17 minute read
Focus
OVER andOUT With 2021 marking the end of both Staples Solutions and Office Depot Europe as separate entities, OPI’s Andy Braithwaite takes a look at the rise and fall of the US power channel players on the European office products stage
Give or take a few years, the international expansion and then retrenchment of the US-owned office products powerhouses, often still referred to as the ‘big boxes’ or, some time ago, the ‘power channel’, tie in nicely with the 30-year history of OPI.
Indeed, one of the most common themes running through this magazine’s pages over the decades (and, since 1999, the opi.net website) has been industry consolidation. And that is something which, in Europe and on a global scale, has been heavily influenced by the actions of US behemoths. The list initially included the likes of Viking, Boise Cascade Office Products (BOP), US Office Products and Corporate Express (CE), but it eventually became a two-horse race as Office Depot and Staples gradually took out the competition.
THE BEGINNING
Going back to 1991, OPI’s year of creation, and the OP reseller channel was still highly fragmented, with the biggest trends arguably the rapid growth of the superstores in the US and the start of a consolidation frenzy in the contract segment. Ironically, if we are to talk about a global player in those days, it was not a US firm, but Netherlands-based Buhrmann-Tetterode (BT) – which would eventually become Corporate Express – that was leading the way, acquiring dealers both in Europe and the US.
However, as former Office Depot EVP Doug Ramsdale notes, the landscape was starting to change and the industry was breaking out of its shell, with one US leader in particular setting out on its international journey.
“The beginning of the ‘going public’ craze in the industry at the same time as the rapid expansion of the superstores underlined that a higher growth rate justified a much higher multiple – and growth became a god,” he says.
According to Ramsdale, one of the first companies to sense it had plateaued on its home patch was Viking. After doing his homework on the UK market during an attempt to acquire direct marketer Neat Ideas in 1990, CEO Irwin Helford decided to take his brand across the Atlantic.
To say this shook up the market would be an understatement. Those who have been around long enough will surely recall the sense of panic in the UK dealer community and packed meetings at industry association BOSS.
“Viking brought an intense customer focus: better service, easy returns, great pricing for small businesses and sophisticated marketing,” comments Ramsdale.
Speaking from a supplier’s point of view, long-serving Avery executive Jonathan Smith, who was still at 3M in the UK in 1990, concurs. “Viking forced us to up our game on merchandising, promotions and pricing management – areas that had not been top of our agenda before this player arrived,” he says.
Instrumental in leading Viking’s charge overseas was Graham Cundick, the company’s first-ever employee in Europe. He got the business up and running in the space of just a few months. Incredibly, by the end of 1990, it had raked in £30 million (more than $50 million at the time) in sales and had already broken even. “That was sensational – unheard of,” he says today.
Encouraged by its successful UK market entry, in mid-1991, Viking turned its attention to continental Europe. Whether France was the best choice is debatable. Higher labour costs, unionised employees, established players such as JM Bruneau and JPG – all these factors made the road to profitability a much longer one. But again, the market entrance of this US firm was a wake-up call for the local incumbents.
“The arrival of Viking was like a tsunami,” recalls Danièle Kapel-Marcovici, CEO of RAJA Group, which has just inherited the Viking brand as part of its Office Depot Europe acquisition (see News Analysis, page 6). “Its pricing structure and fanatical customer service turned B2B on its head. We learned a lot from this operator and made improvements in areas such as direct marketing, and customer and product segmentation.”
Ramsdale adds: “Irwin realised that, although there were differences between Europe and the US, and between European countries, the desire for great service and great value was common. He adopted an expensive country-by-country approach, not a one-size-fits-all.”
THE FLOODGATES OPEN
Spurred on by Viking’s success, others soon followed. Staples was the first, bringing its superstore concept to Germany in 1991 when it took a 48% stake in fledgling chain MAXI-Papier; a few months later, it partnered with Kingfisher to open stores in the UK. Office Depot arrived shortly afterwards via a licensing agreement in Poland, followed by a joint venture with Carrefour in the French retail space.
