our associates for all of their hard work and commitment.
2013 turned out to be a more difficult year than we expected,
but I believe that we are on the right path to reposition
Staples as the product destination for businesses. In 2014,
I look forward to building on our successes and overcoming
our biggest challenges as we continue to reinvent Staples.
Ron Sargent
Chairman of the Board and Chief Executive Officer
April 2014