According to a recent Wall Street Journal article, Staples is telling Wall Street it expects the deal to close by the end of the year. However, there are dozens of hedge fund managers who are not so sure.
Staples claims that there are plenty of competitors – including Wal-Mart, Costco, Sam’s Club and BJ’s – in the low-end B2B market, where buyers buy like consumers. This is true, especially when you also factor in online competitors such as Amazon, Jet, Zoro and even just Google shopping and a p-card. But, in the higher-end enterprise B2B market, there are no real national competitors that have a physical retail footprint. Yes, you still have Amazon Business as a strong online competitor, but it’s really apples and oranges when you compare the actual market basket of products and value-added services.
Still, Staples will claim Amazon as an example competitor, and Amazon is happily going along with the story. Amazon is actually lobbying for the deal to happen, too.
Why? Shouldn’t it instead fight the deal and let Staples and Office Depot kill each other? Shouldn’t it relish in a dead loss cost to them from a big breakup fee?
Well, not really. If the Big 2 combine, do you really think that price savings will get passed on to the customers, as the Staples CEO implies in the WSJ article? Probably not. A “Big 1” means the race to the bottom slows, and Amazon won’t likely need to cut prices quite as much.
More importantly though, it also means many enterprise procurement groups will be scrambling to recompete the business – especially if there’s a price increase that will help fund the synergies promised to Wall Street. But since there would be no equivalent national competitor, many CPOs will take a hard look at unbundling and commoditising their market baskets, especially using online competitors for high-volume office supply SKUs, which of course would be music to Amazon’s ears.
For now, the fate of the proposed merger proposed lies with the courts and, we believe, on whether Staples Advantage, combined with Office Depot, would have a monopoly on the B2B enterprise market for office supplies in the US – especially for Fortune 500-type firms with national demand for in-store supplies.
This question in turn is predicated on how you define a market. Depending on how you craft your market basket and your sourcing objectives, the answer will vary greatly. This has ramifications for spending beyond office products.
By Pierre Mitchell, www.spendmatters.com