“The superstores’ philosophy was, ‘we do one thing, we do it well, and we can do it anywhere’,” suggests Ramsdale. “The problem was, they couldn’t in Europe. The place was foreign in four key respects: real estate was difficult to find and expensive; labour cost more and was less flexible; marketing costs were higher and it wasn’t as effective; and brand preferences and loyalties were different.”
In the mail order channel, following hot on Viking’s heels in the European market, was Reliable, which was soon acquired by BOP.
“I’m sure Staples will move inexorably into every sector of the UK marketplace. I think the scale and success the stores have in the USA, tying that in with mail order, give the company a range of weapons to use. In time, the stores will have a greater share in the UK, and one will cross-fertilise the other.” David Brient, Managing Director, Dudley Stationery, OPI 2000
Below: Staples attempts brand consolidation
The US player began to snap up companies across the continent, acquiring the UK’s Neat Ideas in 1995, soon followed by JPG in France and Spain’s Kalamazoo. BOP’s European operations were later bought by acquisitive contract stationer, France-based Guilbert, in 2000. The Americans weren’t the only ones chasing growth, and Guilbert was determined to keep them at bay – although it wasn’t quite how things played out.
In a similar vein, BT – which changed its name to Buhrmann in 1998 – was also flying the European flag. Already a force in the US, in 1999, it paid $2.3 billion for CE which, by that time, had run into trouble after a period of rapid growth. The purchase made it the largest pure B2B player globally as we entered the new millennium, although it still lagged behind Guilbert in Europe.
MULTICHANNEL MOVES
In the early days of this consolidation process, the lines were still clearly drawn as to who was doing what. The superstores were opening stores, mail order resellers were buying up catalogue companies and contract stationers were becoming, well, larger contract stationers.
The aforementioned BOP/Guilbert deal was the beginning of a key trend which was already having a major influence on the make-up of the global OP market: the rise of the multichannel reseller. Again, it was the US that had been leading the way as the superstores, craving growth, moved into the B2B space by acquiring dealers en masse and elbowed into the catalogue business. This included Office Depot’s acquisition of Viking in 1998 in a deal worth $2.6 billion. Overnight, it transformed Depot into the world’s largest OP reseller and made it a powerhouse in Europe, doubling its sales in the region.
M&A activity didn’t stop there, of course. Staples went toe-to-toe with Viking in Europe when it bought Guilbert’s direct businesses in 2002. A year later, Guilbert’s contract operations were acquired by Office Depot, while Staples won back the global number one crown when it took over CE in 2008, after a protracted takeover process that also saw Lyreco get involved.
WHAT WENT WRONG?
Office Depot’s Viking acquisition came two years after the US Federal Trade Commission (FTC) had blocked the merger of Staples and Depot in the US. Faced with increased competition in their home markets, this decision was a catalyst for the US big boxes to develop their international operations, especially Depot, which had been weakened by the Staples takeover saga.
Ironically, it was a similar FTC decision 20 years later which hastened their departure from the international scene.
But what went wrong in the interim? And clearly something did go wrong, otherwise we
Ron Sargent, CEO, Staples, OPI 2006 1990
l Viking enters the UK; breaks even in its first few months of trading
1991
l Staples invests in German office superstore brand MAXI-Papier; partners with Kingfisher to develop stores in the UK l Viking enters France
1993
l Office Depot signs a retail licensing agreement in Poland, with stores opening the following year
1994
l Boise Cascade Office Products (BOP) buys US-based Reliable
1995
l Office Depot forms a joint venture with Carrefour to open stores in France l BOP, via its Reliable brand, acquires UK catalogue business Neat Ideas
1996
l Guilbert acquires Niceday in the UK and Walther & Sohn in Germany
1997
l Office Depot enters Hungary l BOP acquires JPG
1998
l Office Depot buys Viking in a $2.6 billion share deal l Guilbert becomes part of the Pinault-PrintempsRedoute (PPR) group l BOP buys Spanish catalogue reseller Kalamazoo
1999
