Staples (SPLS), which has been aggressively expanding beyond its retail roots, is now launching a technology unit that can serve as an outsourced info-tech department for small businesses. The office-products retailer's new Staples Technology Solutions will handle tech products and services for business customers, ranging from computer equipment and printer maintenance to managing all the company's IT needs. In the small-business segment -- companies of 10 to 250 employees -- Staples could provide a full IT department.Still the largest U.S. office-supply store chain, Staples has been expanding into other areas in recent years. Its North American Delivery Unit -- which supplies products and services to businesses -- had $2.5 billion in sales during the third quarter.
"Everyone thinks of Staples as a retail organization, but today Staples is a bigger office-delivery business than it is a retail business," says Jim Lippie, vice president of Staples Network Services. Staples' revenues are now split about 60-40 between delivery and retail sales, he says.
Turning Customers Into Clients
The new unit is an offshoot of Staples' acquisitions of technology consultant Thrive Networks in 2006 and Corporate Express, a European company specializing on supplying office products to businesses. After the 2008 Corporate Express acquisition, Staples increased its North American office delivery business and combined Corporate Express' Imaging and Computer Graphics Supplies unit with Thrive to form the predecessor of Staples Technology.
Staples is only the latest retailer to expand into services, looking to turn customers into repeat clients and diversify revenue. Best Buy (BBY) has had success with its Geek Squad service, which installs and maintains electronics for its customers, and Lowe's (LOW) announced last September plans to launch a repair service late this year to fix appliances and other equipment sold at its stores. Lowe's expects the service to generate $100 million in additional sales annually.
Lippie says Staples Technology doesn't offer a one-time repair or installation service, but an ongoing consulting relationship, operating on a contract basis and charging monthly fees for its services. That's a selling point, Lippie says, because with IT costs being second only to labor, most businesses want to be able to budget them better.
"CFOs love it because they can look at their IT spend annually and have predictable costs," he says.
Computers Always Crash
Lippie declines to share revenue or market share projections for the new unit but says it has lots of room to grow. Small businesses with 10 to 250 employees have around 94 million employees, and hundreds of thousands of those businesses buy office products from Staples, he says.
Staples' delivery business was down last year because as companies cut costs to weather the recession. But as the downturn abates, companies are likely to begin investing more on their operations. The recent report that business inventories had dropped in December is probably an aberration, and most economists now believe the recovery has legs and that businesses will have to spend on everything from salaries to paper clips. And also on computers that will crash and require a call to the IT department.
Finding Stock Ideas
Learn to do your research and find investments.View Course »