Staples Dips Into CE Retail Management Ranks to Help Revamp China Business

Staples is dipping into the CE retail management ranks as it seeks to turn around a struggling business in China.

Former Amazon executive Noah Herschman was hired as Staples China’s chief merchant, as the chain installed new management in the market. Herschman, who also used to be a vice president at Tweeter Home Entertainment, will oversee Staples China’s retail, delivery and contract businesses from offices in Shanghai. He left Amazon as director of home and mobile electronics in February, after nearly five years there, to pursue business and Mandarin Chinese language studies in China. Former Lyreco Asia-Pacific executive Anders Kristiansen will join the retailer in September as president of Staples China, replacing Pat Hickey, who returns to the U.S., company officials said.

Staples’ Asia division lost $50 million in 2009. A double-digit decline in revenue in China resulted in the departure of Staples’ chairman for the country and the hiring of a new chief operating officer (CED March 3 p5). Staples said it had 22 stores in China Jan. 30, down from 26 last year, along with five distribution/fulfillment centers. The company also consolidated four regional buying groups into one for China to bring “pricing discipline” as it cut “unprofitable” business, said Michael Miles, president and chief operating officer, on a conference call late last week.

"Obviously the way we want to make money in China is by growing the business and improving margins,” Miles said. “We're pretty well on track with the plans that we've had throughout the year to do that.” Staples’ Q2 revenue in China grew, driven by an improving economy, despite the chain’s trimming unprofitable business, Miles said.

While Staples remains on track to open 40 stores in North America, including several each in the Houston and Minneapolis markets, it seems to have slowed its expansion in Europe. Staples forecast adding 10 international locations this year but has put plans for 5-6 stores in Europe on hold, Miles said. The European stores were included in Staples’ $450 million 2010 capital budget, up from $313 million a year earlier. Staples took a restructuring charge in Q2 for closing two fulfillment centers in Europe. The company has also upgraded 10 European facilities to serve both Staples and former Corporate Express customers. “Our international growth plans are generally on track, and we continue to believe that’s a good growth platform for us,” Miles said.

Staples appears to be weighing entering Russia. The company has no plans for stores there right away, but “it’s obviously a market that we're keeping an eye on,” Miles said. Staples also has had “good” revenue growth in India in delivery and retail, he said. Countries like India and Russia could provide “meaningful dollar growth” for Staples in the second half of this decade, Miles said. Staples’ Q2 international revenue fell 6 percent to $1.16 billion.

Staples’ North American retail division posted a two percent increase in Q2 revenue to $2 billion on flat same-store sales. Customer traffic at Staples stores rose 1 percent from Q1, but the average order size fell one percent, company officials said. Staples’ Easy Tech service posted a double-digit revenue increase, while same-store PC sales rose two percent, company officials said. Staples is forecasting a “low single digit” percentage increase in Q3 retail same-store sales, U.S. Retail President Demos Parneros said.

Staples’ Q2 net income improved to $129.7 million from $92.4 million as sales edged up to $5.534 billion from $5.533 billion. Staples Q2 profit improved despite taking $21.6 million in integration and restructuring costs, down from $29.6 million a year earlier. The costs included $4.4 million for closing facilities and $1.8 million in severance payments, the company said. Operating income at Staples’ North American retail division increased to $105.6 million from $102.7 million a year ago as sales improved to $2.01 billion from $1.97 billion. Staples’ international unit posted a $13.5 million operating profit, up from $3.7 million a year earlier, despite a slip in sales to $1.16 billion from $1.23 billion.