Disruption Eruption – Staples Buys DEX Imaging

Florida-based megadealer DEX Imaging is being acquired by Staples Inc. A press release issued the morning of Feb. 11 confirmed the news, and reported that Dan Doyle, Jr., President and Chief Executive Officer of DEX Imaging; Dan Doyle, Sr., Chairman of DEX Imaging; and their existing executive team would continue to lead the business going forward.

“Staples will continue to strategically invest in companies that can bring added value to our customers in the form of enhanced products and services,” said Sandy Douglas, chief executive officer, Staples Inc., in the press release. “DEX Imaging has created strong relationships with their customers through exemplary service and tremendous industry knowledge in office technology.”

“Over the past 16 years, DEX Imaging has taken great pride in our ability to continually offer quality products and services, and most of all, provide a superior customer experience,” said Doyle, Jr. in the release. “Being a part of Staples will allow us greater access to industry-leading technology, and a world-class supply chain to accelerate our position as the premier North American print management provider.”

Since this represents a major shakeup in the office equipment industry, we thought it was worthwhile to take a deeper dive into Staples to understand what this might mean for the channel.

Staples was founded in Massachusetts in 1985 with backing from Bain Capital, a private-equity firm co-founded by Mitt Romney, who sat on the company’s board of directors for 15 years. It opened its first store in the Boston area in 1986, in an era that might be called “the rise of the office products superstore,” as both Office Depot and OfficeMax launched around the same time.

Ten years later, in 1996, Staples cracked the Fortune 500, reporting more than $3 billion in sales. In September of that year, Staples and Office Depot announced plans to merge — an announcement that was met with a great deal of resistance and cries of antitrust. The FTC agreed and blocked the merger, arguing that OfficeMax did not have enough retail locations in the same markets as Staples/Office Depot to prevent a monopoly.

Ah, the pre-internet, pre-Amazon world.

Things would change quickly. In 1998 Staples acquired Quill Corporation, an online and catalog retailer of office supplies, and launched Staples.com.

Then, in a huge move in 2008, Staples acquired Corporate Express for $2.65 billion. Staples shares instantly shot up on the Nasdaq, and a Reuters story on the deal included a research note from Credit Suisse analyst Gary Balter, who said “Staples will dwarf other office supply distributors. … The acquisition will move Staples to a leadership position in the contract (large company) segment in North America and will create a solid base on which to build its global contract footprint … .”

Unfortunately, the next line in the story would prove to carry with it a bit of foreshadowing: “Analysts said a tie-up between Staples, a retailer, and Corporate Express, a wholesaler, makes strategic sense and could lead to big savings in the slowing U.S. economy.”

That slowing economy, of course, would become the Great Recession and take its toll on the office products industry along with the rest of the worldwide economy.

In 2012 Staples closed 23 of its UK stores, and in 2015 announced it would close 225 North American stores by the end of the year in an attempt to cut about $500 million in annual costs as the economy continued to dig out from the recession. At the time of the announcement, Staples noted that more than half of its sales were online; the brick-and-mortar closings amounted to about 10 percent of its 2,200 stores worldwide. The AP story reporting on the closings also noted the company’s recent dismal earnings and equally dismal forecast.

However, Staples was down but not out, and in 2015 once again attempted to acquire Office Depot, which in turn had recently acquired OfficeMax. The FTC once again opposed the move (spoiler alert: Staples never gets Office Depot). After selling off its remaining UK locations, Staples would then itself be acquired by private equity firm Sycamore Partners.

The $6.9 billion acquisition, which completed in September 2017, was a turning point. Sycamore specializes in consumer, distribution and retail-related investments, with properties such as Hot Topic, Talbots and Belk under its umbrella. It is also notorious for splitting up its acquisitions and selling pieces off.

Indeed, immediately after completing the acquisition the Staples retail and B2B operations were separated and the business split into three separately financed entities — two of which were the U.S. and Canadian retail businesses. The third consisted solely of the NAD (North American Delivery) business, including Staples.com, which sells to small businesses and consumers, and StaplesAdvantage.com and Quill.com, which sell to larger businesses. Although there was speculation that Sycamore would continue its pattern and sell at least one portion, to date that has not been the case.

Instead, Staples continued to expand, with a focus away from retail and on B2B that had begun prior to the Sycamore acquisition. First was the acquisition in June 2018 of HiTouch, a large U.S. independent office products dealer network. HiTouch became part of the Staples Business Advantage delivery organization, adding HiTouch’s integrated suite of services including print management and IT solutions.

On Jan. 31, Staples announced the acquisition of Essendant — formerly United Stationers — by “an affiliate of Sycamore Partners.” According to the release, “Staples, another Sycamore portfolio company and the world’s largest workplace solutions provider, will work together with Essendant to give reseller customers access to an expanded product assortment, innovative technology and world-class supply chain capabilities and support. Essendant and Staples’ sales teams will continue to operate separately.”

What does all of this, plus the potential addition of DEX, mean for the channel? This article from Senior Analyst John McIntyre covers some more angles. But there are some critical takeaways from this history of Staples. In brief, Staples has been making moves for a few years now that would make it a significant player, offering managed print and IT services in addition to its hardware offerings, which are currently print-channel centric — HP, Lexmark and Brother are featured partners, although the only major name completely absent from any of the company’s websites is Konica Minolta (DEX is a major KM dealer) — and a big list of verticals as purchasing partners. The separation of its retail and online/business services entities from a financial perspective create several different avenues for the company, and as noted in the press release for the HiTouch acquisition, Staples “will continue to look for strategic opportunities like this one where we feel we can help create better options for businesses in the marketplace.”

How does this maneuver potentially change things for the average dealer? What does this mean for OEMs like Xerox? How does this affect the dealer service model? What is Office Depot going to do as a countermeasure? Does anyone sense Amazon in the background? The map is changing and so are the shapes of the pieces.

Amy Weiss

Amy Weiss

is editor-in-chief of BPO Media’s publications Workflow and The Imaging Channel, and senior analyst for BPO Research. She has more than 20 years professional writing and editing experience and has specialized in the office technology industry for the last 15 years, focusing on areas including print and imaging hardware and supplies, workflow automation, managed print, document management solutions and software, business solutions and more. Contact her at amy@bpomedia.com.