The sale of office supply retail giant, Staples to a private equity firm, Sycamore Partners, is the most recent in a string of merger activity in the retail sector. It is no secret that Staples has had difficulties recently competing with online retailing behemoth, Amazon, who has taken quite a significant chunk of the market share away from Staples.
This transaction represents yet another major American retail brand taking the first of many options along the “decision tree” to retail survival. The key to this sale is that Staples will transition from a publicly traded company on the stock exchange into a privately held enterprise.
This is a huge distinction because, quite often, companies make decisions on any number of matters based upon how it will potentially impact the valuation of their stock, or how it will “play” with the analysts on Wall Street, or their shareholders perception of the decision.
Conversely, a privately held company has none of those same considerations. These types of enterprises can make decisions based upon what is good for the overall health of their business. In this case, with Staples, the company that once touted the “easy button” for solutions to home office or small business needs; the company pressed the button to solve their overall issues.
Staples initially attempted the “get bigger” strategy by attempting to purchase one of their largest competitors, Office Depot, but the proposed acquisition was rejected by regulatory anti-trust officials.
Staples remains the largest brick and mortar retailer of office supplies in the United States, and this is after shutting down hundreds of underperforming locations to free up more cash flow. That is the advantage they have over Amazon and other retail competition, is the in-store option. They have to play that to their advantage and refocus their brand on what they do very well particularly in the service area of copy and print.
The investment from the perspective of Sycamore is a reasonable one at face value because they obtain a recognizable brand with a huge network of retail stores that could own that space if they recalibrate themselves correctly.
Staples could weather the storm here by going into private hands, it is certainly going to make the transition to fighting Amazon easier without having to answer to “The Street”. It remains to be seen whether they make the correct course adjustments to their business to stay relevant in an extremely price sensitive marketplace with much more savvy and well informed consumers.