l Buhrmann acquires Corporate Express (CE) l Staples expands its retail presence with the purchase of Sigma Burowelt (Germany) and Office Centre (Netherlands, Portugal), taking its store count in Europe to 120
2000
l Guilbert becomes the number two contract player in Germany when it buys Hutter. It also purchases BOP for $320 million l Office Depot launches its Business Services Division in Europe
2002
l PPR sells Guilbert’s direct brands (Bernard, JPG, MondOffice, Kalamazoo & Neat Ideas) to Staples for $809 million l Viking expands in Switzerland, Spain and Portugal
2003
l Office Depot buys Guilbert’s contract business from PPR for $950 million
2004
l Office Depot acquires licensee in Hungary; enters the Swedish market through an alliance with AGE Kontor & Data l Staples adds 59 stores in the UK with the addition of Globus Office World; buys Malling Beck in Denmark and Kontorslagret in Sweden
2006
l Office Depot acquires Czech reseller Papirius
2007
l Guilbert France becomes Office Depot Business Solutions
2008
l Staples buys CE
2011
l Office Depot acquires Svanströms in Sweden
2012
l Staples announces European restructuring
2013
l Office Depot sells Hungarian business
2015
l Office Depot announces deals in Romania (Austral Trade) and Malta (Complete Supplies) “We got what we wanted with Guilbert, but I think we underestimated the job of putting together [these] organisations and, in our enthusiasm, the challenges involved in two similar-sized companies with different cultures coming together. But a lot of these issues are behind us. It took us longer than we would have hoped and it was more distracting than we would have liked, but I think we finished the year stronger than we were in the middle of it.” Charlie Brown, President, Office Depot International, OPI 2006
wouldn’t be looking at the retreat of the US power channel.
Was it a question of bungled acquisitions, trying to grow too quickly, flawed geographical and channel strategies, a lack of focus, a failure to adapt to changes in the marketplace, secular declines in core products, value-draining price wars? Or perhaps all of the above to some extent? It’s difficult to pinpoint one particular factor.
Certainly, as Cundick points out, Viking’s success did not end when it changed hands and it was allowed to plough its own furrow. “[Then Office Depot CEO] Dave Fuente was adamant there would be no US execs coming over to run the business. He understood that
the culture, brand values and the service proposition were all different.”
Avery’s Smith notes: “For me, an inflection point was when Staples and Office Depot thought they could treat the whole of Europe as one trading entity. They tried to standardise everything – products and packaging, for example – across all countries and they treated Europe as one single market.”
On the same theme, Ramsdale adds: “By the time the lessons were learnt, it was too late. In business terms, there is no such thing as a global or a European customer. And when it came to people policies, development, and all the things a successful business has to get right, the one-size-fits-all, top-down approach also showed itself to be a failure.”
Peter Damman is an industry veteran who has held senior positions at Viking, Office Depot, CE and Staples in Europe. “Multichannel strategies were not successful,” he argues. “They made matters too complex. Things began to go wrong for Office Depot after it acquired Guilbert and for Staples following its acquisition of CE.”
Cezary Monko, President of ACCO Brands EMEA, is sympathetic as regards the challenges these businesses faced. “When you make an acquisition, there are two things you can do: you can integrate it fully and strip out all the local expertise, or you can rely on it.
“I don’t believe they ever really knew which was the right path to take. And that’s not a
criticism; it’s very difficult. However, if you don’t get the support, understanding, time and patience of the headquarters, you’ll probably fail. I don’t think they ever really had a chance.” (For more on Monko’s views on key industry developments over the past 30 years, see Interview, page 57).
A PERFECT STORM
Adrian King, Partner at Australia-based AXS Partners, has an intimate knowledge of the office products industry in Australia, New Zealand as well as Europe. He takes a macroeconomic, bird’s-eye view on the demise of the US big boxes in both regions, and argues that the writing was on the wall when the global financial crisis hit in 2008.
