Staples plans to close 225 North American stores by the end of 2014. The closures are part of a consolidation plan, which is expected to save the office supply company nearly $500 million. The company experienced a marked decrease in sales throughout the recession. However, online retailers and discount outlets likely contributed to the decline.
As competitors Office Depot and Office Max recently merged, Staples was forced to reconsider their operations. However, a sharp drop in sales during the fourth quarter of 2013 underlined the urgency to reorganize.
Staples CFO Christine Komola expressed her disappointment in the sales trends during a conference call with investors. She blamed the decline on “competitive intensity during the shorter holiday season as well as unfavorable weather.”
Staples chairman and CEO, Ron Sargent, acknowledged that the company’s strained relationship with Apple may have contributed to the decline. During the conference call he said that discussions with Apple “continue to evolve.” However, fourth quarter sales were “negatively impacted by not having Apple hardware in stores during holidays.”
The store closures were confirmed by company officials. However, it is unclear which Staples stores will close and how many employees will lose their jobs.
Sargent explained that more than 1600 stores will remain open nationwide. In addition to focusing on their online store, Staples will continue to support stores that have “earn[ed] the right to stay open.” However, he said the closures are “the right thing to do for the long-term health” of the company. He also stated that company officials are prepared to make “tough calls when it is necessary.”
As reported by Forbes, Thursday’s announcement sparked a 9 percent drop in shares in pre-market trading. The shares continued to decline as the content of the conference call was publicized.
Despite the proposed closures, Staples’ recovery is expected to be a lengthy process. Boston.com reports that fourth quarter sales will likely be disappointing. Although the company expected earnings to reach 27 cents per share, they are projected to be closer to 20 cents.
During the conference call, Komolo predicted a free cash flow if $600 million for 2014. Those numbers are also disappointing, as cash flow for 2013 reached $737 million. The CFO declined to discuss any further long-term trends, which she acknowledged are “harder to predict.”
Staples’ plan to close over 200 stores will impact hundreds of employees. Although the closures are a drastic measure, company officials said they are necessary to secure the future of the company.
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