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Staples, Inc. Message Board

  • ajs_dc ajs_dc Jun 30, 2011 6:47 PM Flag

    Supply chain question

    Hope you can help me on this. I'm thinking of investing in the office supply retail space (if/when jobs finally improve, they will be a beneficiary) and am trying to understand the supply chain of Office Depot and Office Max. It seems they are similar when it comes to the delivery side but I'm finding that on the retail side, each company operates their supply chain much differently.

    Staples has crowed about their supply chain in the past, and in my research I've found that each store is getting ~1 truck a week from a remote distribution center (i.e. California to Montana) while Office Depot seems to be sending trucks multiple times from more local distribution centers. Given that sales per store is higher at Staples, I'm having trouble understanding how this works. I'm no expert, so maybe I'm missing something obvious? Any experts out there?

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    • Staples was founded by people from the supermarket industry, an industry with low single digit margins. At the time (1980's) office supplies had yet to be fully commoditized by the likes of Staples. Thus, the efficencies in their supply chain gave them huge advantages on pricing. They continue to enjoy high margins due to their US supply chain(supermarket people are good at this) and retail business. see all their other business line's margins...

      It has a monopoly on the North East...check the margins in that area, they are much higher.

      Further, it used to have a high margin delivery business wiht small businesses. However, they made that a small margin contrbutor when the bought CXP. Its premium was always due to the high margins. That is over now...margins will never recover above 7-7.5% on an operating level. for reasons see: (amazon.com, The Reccession, new mix of their business after CXP acquisition, CXP margins prior to acquisition and their effect on SPLS margins after.)

      If they annouce another divy raise at the Q2 report, I would change my tune and start getting long above $14...if not 10-12 remains the entry point.

      I am a value investor, SPLS may never reach the PPS where I consider it a value, and my money will be safer b/c of that.

    • OK
      By the way I am positive, very positive about SPLS. I bought 500 shares at about 16.50. I think the stock should and will be much higher.

    • Lets STOP the NEGATIVITY- and i apologize if been negative- this is not how i want to live- and sorry someone (not me!) called you a douche- i will start by saying let us discuss spls in a peaceful and rational way- good luck to you all!

    • You're right, I take it back. I was irritated at your initial response.

    • i dont agree the last poster- i think you should be in SPLS- they do have a more efficient supply chain--but i dont believe that should be a major factor in deciding on this stock- go to the SPLS investor website for more detailed info- or check the analysts reports-many break down more of the details- and lets be KIND to those who want REAL INFO- please?

      • 2 Replies to whynotbuynow
      • Thanks.

        My original question wasn't worded that well as I typed it off quickly. In my analysis, I'm trying to identify drivers that are giving Staples 3x the margins in US/CA retail and 3x margins in the delivery business, as compared to Office Depot. I know that scale, purchasing power, private brand, heavier emphasis on technology and overall better management are big factors, but I'm trying to drill into how much the differences in supply chain are driving the higher margin.

        In other words, how much of the margin delta is sustainable and could Office Depot bridge that gap through increases in operational efficiency?

        In my research, Office Depot and Staples have very similar supply chains serving the delivery business. Both use regional fulfillment centers that deliver to in-market hubs to serve customers. Staples benefits from scale here, as their higher share in each market can support more FC's and hubs closer to major markets.

        However, on the retail side the supply chains are very different. Office Depot has >10 small facilities that feed product to local hubs that then serve the store. Trucks go hub->store >3 times per week.

        Staples on the other hand has four very large distribution centers (CA, MD, IN, CT) that serve all US stores directly via truck. Each store is getting ~1 shipment per week (2 in back-to-school).

        Given that...
        a) Staples has higher avg sales per store ($5m v. $4.3m)
        b) Staples has smaller stores (17k sqft avg v. 24k) implying less inventory storage space

        ... I'm trying to understand how they can get away with only delivering once a week. What are they doing, i.e. better demand forecasting, less SKUs in store to make it possible to organize their retail supply chain this way.

        Thanks

      • Thanks.

        My original question wasn't worded that well as I typed it off quickly. In my analysis, I'm trying to identify drivers that are giving Staples 3x the margins in US/CA retail and 3x margins in the delivery business, as compared to Office Depot. I know that scale, purchasing power, private brand, heavier emphasis on technology and overall better management are big factors, but I'm trying to drill into how much the differences in supply chain are driving the higher margin.

        In other words, how much of the margin delta is sustainable and could Office Depot bridge that gap through increases in operational efficiency?

        In my research, Office Depot and Staples have very similar supply chains serving the delivery business. Both use regional fulfillment centers that deliver to in-market hubs to serve customers. Staples benefits from scale here, as their higher share in each market can support more FC's and hubs closer to major markets.

        However, on the retail side the supply chains are very different. Office Depot has >10 small facilities that feed product to local hubs that then serve the store. Trucks go hub->store >3 times per week.

        Staples on the other hand has four very large distribution centers (CA, MD, IN, CT) that serve all US stores directly via truck. Each store is getting ~1 shipment per week (2 in back-to-school).

        Given that...
        a) Staples has higher avg sales per store ($5m v. $4.3m)
        b) Staples has smaller stores (17k sqft avg v. 24k) implying less inventory storage space

        ... I'm trying to understand how they can get away with only delivering once a week. What are they doing, i.e. better demand forecasting, less SKUs in store to make it possible to organize their retail supply chain this way.

        Thanks

    • Things are far more complicated than deliveries to the retail stores.
      You should not invest in this space based on your very limited knowledge and undwerstanding.

 
SPLS
11.20+0.03(+0.27%)Jul 21 4:00 PMEDT

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