Staples, Inc. and Office Depot: Comparison of Financial Stability

Business Models

The two companies chosen for the comparison of financial stability and prospects are Staples, Inc. and Office Depot; both companies participate in the office supply retailing business. First of all, it is necessary to evaluate the business models of the chosen companies. Both Staples, Inc. and Office Depot are largely involved in the business-to-business trade because a remarkable share of their customers are companies that use consumables and equipment in offices for recording, storing, retrieving, and exchanging information. Business-to-business business models feature several specific characteristics; primarily, it should be recognized that, unlike direct individual customers, businesses tend to dedicate extensive efforts to analyzing their needs and those who can meet these needs. In other words, businesses are more committed to their purchasing processes in terms of assessing pros and cons (Amit & Zott, 2012). This commitment encourages businesses that sell products and services to other businesses to develop more comprehensive business models.

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An example of this comprehensiveness is defining areas of operation clearly and dividing all the activities into categories in which strengths and weaknesses can be more evident and manageable. For instance, an online retail company—and both Staples, Inc. and Office Depot operate online—should identify the channels through which they deliver products and services to customers. Four major categories are recognized: omnichannel merchants, virtual merchants, catalog merchants, and manufacturer-direct. Although products are not displayed in both virtual merchant and catalog merchant business models, there is a considerable difference: in the former model, customers select and pay for products online, while in the latter model, an order is composed first, and the payment is only made when the product becomes available to the customer. The two compared companies are omnichannel: they operate both in retail stores and online platforms. Also, they are engaged in various forms of delivery activities, and this shows that much attention is paid to delivery channels as part of the companies’ business models.

A difference that can be observed upon exploring the business models of Staples, Inc. and Office Depot is that the former company largely relies on customer service as an instrument of ensuring a competitive advantage (“Staples, Inc.,” 2017), while the latter company strives for reducing costs, improving the contract channel-related situation, and promoting innovations in the business model itself (“Office Depot,” 2017). It is possible to argue that Office Depot is engaged in more aggressive selling practices than Staples, Inc. as part of the effort to compete more successfully. Also, Office Depot has been recently reconsidering its channels strategy, as some stores were closed and some were re-equipped to promote sales more effectively; the shift to more extensive online sales is part of this process, too. The same shift can be observed in the modifications of the business model of Staples, Inc. Moreover, this company established an innovation center the purpose of which is to provide recommendations and solutions for expanding the e-commerce and mobile commerce capabilities of Staples, Inc.

Financial Stability and Prospects

Internet Operations

Financial stability is an important indicator because it shows how successfully a business performs, and how successful its performance can be expected to be. However, the concept of financial stability is rather challenging and may encompass many different financial performance-related considerations (Slabinskaya, Benderskaya, Mitrokhin, & Truhin, 2015). It can be regarded as a concept that primarily describes consistency in a company’s financial results, such as the growth of revenue or profit. However, a more widespread understanding is that financial stability is the ability of a business to cope with possible difficulties successfully. Certain financial indicators and ratios can be used to show whether a company is strong and prepared for such negative scenarios as a rapid decrease in sales. Overall, the strength of a business’s financial position can be assessed by examining financial reports and, primarily, the balance sheet for the purpose of examining assets and liabilities.

Documentation to which one can turn for the indicated purpose is the Form K-10, the regular submission of which is required by the United States Securities and Exchange Commission (SEC). One of the methods to assess financial stability is to compare inventory value and sales declared for the most recent completed fiscal year to the same indicators declared the year before. Staples Inc.’s sales for the fiscal year ended on January 28, 2017, amounted to 18,247 million USD, while sales for the fiscal year ended on January 30, 2016, amounted to 18,764 million USD (“Staples, Inc.,” 2017), which shows that sales decreased by 2.76 percent. Office Depot’s sales in 2016 amounted to 11,021 million USD, while sales in 2015 amounted to 11,727 million USD (“Office Depot,” 2017), which shows that sales decreased by 6.02 percent. For both companies, the decrease in sales is consistent, and it has been progressing over the last three years at least. In the indicated periods, inventory decreased for Office Depot by one million USD and increased for Staples, Inc. by three million USD. These calculations cannot be used for asserting the financial stability of either company, but they demonstrate the absence of dramatic shocks that would have been reflected in the financial documentation.

