Staples made most of it's money as a brick and mortar store. How is this miraculous transformation going to take place to be an eventual on line company? From the corporate speak I am reading they are going to have a few stores left in the chain. How is this going to be done without going into Chapter 11?
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Obviously it doesn't make sense to spend, in a hypothetical store example, $4 million a year to make $4.5 million in profit, when you consider the multitude of different expenditures involved vs. dotcom. The whole nature of doing business in the industry is undergoing a fundamental series of changes. Clearly new business-model strategies had to be adopted, because the old/long-term model is just becoming anachronistic. While the new direction doesn't necessarily have a high chance factor of success, what is certain is that to have stayed the course would have virtually ensured a collapse. The sales trends over the last 5 years make that point with an unassailable clarity. The company (which boils down to the senior management and shareholders) is doing what it feels it must in order to survive. All of which is small consolation to the tens of thousands of employees who thought they were a part of the company since they provided the actual labor that the company built its profits on and will now lose their jobs. But this is nothing unique to the company...or corporate America.
So here's the idea. Let's take last Friday's sales. All 1500 stores combined equaled the sales of dotcom for that day. The stores staff people wearing uniforms, they lease copy machines, they run registers, trucks deliver product to the receiving area, the store is heated and cooled, sometimes carpeted, many have tile that needs to be stripped and waxed. So if said store does $3,600,000 in a year, they break even when the rent costs $27,000 per month on 24,000 sq ft when you factor in all the costs involved in running a store. The Return on Investment is much higher and controlled shipping from dotcom. You have to do over $4,000,000 and have a good lease to make a few bucks on a big building. If that store does well enough you lose that extra money by paying out bonuses. Unless you devise a scheme to that says we won't pay you a bonus unless the company hits X/Y.
So at dotcom every sale has operating profit. In a store doing well around $4,500,000; the first 11 months of the year pay off bills. Month 12 is gross profit around 33% of net sales.
It's just not worth keeping the stores open for a few bucks on every $4m. When dotcom just makes margin on everything sold. Close them now while the landlord will pay you cash to end the lease early. There are monthly real estate conference calls to negotiate cash to close a store. There are other companies itching to get in our sq footage. Close now before the volume drops below $5m.
Stores might contribute $10B in sales, but there is not profit there. Dotcom might contribute $10B in sales, and it's high operating profit.
The company will see some short-term stock price gains with all the downsizing, executive management will cash out (if they haven't already) at some point before the full realization of what's happening imparts to the investing public. Although these current alterations in the business model are probably things the investment sector will see as signs that at least someone in charge is willing to do what is necessary to survive in some form or another. The brand name may survive if some other entity buys it. The strategy going forward is one of drastically reducing overhead (real estate, employees), thereby reducing exposure/risk. It's not an unwise move, because the model the company used to create its success (mass amounts of retail stores) just isn't a viable long-term strategy anymore. Drastically cutting costs alone aren't going to point the company in a direction that indicates growth, although these measures are potentially a step in the right direction if combined with new growth opportunities. However, there's nothing on the drawing boards in that respect. Austerity isn't a recipe for being competitive.
If anything they will go private or try to build themselves to be attractive for a Amazon merger.
He'll maybe they'll chop up the company and bankrupt only some divisions, the others will just linger on like a billboard hit dropping a little every week until it's forgotten entirely.
Imagine a military with only an air force, no land, no sea, no reserves, does it exist? Kind of. Will it last? Unlikely. Can it win a war? Absolutely not. So will Staples eventually slip into the red? Obviously but there's a long, painful road ahead with plenty of nonsense first.