The failure to complete its merger with Office Depot appears to have brought Staples yet another difficult financial decision. The office supplies retailer is now considering selling off all 107 of its UK-based stores, pulling its brick-and-mortar operations out of the market entirely, according to a report from British publication The Telegraph.
Upon the resignation of longtime CEO Ron Sargent in June and the payment of a $250 million termination fee to Office Depot, Staples has had to overhaul its business strategy, including cost cuts of approximately $300 million by the end of 2018.
The Telegraph reported that Staples hired accounting and consulting firm KPMG to advise the company as it seeks potential alternatives to a sale of its European stores, which also include:
A company voluntary arrangement that would repay the retailer’s creditors over a fixed time period; or
Administration, in which an interim chief executive takes control of the company’s assets on behalf of the retailer’s creditors.
A Staples spokesperson commented on the retailer’s strategic alternatives, but did not confirm KPMG’s involvement:
“After the proposed Office Depot acquisition was blocked, on May 10, 2016 Staples announced we are exploring strategic alternatives for our European operations. This will allow the company to sharpen our focus and more aggressively pursue our mid-market growth strategy in North America, while right sizing our retail business. While this process remains on track, we have no additional details to share at this time.”
Economic Doubt Adds Insult to Injury
Staples was already having a rough time positioning its 259 brick-and-mortar stores in Europe before the Brexit vote took place in the UK. Comparable store sales in Europe declined 9% during Q1 2016, with the retailer attributing much of it to a drop in store traffic. The Telegraph report indicated that the UK shops in particular were in poor retail locations that were less appealing to potential buyers.
Now, with much economic uncertainty within both the UK and the rest of Europe, merchants such as Staples will have to measure their UK retail performance as an even bigger factor in their entire European strategy. As the British pound tumbles to a 31-year low, consumers there may not be as inclined to spend as much money. In addition, EU-centric businesses and jobs could potentially leave the UK and flock elsewhere in Europe to control costs. Moreover, U.S. retailers conducting significant business in the country will take a profit hit with the changing exchange rate, and will likely have to establish new contacts with other Europe-based data centers and payment providers so they can continue to easily operate in EU countries.
While leaving the UK may not entirely cure all of Staples’ recent ills, the uncertainty of the country’s economy combined with the need to slash $300 million in costs could be a dose of necessary medicine for a company desperately seeking a turnaround.