Summary
1)Within a very saturated marketplace of Office Supply superstores, could a smaller footprint store that features core office supplies, print and document services and shipping be the ultimate answer to retail store expansion in the sector? 2)Given escalating rent cost in large metropolitan areas, a smaller store with lower inventory investment but a solid assortment of top sellers and on demand services serves the needs of the time-compressed consumer and small business owner. 3)By containing rent, taxes, payroll overhead and cost of inventory in a store estimated to be roughly half the size of a prototypical Staples, the real estate pro forma and business model sales required to reach profitability would be proportionately less than that of the standard 20-22,000 sq.ft.prototype. 4)This compact model would also work well in towns with less population and significantally reduced business counts within a 5 mile ring of the location.
Analysis
A strong argument can be made that what Staples is testing in China could well be the future store prototype in the US if the test proves successful. Retail store saturation analysts have long held that once the Office Supply sector reached 4,000 stores combined, growth of new stores would only occur in "backfill" or new/smaller population and business count markets. Although there is probably merit to the argument of 4k saturation, it is entirely conceiveable that the figure was based on an assumption that SPLS, OMX, and ODP would forever continue to build stores in the 20-22,000 sq.ft.range and that locating new "A" caliber real estate sites to justify new store build out would be nearly impossible in existing 1 or 2 player markets. Given the fact that there are already more than 4,000 combined superstores within the Big 3 already open in the US, the concept of the smaller store is intriguing and has certainly reached a time to try it out.
I like what Staples is testing in China and look forward to seeing the results in anticipation of a rollout in the US. To some degree, Staples has already done this in cities like Boston with downtown small stores that feature limited product assortment and print-for-pay service offering; adding shipping to the mix will make the concept even more exciting as a natural add-on. FedexKinko's has already been successful with its small store format and has plans for 2000+ units in the 5 year growth plan. I believe that Staples has seen the future and is once again, getting ahead of the curve of design, layout, and first to market over competition. If the China endeavor proves successful(what hasn't been successful at SPLS??), look for a rollout of the small stores in downtown and smaller towns across the US in the very near future.
