Staples 2014 Annual Report Download - page 98

PART I
4 STAPLES Form 10-K
Our merchandising team uses integrated systems to perform
the vast majority of our merchandise planning and product
purchasing centrally. Some of our business units, particularly
Quill.com, our Canadian operations and our international
businesses, leverage our global buying and merchandising
staff along with local staff to meet their specific buying and
merchandising needs. We purchase products from thousands
of vendors around the world and we believe that competitive
sources of supply are available to us for substantially all of the
products we carry.
Our product offering includes Staples, Quill, and other
proprietary branded products, which represented
approximately 28% of our sales in 2014. We offer more
than 10,000 own brand products and services, including an
assortment of products with various environmentally friendly
attributes, which includes our “Sustainable Earth” brand
products. Own brand products deliver value to our customers
with prices that are on average are at least 10% lower than the
national brand, while generating higher gross margin rates on
average than national brands. Our own brand strategy is based
on offering a portfolio of products that meet our customers’
needs across a variety of product categories and price points.
The largest portion of our portfolio focuses on offering national
brand quality at lower prices. We have developed a selection
of opening price point products for more price conscious
customers. We have also developed a number of unique and
innovative own brand products to help differentiate Staples
in the marketplace. We have brought to market thousands
of new own brand products in the last year, many of which
are innovative and exclusive to Staples. Our sourcing office in
Shenzhen, China supports our own brand strategy by driving
higher quality and lower costs, and by bringing new products
to market more quickly. In addition to our proprietary branded
products, we also differentiate our core product offering
through exclusive third-party relationships.
In addition to products, we also offer a broad array of services,
which represented 8.6% of our sales in 2014. This includes
copy and print services that we provide to our retail and
delivery customers, as well as technology services that we
provide through our “EasyTech” business in North American
Stores and Online. As with the markets for our products, the
market for these services is highly fragmented, and we believe
we have a significant opportunity to offer these services to
existing customers and acquire new customers.
See Note P - Segment Reporting in the Notes to the
Consolidated Financial Statements for a summary of our sales
by each major category.
Our “Make More Happen” brand campaign utilizes a variety
of marketing vehicles to drive brand awareness and sales of
products and services to new and existing customers. These
vehicles include television, radio, newspaper circulars and
internet advertising, including mobile applications and social
media. Increasing our presence in social media is important as
this is a new and growing way for Staples to interact with and
serve our customers. We also utilize e-mail marketing, loyalty
programs and sophisticated direct and digital marketing
capabilities. In addition, we market to larger customers
through a field sales force. We change the level of marketing
spend, as well as the mix of media employed, depending upon
market, customer value, seasonal focus, and cost factors.
This flexible approach allows us to optimize the effectiveness
and efficiency of our marketing expenditures. We continue to
improve our systems and capabilities to track our customers’
multi-channel purchasing behaviors, execute more effective
personalized and dynamic offers, and promote enhanced
direct marketing and customer loyalty programs to drive higher
sales across all our channels.
Supply Chain
We operate two networks to fulfill the majority of our
replenishment and delivery needs in North America. Our
network of 61 delivery fulfillment centers supports our North
American Commercial and Staples.com operations. We
currently fulfill the majority of customers’ orders through our
distribution network. As we expand our assortment, we are
increasingly relying on third parties to fulfill orders and deliver
products directly to our customers. We operate a separate
network of four large distribution centers to support our U.S.
retail store operations. Our retail 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. Our centralized purchasing
and distribution systems enable 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, allowing us to more
efficiently operate our retail stores.
In Europe, we are in the process of reducing the complexity and
redundancy of our distribution network. We are standardizing
all of our supply chain processes and systems architecture,
and continuing to consolidate facilities. These efforts are
expected to improve customer service and quality, drive cost
savings and increase overall operating efficiency.
Competition
We compete with a variety of online and traditional retailers,
dealers and distributors. As we rapidly expand our assortment
of products and services, we compete directly with an
increasing number of competitors including mass merchants
such as Walmart, Target and Tesco, warehouse clubs such as
Costco, computer and electronics retail stores such as Best
Buy, specialty technology stores such as Apple, copy and
print businesses such as FedEx Office, online retailers such
as Amazon.com, and a wide range of other retailers, including
grocery stores, drug stores and discount retailers. In addition,
our retail stores continue to compete against traditional office
supplies retail stores. Our commercial business competes
against a growing and diverse set of competitors, including
other office supplies distributors, wholesalers, networks
of regional suppliers, managed print service companies,
contract stationers, electronic commerce distributors, regional
and local dealers, direct manufacturers of the products we
distribute, and companies focused on adjacent categories
such as maintenance, repair and operation providers. Many
of our competitors have increased their presence in our core
product areas in recent years, and we expect this trend to
continue going forward.