September 4, 2013, 3:52 PM

Small-box stores for the internet era

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Among the lab's projects is the development of a dynamic pricing model, like Amazon and other online retailers use, that adjusts prices based on a host of factors, including other sites' prices. That may help it compete with Amazon, which carries 48% of the SKUs Staples stocks—and Amazon's prices are, on average, 18.7% cheaper, according to Mark Miller, a financial analyst at William Blair & Co. LLC.

For budget-minded consumers, Staples in February overhauled its Staples Rewards program, dropping the $45 minimum to reach its free shipping threshold for program members, and adding a 5% reward on everything a shopper buys in its stores or online. Masud says that 98% of orders already received free shipping so dropping the threshold was largely a marketing gambit.

While that may be true, it fails to account for the incremental revenue generated from shoppers adding items to their carts to reach the threshold, says Wintermantel, which means it may lead to lower average order values.

That hasn't been an issue, says Prat Vemana, director of Velocity Lab and mobile, and the move has boosted sales, though he did not say by how much. "Like Amazon Prime rewards Amazon's most loyal customers, we're trying to do the same thing with Staples Rewards," he says. But consumers pay $79 a year to join Prime to receive two-day shipping on eligible items plus streamed access to more than 25,000 TV shows and movies, while Staples Rewards is free.

Staples' changes stem, in part, from its knowledge about its customers. Staples Rewards, which has more than 25 million members, provides information about its most loyal shoppers' in-store purchases. The retailer also monitors shoppers' actions online—when it can, matching up that data with its Rewards members' in-store purchases. "The beauty of omnichannel retailing is that it produces a lot of data," Vemana says. "When shoppers are online, we know where they came from, what they looked at, what they added to their carts. And we can use those signals to help predict what is most relevant to them."

That analysis and survey data show that Staples' primary customer base—small business owners and office managers—are less price-focused than Amazon's typical customer and more focused on getting exactly what they want, when they want it, Masud says.

That gets to the heart of Staples' transformation efforts and how it can leverage its stores to drive growth. "We want to make the shopping experience more seamless," Vemana says. "We want to make it easier to find what you're looking for and easier to get the item however you want it by leveraging our various assets together."

That explains why the retailer has been working with Google to test a same-day delivery service called Google Shopping Express in the San Francisco Bay area. A shopper can browse a store's inventory, buy an item online and select a four-hour delivery window. The service then picks up an item from a Staples store and delivers it to a consumer's door that day.

Staples also guarantees shoppers that items bought online for in-store pickup will be ready in two hours and has lockers in its omnichannel stores to store the items. And thanks to well-dispersed distribution centers it gets 98% of the items bought on delivered the next day.

Staples also sees mobile technology as the link between its web sites and stores, Vemana says. Mobile innovation moves rapidly, which is why the retailer redesigned its mobile site in August, less than a year and a half after the previous redesign.

"To be successful in the mobile realm, we have to be agile and ahead of the curve," Vemana says. The redesigned site came from the lab's efforts to solve problems for shoppers using their smartphones on the go. For instance, the new site lets shoppers who are signed into the site select and buy an item in two clicks. It also features a modular design that allows consumers to browse products visually by category.

Staples' reinvention surely won't be as simple as pushing its trademark Easy Button. But the retailer's willingness to take risks and experiment makes it a test case of whether there is a place for the big-box retailer to play in the Internet age.


Trading ideas

E-commerce innovation moves quickly and mobile commerce moves even faster, which is why Staples Inc. named the innovation lab it opened last December the Velocity Lab. The retailer's goal for the space—located about 20 miles from Staples' Framingham, Mass., headquarters in Cambridge, Mass.'s tech-centric Kendall Square area—is to foster an open, collaborative environment where employees from different areas of the company—say an engineer, marketer and designer—can trade ideas.

The idea that cross-disciplinary brainstorming will lead to new ideas permeates the space's design. It features an open floor plan, a large kitchen that typically features an ample amount of food to lure workers to linger and chat about their projects and dry-erase board walls that employees can write on to map out ideas.

"To be successful in the digital space you have to be highly agile," says Prat Vemana, director of Velocity Lab and mobile. "Having a space dedicated to collaboration helps us move quicker."

That's particularly true for the retailer's mobile initiatives since its entire 25-person mobile team is housed at the lab. "By having our entire team sit together in one place we can figure out and quickly address what needs to be done," he says.

The lab is the first of several that Staples plans to open across the country in the next few years, Vemana says. Opening labs in technology-focused areas like California's Silicon Valley corridor will enable Staples to attract top talent, he says.

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