Fifteen years ago, the Federal Trade Commission opposed Staples’ bid to acquire Office Depot, even after Staples offered to sell 63 locations to Office Max to alleviate anti-trust concerns. The FTC said at the time that the acquisition “would allow the combined firm, [with some] 1,000 superstores, to control prices for the sale of office supplies in more than 40 markets” around the United States.
By last summer, however, securities analysts were clamoring for consolidation in a retail sector battered by the recession.
“While I believe there should be consolidation, the real question is how the FTC views it, and my understanding today is that their mentality hasn’t changed at all,” Office Depot CEO Neil Austrian said at that time. “They still define the market in a very narrow way.”
A recent research note from Brian Nagel at Oppenheimer & Co. says “sales remain sluggish in all segments” of Staples’ business; North American same-store sales remain flat, and gross margins have declined. As for the three chains, Nagel writes, sales trends are “increasingly unlikely to rebound any time soon, with expectations for muted economic improvement.”
Contrary to the FTC’s view, IBISWorld research writes that competition for the home and small office supply dollar “remains high from online retailers, supercenters and warehouse clubs, forcing some operators to leave the industry in the midst of recovery.”
The segment “is in the mature stage of its lifecycle,” IBISWorld says. Through 2017, industry value added (which measures the industry’s contribution to the GDP) “is expected to decline at an average annual rate of 0.3 percent” — slower than the rate of growth for the broader U.S. economy.
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