December 11, 2000

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New Services Bolster Low-Margin Business

By Eric Chabrow

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hat is it about office-supply companies that makes them among the most innovative in using IT to improve customer service? In the top 10 of InformationWeek's Innovation 100: The Customer ranking sit two eerily similar office-supply companies, Office Depot Inc. and Staples Inc. Both have $9 billion to $10 billion in sales, about 1,000 stores, and close to 50,000 employees. And both of these tough competitors in the cutthroat retail office-supplies market are aggressively incorporating the Internet and other information technologies to unite their store, catalog, and online operations into a single offering.

"Office supply is a low-margin, very competitive business, so one always tries to improve effectiveness by employing technology," says Ergin Uskup, CIO of United Stationers Supply Co. in Des Plaines, Ill., a wholesale distributor of office-supply products that furnishes products to both retailers. United Stationers, which is helping its retail customers become "stockless" by shipping their Internet orders directly from United warehouses, ranked No. 24 on the Innovation 100: The Customer list.

Web-based buying of office supplies has erupted. Office Depot projects its online revenue will surpass $800 million this year; Staples forecasts Web revenue in excess of $450 million.

The two retail leaders seem to move in parallel steps as they implement IT systems. Nowhere is it more evident than in their actions to converge stores, catalog operations, and Web sites into a single retail environment. Both chains, for instance, are deploying in-store, Web-enabled kiosks to widen the selection of goods and services customers can purchase.

"Rather than make it a fourth channel, let's use the Internet as a unifier by making it available to store and catalog custom-ers," Office Depot CIO Bill Seltzer says. "Instead of being channel-centric, we're customer-centric."

By using kiosks, both chains expand the number of items they sell at their stores. A typical office-supply megastore contains 7,000 to 8,000 products, but it can easily sell tens of thousands of additional products through kiosks that are warehoused in its own and its vendors' storage facilities.

The Internet has allowed both chains to expand what business they're in by entering the services arena, offering small-business owners communications, financial management, human resources, legal, payroll, and printing services, among others, that are provided by business partners. Customers can purchase these services through their Web sites or in-store kiosks. "Customers have a strong affiliation with us as providers of products that cut the hassle of running an office," says Jackie Shoback, VP of operations at Staples.com. "It's not a big stretch for our customers to think of us as providers of everyday services."

Whether selling products or business services, both companies consider it critical to leverage their physical and virtual worlds to generate profit, regardless of the channel. "We look at our stores as a marketing tool for our Web site," Staples CIO Brian Light says. "If customers don't make purchases in the store, they'll feel comfortable going home and ordering online. We'll take the sale either way."

Photo by Stephen Sherman

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