HMV-owner Hilco acquired Staples’ UK business for a nominal sum last November, and has since rebranded the office supplies retailer Office Outlet.
But will the restructuring firm be able to make a go of the newly-named retailer?
And what must it do to ensure it can succeed where Staples, which made a pre-tax loss of £21.7m in the year to January 2016, failed?
When the deal completed, the new owners unveiled plans to “phase out” the Staples brand in the UK, but provided no further details on what its strategy looked like.
“It’s attempting to shed up to 285,000 sq ft from its store portfolio by sub-letting space in 35 larger stores”
At the time, Hilco Capital chairman Paul McGowan said: “While retail in the UK has been challenged recently, a team led by retail veteran Alan Gaynor will work alongside the existing management team to build a plan for success for the business.”
Since then Hilco has taken some steps to revitalise the brand, which it claims is still a £160m turnover business.
Over the course of one week in February, new signage was put up across the 106-store estate, and a new EPOS system was installed.
Hilco has also moved to streamline its property. Retail Week revealed earlier this month that it’s attempting to shed up to 285,000 sq ft from its store portfolio by sub-letting space in 35 larger stores.
But as online counterparts, which often offer more choice and cheaper prices, increasingly dominate the office and stationery categories, will Hilco’s measures be sufficient to ensure the retailer can survive?
The dreaded internet
Retail Week Prospect head of research Phil Wiggenraad warns that the business faces worsening market conditions.
“Paper, ink and toner continue their inexorable decline while other SKUs compensate to some extent, but probably not sufficiently”
Phil Wiggenraad, Retail Week Prospect
“Demand from offices has dwindled as businesses have become increasingly digital, reducing the need for printers, paper and other related products.
“Consumers have also become much savvier and shop around for the cheapest deals, which are usually online,” he says.
Tristan Nagler, UK managing director of Aurelius – the investment firm that acquired Office Depot Europe this year – agrees that the category, while “pretty healthy”, is experiencing a noticeable decline in some areas.
“Paper, ink and toner continue their inexorable decline while other SKUs compensate to some extent, but probably not sufficiently.
“Although Staples has developed its assortment significantly and diversified into sanitation supplies, furniture and refreshments to offer solutions for the whole office environment, I still don’t think that’s enough to offset the reticence around travelling to a huge out-of-town store,” he says.
Wiggenraad adds: “For Office Outlet to succeed it will really need to step up its multichannel capabilities, for instance by offering a same-day delivery service that would allow it to cater to businesses with urgent needs.”
While Hilco has launched a new web platform for Office Outlet, the website is currently non-transactional.
Wiggenraad also argues that the retailer should “make a bigger play on its specialist credentials, by emphasising its deep product range and forging closer relationships with its business-to-business (B2B) customers”.
But how many physical stores does it need for this, given business customers are increasingly online?
“The UK consumer doesn’t want to be going out-of-town at the weekend to buy stationery”
Phil Wiggenraad, Retail Week Prospect
“I can’t help but feel that the B2B category doesn’t want to buy in-store anymore,” Nagler says.
“This is true to some extent for B2C shoppers too, and when they do shop for stationery, they want to buy on high streets rather than go out to retail parks.
“The renaissance of Ryman and the introduction of new entrants like Scribbler has meant that the high street has been in some way reinvigorated. But in terms of the out-of-town concept, I can’t quite believe it can be sustained.
“The UK consumer doesn’t want to be going out-of-town at the weekend to buy stationery.”
As previously mentioned, Hilco has taken steps to right-size the estate by sub-letting chunks of space at 35 of its stores.
This move might bring in a few extra pounds, but it still leaves Hilco, for the moment, with 106 mostly out-of-town stores.
Hilco’s work on Office Outlet has only just begun.
“The reality is we’re kicking everything off very quickly and then we’ll be refining the proposition in the weeks to come with an improved product mix and much better pricing and promotions,” Hilco Capital marketing director Matt Bone told Retail Week.
As part of its ongoing transformation plan it will be expanding some categories, rationalising others, and clearing out anything non-core, such as in-car cameras.
And if the new website is anything to go by, it is making a play for the schools and student market with a 10% discount for NUS card holders.
Nagler makes the argument, however, that students are incredibly sophisticated and digital.
“It’s hard to image students would be buying from a bricks-and-mortar retailer as opposed to a digital business, and that the brand will relate to them,” he says.
“It’s great to see the innovation and investment but Staples invested for years in marketing the brand, and even then the business was not viable – hence the sale.”
“I’d be amazed if Hilco has the budget to get the new name into the consciousness of the UK market.”
A formidable task
“Even a major change of strategy may not be enough”
Wiggenraad concludes gloomily that, although Hilco’s work is not yet complete, the firm has a “formidable task” ahead of it.
“Even a major change of strategy may not be enough,” he says.
Given the headwinds in UK retail and the decline in the category, Nagler says the best option, in his opinion, is to “shrink the estate to a profitable core” and seek “innovative ways to make that work”.
Still, the retailer’s overheads are significantly lower now it has been separated from its former US parent and, according to Hilco, it has only a very small number of loss-making stores.
The HMV owner may yet have a solution up its sleeve, and it has certainly kicked-off its work apace.
But, given the shape of the UK retail market and the increased digitisation of the category, the stationery specialist’s best days may already be behind it.