Staples, Inc. Shutting Stores To Focus On Online and Business Services

By Angelo Young | September 25 2012 2:05 PM

Staples, Inc. (NASDAQ:SPLS), the world’s largest office products company, is cutting its European losses by shutting 45 stores, plus 15 in the U.S., as it seeks to lower costs and increase investment in its online operations and expand its already significant offerings to business customers.

Reuters

A Staples store.
Reuters

File photograph of Staples store in Encinitas California.

“Our vision is to establish Staples as the single-source product authority for millions of businesses,” said Ron Sargent, Staples’ chairman and CEO, in a statement Tuesday.

The move is part of a general trend in retail to go head-to-head against already established online vendors, namely Amazon.com, Inc. (NASDAQ:AMZN). Despite the competitive edge the Seattle, Wash., online retailer enjoys because it doesn't charge sales tax, Amazon faces razor-thin margins and increasing competition in cyberspace from brick-and-mortar competitors that are reducing showroom square footage while expanding their online operations.

Staples shares are trading near the low end of their 52-week range, losing 3.97 percent to $11.86 in afternoon trades on Tuesday. Shares plummeted on Aug. 15 after Staples announced it was lowering its guidance for the year. The company expects sales to be flat and its diluted earnings per share to be less than 10 cents per share compared to $1.37 last year.

Closing the 15 U.S. stores will cost about $35 million in the fourth quarter. The company is expected to close 30 stores in the U.S. this year and reduce operations at another 30, even as it opened 17 stores this year in North America. The total downsizing and restructuring cost to the Framingham, Mass.-based company will be as much as $195 million for the fiscal year.

The company estimated a pretax noncash charge of at least $790 million in the third quarter for the impairment of goodwill and other assets within its European retail and catalog businesses. It’s also going to close its European Printing Systems operations and re-brand its Australian business to bring it in line with a move toward making one global brand.

The company says the restructuring will lead to $250 million in annual savings by fiscal 2016.

The restructuring includes combining retail and online operations under one umbrella that will be held by Demos Parneros, a 49-year-old Staples veteran who joined the company in 1987.

The company didn’t say where the 45 stores in Europe would be closed. As of February the company had 304 stores in the European Union (and 21 in Norway), mostly in the UK, Germany and the Netherlands. The company announced that John Wilson (CHK) will replace Rob Vale, who had previously announced he was retiring, as the head of Staples' Amsterdam-based European operations.