Can Amazon, Walmart outflank Staples?

A new book on the “defunct” office supply industry proposes a radical solution for Amazon or Walmart to beat Staples in the B2B space.
Industry veterans in the US will no doubt remember Ralph Barnett from his time at Boise Cascade, Associated Stationers and Corporate Express. A proponent of and expert in procurement process management (PPM) – which helps companies reduce their procurement costs – Barnett trained literally thousands of reps over the years.

Now an author and consultant, Barnett is bringing out a book in October that looks at how Amazon or Walmart can ‘take over’ the office supply industry and beat Staples at its own game. He has very kindly let OPI have a ‘sneak preview’ at parts of the book.

Barnett’s book assumes that the Staples acquisition of Office Depot will go through, and he told OPI that he believes the transaction is “a done deal”. He also says that this acquisition signals the “predictable demise” of the office supply industry following an “agonising death spiral” expedited by an obsession with ever-lower prices and “unprofitable sales growth”.

Not that he thinks that office supplies are dead. Far from it, in fact: they are “alive and well”, he argues, and “offer the key to the B2B kingdom”. And it’s this key that Amazon or Walmart will need if they are to succeed in the B2B space, which they have both respectively been targeting through Amazon Business and Sam’s Club.

“Whoever organises, maintains and manages the client procurement process for office supplies owns the gateway to every other product and service utilized by the B2B client,” states Barnett.

He continues: “Of equal significance to Amazon or Walmart is the concurrent opportunity that once you own the procurement gateway to every product and service to the B2B client, you also own the gateway to every B2B employee’s personal consumption.”

If you look at Staples’ strategy over the past couple of years as it acquired e-commerce expertise, embarked on massive SKU expansion and added new categories in its move “beyond office supplies”, it’s been clear that it sees its greatest threat coming from Amazon rather than its traditional big-box office supplies competitors, now reduced to just one in the form of Office Depot.

So why acquire Office Depot?
Two reasons, says Barnett: one, to protect itself from the encroachment of Amazon and Walmart into its “private reserve” that is the B2B office supply space; and two, to put itself into a stronger position to “invade” Amazon and Walmart’s “cyber territory of universal products and services”.

So, with Office Depot acquired by Staples, how would Amazon or Walmart gain traction in the B2B space?
By doing two things, writes Barnett: outflanking Staples’ distribution advantage and “crushing” it at its “most vulnerable point”, namely sales representation.

To achieve the first of these goals, Barnett says Amazon or Walmart should acquire wholesaler Essendant (formerly United Stationers), “the distribution engine that undergirds the office supply industry”.

“For Amazon or Walmart, the purchase of United achieves a strategic trifecta: 1) denies this singular resource to competitors; 2) overnight, becomes privy to decades of industry and B2B competitive intelligence; and, most significantly, 3) parachutes Amazon or Walmart into the driver’s seat of a turbocharged B2B driving machine.”

The second step is inspired by Barnett’s PPM background: develop an outside sales network to ‘drive’ this machine; but with a selling strategy based not on price (which is responsible for the office supply industry’s “failure”), but on PPM principles.

Clearly, Barnett has a vested interest in promoting PPM, but his book does throw up a number of interesting points:
• What happens to Office Depot if the Staples acquisition does not go through? Would Amazon and/or Walmart be potential suitors? Certainly, Amazon has been toying with physical retail outlets – could the Office Depot network be its gateway into a national footprint, in addition to its B2B capabilities?
• Would Amazon or Walmart be ready to make such a significant investment to outflank Staples? You could argue that they are already doing well enough thank you very much with consumer and small-business customers – why bother with the lower-margin large corporate niche?
• Could the Federal Trade Commission (FTC) approve the Staples acquisition of Depot based on the future potential competition that Amazon or Walmart could bring in the B2B contract space? With the recent decision in Australia, the antitrust body there (the ACCC) – which had liaised with the FTC before reaching its decision – singled out Officeworks as a competitor. OPI has it on good authority that Officeworks isn’t playing in the large corporate/government contract space, doesn’t have the expertise to do so and has no current intention of targeting these customers. If the FTC thinks the same way, it could come up with a number of names as competition for an enlarged Staples to justify approval for the Depot acquisition.
• What would happen to the industry as we know it if Amazon or Walmart bought Essendant? Where would you start with that one?

A lot of ifs, ands and buts, but the FTC has entered the home straight of its investigation and lobbyists are no doubt working overtime as we build up to the expected decision in mid-October.
Source: Andy Braithwaite for OPI

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