Commentary > Bid and Ask
What are stores like Staples doing trying to sell digital cameras?
December 19, 2003: 10:41 AM EST
By Justin Lahart, CNN/Money Senior Writer

NEW YORK (CNN/Money) - Seen the bobblehead commercial?

Guy, mired in holiday shopping delirium, fixates on a display of bobblehead figures in the mall. He's reaching for one when his wife snaps him out of it, says it's time to go to Staples. And then the voice over comes, telling you about the digital cameras and other assorted electronic gewgaws you can pick up at Staples.

It's sort of funny, unless, say, you have to have a TV set tuned into the news on your desk at work, in which case you'll dream of wringing the throat of whoever decided to put that background music into the ad. (And let's not even talk about that &*%#@ Aflac duck.)

But we digress. The point here is that Staples, a store whose main thrust is selling three-hole binders, wants you to think of it as a place to go out and get a camera. Skip that trip to Best Buy.

Why's Staples, which along with competitors OfficeMax and Office Depot got badly burnt when it overexpanded a few years ago, hawking these sorts of wares? Especially when its whole focus lately has been a return to its roots of serving small business customers?

The answer, of course, is growth. Publicly-traded retailers have just got to keep on growing sales and earnings at a decent clip, because that's what investors demand. You can't be like the corner stationer, who's satisfied to have steady sales and earnings with a little bit of growth.

And make no mistake, Staples (SPLS: Research, Estimates) is posting good growth. It looks like sales will be up about 15 percent this year. Its stock price is up 44 percent.

The thing about retail, however, is that within the confines of overall consumer spending growth, it's really a zero-sum game. When Staples sells one more digital camera, some other store sells one less. One of the reasons so many hedge funds love investing in retailers is that if you're good you can always find one that's about to turn around and you can always find one that's about to go south. Individual investors can play this game, too, but they'd better know the risks.

Bid and Ask
Written by: Justin Lahart

This same dynamic may not be such a good thing for the economy, however. Every publicly traded retailer out there is bent on seeing sales grow faster than overall consumer spending. So they focus on stealing share from one another -- Wal-Mart wants to take some of Staples' stapler sales, Staples wants to sell more software than Circuit City. They undercut competitors on price, hoping to make it up on volume, they make sometimes dangerous forays into the credit card business (a la Sears), they expand.

And America ends up with more stores than it really needs, and more dependent on consumer spending than is safe.  Top of page

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