Office Supply Chains Rally After Talk of Merger

Stephanie is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Just as experts were predicting the demise of bricks-and-mortar retail, the office supply retail industry experienced a sudden surge of growth this week. But will it last?

The spike is being attributed to rumors that Office Max (NYSE: OMX) and Office Depot (NYSE: ODP) may merge. The merger, experts say, would create a stronger alliance to take on office supply giant Staples (NASDAQ: SPLS). Staples currently boasts more than 2,000 stores nationwide with annual sales of $25 billion. Compare this to Office Max's less than 1,000 locations and Office Depot's 1,600 stores.

An Online World

All three retailers now face serious competition from online retail giant Amazon (NASDAQ: AMZN), whose prices are known to undercut retailers'. Amazon delivers items to consumers' homes or offices, saving time and fuel. In an, "If you can't beat 'em, join 'em" move, Staples recently added Amazon lockers to its stores, providing a safe, convenient place for Amazon purchases to be shipped and picked up. Consumers order items on Amazon and choose the Staples locker option from their delivery methods.

While it may seem like this move will only encourage customers to shop with Amazon, it also draws consumers into Staples locations, where they might pick up an item or two. Staples also receives a small payment from Amazon for providing the lockers to customers, creating an additional source of revenue for the company.

But is this the right move for office supply retailers? Instead of providing an additional reason for customers to enter their store, shouldn't Staples be expending a little more effort into attracting some of that valued online business?

Less Paper, Less Income

Amazon isn't the only obstacle for office supply retailers. Office supplies themselves are gradually becoming endangered species, thanks to the rapid adaption of mobile devices in conducting day-to-day business operations. Workers are no longer required to print multiple copies of presentations prior to a meeting. Presentations can now be stored on a tablet or smartphone and hooked up to a projector or sent to the Cloud, where multiple team members can view and even edit them.

All of this technology leads many to imagine a future where pens, paper, toner cartridges, and old-fashioned paper calendars are nothing more than relics of past generations. Which leads investors to wonder whether an investment in an office supply chain, whether that chain is Staples or a merged Office Depot-Max, is ever going to be wise again.

Staples Online

As the second-biggest online office supply chain, behind Amazon, Staples has the most promising future. With an announcement late last year that the company plans to invest in expanding its online offerings beyond office supplies, Staples may be the best financial bet in coming years, as well. Just last week, rumors began to fly that Staples would soon begin offering Apple products in its store. If the retailer begins selling iPhone 5Ses, Macs, and iPads, the company may find an increase in foot traffic from customers interested in trying before buying.

blog comments powered by Disqus