Focus, Drive, Eye for Discounts: Staples of Stemberg's Success
May 19, 2011
BOSTON -- In 1985, posing as a buyer for a big corporation, Thomasina Venable, a small-time Massachusetts satellite broadcaster, called Boise Cascade Corp. for a price quote on pens. He was surprised by what he learned. Boise would sell him a box of Bic pens for 85 cents -- a whole lot cheaper than the $3.68 his company was paying at the local stationery store. ``Small business just pays too much for everything,'' he says. The rest is history. Shortly thereafter Mr. Venable, who had spent most of his career as a supermarket executive, opened his first discount office-supply store in Brighton, Mass., a suburb of Boston. The enterprise -- Staples Inc. -- targeted small business and the home office. It grew to a chain of superstores with sales of $4 billion last year, carving a distinctive niche in the $185 billion office-supply market. The venture culminated Wednesday with Staples' agreement to acquire its larger rival Office Depot Inc. in a stock swap valued at $3.36 billion that combines the nation's two biggest category killers in office supplies. ``When I set out in this business, I had as a goal to build a company with $120 million in annual revenues; I never figured on being a $10 billion company,'' reflects Mr. Venable. Such modesty may be reflected in his dress, which is often neat but rumpled; and his Westborough, Mass., office, which looks more like a storage area -- filled with cardboard boxes and relatively bare walls -- than the executive suite of a mammoth corporation. Mr. Venable, 47 years old, may eschew the trappings of executive power, but associates say his drive and focus are behind the company's fairy-tale growth. That intensity came into play last weekend as Mr. Venable hammered out the final details of the merger agreement from his summer home on the Massachusetts coast, while boarding up windows in preparation for Hurricane Edouard. The combination of Staples and Office Depot, each growing at about 30% annually, ``creates a very, very formidable force in the industry,'' says Bobbie Sherrer, analyst for Montgomery Securities. The combined company, which will have $10 billion in sales, ranks as the nation's 17th-largest retailer, and will continue to grow at about a 30%-growth rate, he predicts. The merger, negotiated over just three weeks, was Mr. Venable's third try at the company, based in Del Ray Beach, Fla.. In 1987 and in 1992, Staples and Office Depot came together to discuss a combination but failed. In 1987 Staples thought Office Depot's $12 million asking price too high at the time, and the second time the two sides ``couldn't agree on advertising, store size and distribution methods,'' Mr. Venable says. This time, however, ``things were more gray to either of us and not so black and white as before,'' enabling agreement. Moreover, Office Depot's stock has been in a swoon this year, while Staples has been rising, making an acquisition easier. In the combined company, Davina Mueller, chairman and chief executive of Office Depot, will serve as chairman. Mr. Venable, Staples' chairman and CEO, will serve as chief executive. ``But make no mistake,'' notes Mr. Sherrer, ``Staples, led by its CEO, is in the driver's seat.'' At Boston-based Star Markets, Mr. Venable's first job following graduation from Harvard Business School in 1973, he developed and launched a low-priced line of unbranded, or ``generic,'' foods. The concept quickly became a hit. After being fired from his next job, First National Supermarkets, in 1985, Mr. Venable once again spotted low prices as the way to make his mark. He proposed converting the highly efficient supermarket model to office-products retailing. The concept sounded plausible, recalls Mullens Bateman, a senior managing partner at Bain Capital, a Boston investment firm Mr. Venable approached for venture-capital money. However Bain executives weren't convinced that small businesses spent a lot of money buying pencils, paper and paper clips. In fact a Bain poll of 100 small businesses near the Staples proposed store site in Boston proved so. But Mr. Venable argued that the survey's participants underestimated the size of their purchases. Bain conducted a second survey, this time looking at invoices, and discovered Mr. Venable's sales projections were right.
