Nothing Really

In February 2002 Sargent was promoted to president and CEO, while Stemberg remained chairman. Sargent was charged with leading Staples through its transition from a growth-oriented young retail firm to a more mature company competing in an industry dealing with an increasingly saturated U.S. market. Changes began almost immediately. In March 2002 Staples announced a plan to close 31 underperforming stores, most of which were located in small towns, taking a charge of $50.1 million in the process. The company also considerably slowed its pace of expansion, opening just 72 new stores in North America and 14 in Europe during fiscal 2002, compared to 117 and 19, respectively, the prior year. Furthermore, expansion into new markets was curtailed as well. Many of the new outlets were located in large metropolitan areas where Staples already had a presence. The company also launched a remodeling effort, converting a significant number of stores from the original warehouse design to more of a boutique look, with an open design and lower shelves--all aimed at making it easier and faster for customers to find what they were looking for. The new format was supported through an advertising campaign, launched in early 2003, featuring the new slogan, "That was easy." Finally, under Sargent, Staples eliminated hundreds of items from the store shelves as it sought to shift the chain's focus away from casual shoppers toward small businesses and what were termed "power users." The latter were defined as customers who purchased more than $500 per year of office supplies, and such customers included home-based businesses, persons with home offices, and teachers. Small businesses and power users accounted for 70 percent of Staples' revenues and fully 90 percent of profits.

While overhauling its core North American retailing operations, Staples was also completing acquisitions at home and abroad. The company looked to purchase delivery-based businesses, which tended to have higher profit margins than retailing operations. In July 2002 Staples bought Medical Arts Press, Inc. (MAP) for $383.2 million. Based in Minneapolis with 2001 revenues of $168 million, MAP was a direct marketer of specialized printed office products and practice-related supplies to healthcare offices. MAP became a division of Quill Corporation. Staples in October 2002 spent EUR 806 million (US$788 million) for the European mail-order businesses of Guilbert S.A., a subsidiary of Pinault-Printemps-Redoute S.A. of France. The operations gained through this deal had revenues of about $425 million in 2001, and they sold office supplies and furniture via catalogs and Internet web sites to small businesses under several brands: JPG and Bernard in France and Belgium, Kalamazoo in Spain, Neat Ideas in the United Kingdom, and MondOffice in Italy.

Early indications were that Staples' various strategy shifts were paying off. Despite the continuing