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Never Satisfied
Staples Founder Tom Stemberg keeps trying to reinvent retailing. First it was office supplies; now, dry cleaning and kids' shoes.
Tom Stemberg is the sort of guy whom Joseph Schumpeter would have admired.
Sure, Stemberg deals in paper clips and pens, among other things, while Schumpeter is a famed economist who trumpeted the importance of entrepreneurs. But to Schumpeter’s way of thinking, people like Stemberg keep capitalism vital by introducing innovative products or ways of doing business.
Stemberg founded the Staples chain of office-supply stores. And he created a dry-cleaning company called Zoots and a children’s retailer called Olly Shoes. Each of his companies was born of his frustrations as a consumer, he said in a speech at the Wharton School’s Entrepreneurship Conference in November.
What frustrated him?
"I was getting ripped off as a small consultant in office products," he said. "And I could never get a dry cleaner to do a good job and operate the hours that I operated, not when they felt like being open. They were open 8 to 6. I was out the door before 8 and back after 6."
Zoots and Olly are hardly more than startups; neither rivals the success of Staples, where, these days, Stemberg serves as chairman and entrepreneur in residence. But each of Stemberg’s companies is bringing new methods to seemingly mature, stable industries.
And despite their differences, each one operates by an ironclad rule: Never lose sight of your customers. "Great [business] ideas are those that stem from the identification of a true need in the marketplace and then find a way to meet that need," he explained. "Staples was founded to meet the needs of small businesses."
The company began in 1986. At the time, the office-supply industry was dominated by what were called contract stationers, which catered to the needs of large firms. They stressed service, and their list prices were mostly fiction, Stemberg said. They’d give their big corporate customers 50 to 60 percent discounts off the published prices, he said.
"If you were a small company, the best you could ever get was a 10 percent discount. Often you couldn’t get that. Back in 1985, when I was doing the research to start Staples, Toys ’R’ Us was paying 85 cents for a dozen stick pens. If you went down to the streets of Philadelphia to a little stationery store, that same dozen pens cost you $3.68.
"If you pay too much for your advertising agency, you may get better ads. If you pay too much for your lawyer, you may get better counseling. But if you pay too much for stick pens and paper clips, you’re getting ripped off."
The solution seemed obvious. Start a retailer that offered the same prices to small businesses that large ones enjoyed. It wasn’t a radical notion — after all, the concept — value-pricing — is the same one Wal-Mart brought to consumer goods and Home Depot brought to hardware. But it was a break with the conventions of the office-supply business.
Suppliers initially
were wary of Staples for fear of offending existing customers. "We
went to the industry convention, and nobody wanted to be seen
with us," Stemberg
recalled. "Nobody wanted to talk to us. Nobody wanted to
sell to us." Soon
enough, they came around.
Today, Staples, which is based in Massachusetts, has annual
sales of $11.6 billion and earnings of $446 million. With nearly
1,500
stores,
it does
business in North
America and Europe.
On its way to becoming an industry leader, the company faced plenty of obstacles. Early on, for example, it was hampered by higher costs for real estate, labor and transportation than competitors due to its base in the Northeast.
Stemberg says higher costs forced the company to operate more efficiently. They made it turn adversity into opportunity — the hallmark of any entrepreneurial venture.
"We had to get good at direct marketing because we couldn’t afford newspaper ads. We had to build distribution centers, which gave us lower costs. And we got very close to our customers through our membership program. As a result of that, no one has really effectively challenged our franchise in places like Philadelphia, New York and Boston."
Staples is now one of the dominant players in its industry, but challenges — or, as Stemberg would say, opportunities — keep cropping up.
About three and a half years ago, environmentalists started picketing the company, protesting its reliance on suppliers that made paper from virgin timber, rather than recycled paper.
"The initial reaction of a lot of people [at Staples] was, ‘Damn those guys. Arrest them.’ But I said, ‘That’s not the right thing to do. This is an opportunity for us.’ So we went out of our way to become an environmentally friendly company. We dramatically expanded our line of recycled paper. We encouraged recycling among our associates and customers — we now recycle paper, inkjets, computers and telephony.
We created an office of environmental affairs.
"As a result, the environmentalists began taking out full-page ads in USA Today complimenting our efforts. And we win awards from places like the Sierra Club. Adversity turned out to be hugely beneficial for us."
Like Staples, Zoots and Olly aim to do business differently than competitors.
Zoots, for example, replaces broken buttons on customers’ garments. It does pick-ups and deliveries in some areas. It lets customers drop off their clothes 24 hours a day and, at its newer stores, pick them up, too. "You can put in a credit card, and a conveyor brings your garment out to you anytime of the day or night," Stemberg said.
Olly, for its part, is trying to make buying kids’ shoes less of a headache for parents. "We have a totally broad selection of shoes under one roof, and we’ve got a patent on a fitting system. We scan your child’s foot. And we measure every piece of footwear in our inventory and use a computer to match the foot and the shoe."
Why go to the trouble? Because Stemberg remembers the hassle of buying shoes for his sons.
"The guys put that cold metal scale underneath your kid’s foot and tells you he’s a 7. So you’d say you wanted one of these two pairs of sneakers and one of these two pairs of dress shoes. The guy would disappear into the back room and come back out in 10 minutes and say, ‘Sorry, we don’t have the dress shoe in black. We have it in brown. And we don’t have the sneaker in blue. We have it in black. And your kid would try it on, and it turns out he’s not a 7. He’s a 6. And they don’t have a 6."
"Staples, Zoots, Olly — three very different businesses, all founded to meet customer needs. As long as they remain focused on that, I think they’ll thrive."
In contrast, a recipe for failure in business is following a passion, rather than a consumer need, he said.
"It’s people following their passions that has led about 75 golf companies to near bankruptcy. And I don’t know how many restaurants have failed in America. I’d follow a great market that provides an opportunity for you to satisfy customers in ways they haven’t been satisfied before."
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