Market forces in the office supplies industry
Although the office supplies industry is a niche retail segment, it’s highly fragmented. The industry has many players. Due to the large number of players in the space and the multiple product brands available, the rivalry between the players is intense.
Low product differentiation also makes it easier for customers to substitute one company’s products for another, without compromising its utility. As a result, having satisfied customers (XLY) is a key priority.
Two large players
The niche retail industry is dominated by two retail (XRT) players—Staples (SPLS) and Office Depot (ODP). SPLS is the top player. It invented the office supplies superstore in 1986. It also earned $23.1 billion in revenues in fiscal year 2014—for the year ending on February 1, 2014. SPLS holds a single-digit share of the global office supplies market. However, it’s difficult for a single player to bring about changes in prices—even for SPLS.
ODP is second in terms of market share. ODP expected to earn revenues of ~$16 billion in fiscal year 2014—for the year ending on December 31, 2014. In its current form, ODP is a result of a merger with OfficeMax (OMX) in 2013. We’ll discuss this more in Parts 5 and 6 of this series.
Both of the companies stock millions of products. There are many industry suppliers. They include major corporates in different categories, including Apple (AAPL), International Paper (IP), Hewlett-Packard (HPQ), ACCO Brands (ACCO), Xerox (XRX), Microsoft (MSFT), and IBM (IBM). The bargaining power is balanced between suppliers and retailers—due to the large number of suppliers, products, and industry players.
In the next part of this series, we’ll discuss the changing industry. We’ll also discuss Starboard’s interest in the industry.