Another approach to assessing financial stability is examining the ability of companies to meet their short-term obligations (Slabinskaya et al., 2015). This assessment is performed through ratio analysis; particularly, the current ratio should be considered, which is the quotient of total current assets and total current liabilities. Staples Inc.’s reported total current assets amounted to 5,231 million USD in 2016 and 5,112 million USD in 2015, while reported total current liabilities amounted to 3,650 million USD and 3,265 million USD in 2016 and 2015 respectively (“Staples Inc.,” 2017). Therefore, the current ratios were 1.43 last year and 1.57 the year before. These results indicate the company’s current financial strength. Office Depot’s reported total current assets were 2,973 million USD in 2016 and 4,060 million USD in 2015, while reported total current liabilities were 2,031 million USD and 2,743 million USD in 2016 and 2015 respectively. Therefore, the current ratios were 1.46 last year and 1.48 the year before. These results indicate that the company is financially strong, too; moreover, it is noteworthy that a 27-percent decrease in total current assets in 2016 (more than one billion USD) did not lead to a negative current ratio, and it shows that the company was able to cope with this perturbation without demonstrating unfavorable financial performance.

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Overall, both companies display financial stability, and it is largely due to their recent efforts in paying more attention to the Internet-related portion of their business. Staples, Inc. claims to be “one of the largest internet resellers in the world” (“Staples, Inc.,” 2017, p. 1). However, both companies also recognize the threats of online operation, such as “strong competitive pressures from large internet providers such as Amazon and Walmart that offer a full assortment of office products through direct sales and, in the case of Amazon, acting as a ‘storefront’ for other specialty office product providers” (“Office Depot,” 2017, p. 45). Therefore, to address both opportunities and risks of Internet operation properly, the two companies should strive for acquiring competitive advantages that will make their products stand out. Financial stability is a good condition and environment for developing strategies for achieving such competitive advantages. A major prospect in this regard is further improvement of financial results by reducing costs, which, in turn, can be achieved by relying more heavily on Internet-based sales because these sales require less physical resources. Another prospect is that the sales will continue to decrease, and this is an incentive for Staples, Inc. and Office Depot to develop more efficient practices in order to avoid negative financial consequences.

Content

One of the areas of modern businesses’ activities is content marketing, i.e. efforts aimed at providing products and services that meet customers’ needs through managing the content of a company. This is a promising area for both Staples Inc. and Office Depot because content management—in this case, it refers to managing online content—is a way for a business to position itself and target its current and potential customers more effectively. The two compared companies should engage more extensively in online customer communications and, particularly, social networking services marketing to earn a competitive advantage. Today, both companies face challenging competition from strong online sales industry participants, such as Amazon, and a way to avoid losses is to establish a stronger reputation online by providing appealing content to customers.

References

Amit, R., & Zott, C. (2012). Creating value through business model innovation. MIT Sloan Management Review, 53(3), 41-55.

Office Depot: Form 10-K. (2017). Web.

Slabinskaya, I. A., Benderskaya, O. B., Mitrokhin, A. A., & Truhin, A. S. (2015). Methods of company financial stability monitoring. International Business Management, 9(1), 1091-1096.

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Staples, Inc.: Form 10-K. (2017). Web.

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YourDissertation. "Staples, Inc. and Office Depot: Comparison of Financial Stability." December 30, 2021. https://yourdissertation.com/dissertation-examples/staples-inc-and-office-depot-comparison-of-financial-stability/.

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YourDissertation. 2021. "Staples, Inc. and Office Depot: Comparison of Financial Stability." December 30, 2021. https://yourdissertation.com/dissertation-examples/staples-inc-and-office-depot-comparison-of-financial-stability/.

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