“I think the economy is certainly having an impact on Staples and the entire industry. This is probably the most challenging economic period we have been through in the history of our company.” Ron Sargent, CEO, Staples, OPI 2008
2016
l FTC blocks Staples/ Office Depot merger; both resellers announce strategic reviews of their international operations l Aurelius acquires Office Depot Europe l Staples sells its UK retail operations to Hilco
2017
l Cerberus acquires Staples Europe, which becomes Staples Solutions
2019
l Office Outlet, the rebranded Staples UK retail business, collapses l PBS Holding acquires Office Depot’s Central & Eastern European business unit
2020
l Office Depot Nordics is sold in an MBO l Office Depot Europe sells its direct and contract arms in Spain to Bruneau and Lyreco, respectively l EVO Group’s Banner buys the book of business of Staples UK
2021
l Office Depot France goes into administration and is eventually acquired by a consortium led by dealer group Alkor l Lyreco purchases Staples Solutions units in Norway, Sweden, Denmark, Austria and Poland l Bruneau buys Office Depot Italy; Paragon acquires the Office Depot contract business in the UK and Ireland l Staples Solutions sells its retail business in Portugal to Firmo, Staples Finland to Wulff and Staples Benelux to Standard Investment l RAJA Group acquires the remaining assets of Office Depot Europe, which include the Viking brand “If you want an authentic and unique go-to-market strategy, you need to leverage the strength of your brands. I did say at the OPI European Conference in 2006 that we were considering integrating the Viking brand into the Office Depot brand. Maybe I shouldn’t have said that, especially with the reaction that we were going to ‘kill’ the Viking brand, but I was trying to be honest and share the things we were thinking of.”
Dirk Collin, President, Office Depot Europe, OPI 2011
“The ‘tyranny of distance’ is an overriding macro theme to this whole issue,” he says. “When there is growth and it’s going well, expand overseas. When things start to go wrong, it is human nature to focus on what’s closest to home.”
He continues: “It was a perfect storm. You had a maturing sector, then the financial crisis came along and hit the B2B market while Amazon was making inroads at the same time, nibbling away at B2C. [The big boxes] progressively took their eye off the ball on the international scene as they tried to win the war
on their own turf – which was a more familiar and bigger market.”
He concludes: “The main beneficiaries have been well-run, local, highly focused, culturally attuned independent operators.”
Despite his earlier comments, Ramsdale says history should not be too hard on the office products sector. “Just look at Walmart in Europe and others that have tried to expand internationally,” he notes. “It’s not easy.”
However, he still calls the whole story “a pity”, adding: “Viking had the formula: hire people who can absorb and apply a common culture while operating in a specific market. Make your money by winning the customer, not watering the soup.”
Reading this article, you may think it’s more about Viking in Europe than Staples or Office Depot. This wasn’t the original plan but, when you look at it, the period from 1990 to around 2004 was arguably as good as it got for the US power players in Europe – and that was largely down to Viking.
In its heyday, it was likely generating more than $1.5 billion in annual revenues in Europe and EBITDA margin is believed to have been
in the healthy double digits. When Office Depot CEO Bruce Nelson referred to the company’s “highly profitable” International operations in its 2002 Annual Report, he probably wasn’t thinking about the retail stores in Japan.
THE FINAL CURTAIN
In 2016, when the FTC blocked the second attempted merger between Staples and Office Depot, it signalled the end of their international ambitions. The ‘tyranny of distance’ came home to roost as they each focused on how to stay relevant in their home markets of North America.
Jamie Fellowes, CEO, Fellowes Brands, OPI 1996
“Will the change over the next ten years be as dramatic as the past decade? Probably not.” Tom Stemberg, founder, Staples, OPI 2011
They had been counting on bringing their European operations together, but this was effectively scuppered by local antitrust regulators who had ruled against a combination of their contract units as part of the FTC investigation.
Enter private equity firms Aurelius and Cerberus, which quickly concluded the respective takeovers of Office Depot and Staples in Europe (although Staples’ UK retail arm had already been sold off in a separate deal to Hilco).
The fact private equity got involved at all showed there was still money on the table. They were buying sizeable businesses – Office Depot Europe was bringing in around €2 billion ($2.4 billion) and Staples Europe approximately €1.7 billion – these entities could potentially be broken up and sold off. Which is exactly what has happened over the past four years.
When the RAJA acquisition was announced in August 2021, it concluded a period of multiple transactions involving strong, Europe-based players. It has certainly changed the face of the continent’s business products landscape. And hopefully, after years of cutbacks and underinvestment, what will follow next is a fresh approach and some much-needed, renewed entrepreneurial spirit.
