Office supplies and technology merchant Staples, itself acquired and privatized in a $6.9B deal by equity capital and retail specialist firm Sycamore Partners in September 2017, is acquiring Tampa-based DEX Imaging, the largest independent dealer in the office imaging technology channel. According to industry estimates, DEX Imaging and the companies it acquired over the last few years — Total Print, U.S. Imaging Solutions, Laser One, Modular Document Solutions, MidSouth Digital, Tonertype and Digitec — had combined revenues of over $300 million last year.
The DEX buyout is the latest addition in a diversification plan announced by Staples in May 2016, in which it said, “Our vision is we help businesses succeed. This reflects a multiyear effort to evolve our company to become the product and service destination for businesses in a rapidly evolving and competitive marketplace.” Staples now categorizes itself as “the world’s largest office solutions provider”; a response to a glaring trend — five consecutive years of shrinking top-line revenues and bottom-line profits. Staples revenues dived from $24.38 billion in 2013 to $18.25 billion in 2017 — the last report before being bought by private equity firm Sycamore Partners. The Staples “20/20” plan focuses its strategy on the B2B market and away from brick-and-mortar, retail and web consumer sales for which Staples is best known and emerged after a federal judge barred Staples from a proposed merger with competitor Office Depot that would have largely consolidated the retail office supplies category. The Staples “20/20” plan targets a shift in sales from retail stores to its online and outbound Staples Business Advantage delivery group and aims to cut retail store sales from 40 percent of revenues to 20 percent by 2020. Of the company’s over $18 billion in overall revenues in 2017, $10.6 billion came from its online and outbound Staples Business Advantage channels.
The reasons driving the shift in strategy are abundantly clear: sales in Staples retail stores have been declining for years while its North American Delivery segment had been growing nicely. That segment, which includes Staples Business Advantage, Staples.com, Staples.ca, and Quill.com, sells and delivers products and services primarily to midmarket businesses with 10 to 200 office workers, as well as and larger regional customers and Fortune 1000 companies. The company has openly acknowledged the obvious: that it faces intense competition from local stationery stores, retail giants including Walmart and Target, warehouse clubs such as Costco, and specialty electronics retailers such as Best Buy … and, oh yeah, a plethora of online retailers including Amazon.com.
As part of that strategy shift, Staples has made two other acquisitions in the past year. Last June, Staples acquired N.J.-based HiTouch Business Services, one of the largest independent office products dealers in the U.S., for an undisclosed figure. HiTouch is a 16-year-old company selling office supplies, workspace design services and IT solutions. In the announcement, the companies said HiTouch and its online marketplace will become a part of the Staples Business Advantage (B2B) delivery organization and will support Staples’ growth into alternative distribution channels and will continue to be run by the HiTouch management team.
Then last fall, Staples made a bid to acquire Deerfield, Illinois-based office and business supplies wholesaler Essendant for $996 million including net debt – or about $482.7 million in cash, according to the Wall Street Journal. The deal didn’t close until Jan. 31 because of the government shutdown. Essendant achieved 2017 net sales of $5 billion, selling an assortment of over 170,000 SKUs, including janitorial, industrial and breakroom supplies, technology products, traditional office products including cut sheet paper and office furniture, and automotive products. Essendant sells to a wide group of customers, including independent and national resellers, and e-commerce businesses from a network of distribution centers, enabling it to ship most products overnight to more than 90 percent of the U.S. (Click here for more on Staples’ background and history of acquisitions).
The combined effect of these Staples moves could prove to be a sea change in the dynamics of the independent office technology dealer channel – a channel already disrupted by several years of mergers and acquisitions as numerous local dealers have been acquired by ever larger buying groups and consolidators, by fast-changing shifts in the fundamental products and services it offers small and medium businesses, and by shrinking margins from key business staples such as click charges and maintenance contracts. Further, adding to this boiling stew of a channel is the latest attempt by print industry goliath HP to grab a chunk of the profitable pages owned by this independent office technology dealer channel as overall page volumes in the transactional print business have flattened or show signs of declining.
Now, Staples enters the fray, starting with a $10.6 billion and growing Staples Business Advantage portfolio of mid- and small-business customers — accounts that Staples can now offer DEX’s portfolio of major OEM brand copier/printer solutions, service, software, managed print and networking services; HiTouch’s workspace design services and IT solutions; and Essendant’s assortment of over 170,000 SKUs with overnight delivery to more than 90 percent of the U.S. Add to that $10.6 billion the $300 million or so portfolio of customers from DEX Imaging and its subsidiaries — customers that can now be offered offered Staples Business Advantage portfolio of office products and supplies.
The DEX acquisition gives the Staples Business Advantage sales team a full portfolio of printing, copying, managed print and networking/IT services to offer their existing account base. The key here is that this is not just a bigger product catalog; it includes services — managed print and IT/ network management. The independent office technology dealer channel is a high cost-of-sales model and has long relied on the strength and duration of personal client relationships to close the contract deal and for customer retention at renewal time. We don’t doubt that personal client relationships are important in the B2B sales motion, but many independent business owners have learned to their chagrin that a new, aggressive competitor offering a 10 percent or even 20 percent discount from prevailing market pricing is enough to dissolve those long-standing client relationships for good. The new Staples Business Advantage operation can offer its business buyers – and your existing clients — everything from pencils and paper up to office design services; networking and IT management; a suite of copiers, printers, MFPs and scanners; and ergonomically designed office chairs. The cost-of-sales expense burden – once borne individually by the company selling the copiers, selling the office supplies, and the company selling other office services — can now be shared across one aggregated revenue line, and likely lowering the overall SG&A of the seller.
How many of your clients buy office or other supplies from Staples Business Advantage? Maybe even you do? There are many more angles to be analyzed concerning this Staples/DEX move.