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Jo Verbeek, vice president of operations for the catalog business of Staples Inc. in Europe, is a man in search of The Perfect Day. By his definition, that means all orders delivered overnight, complete, and in pristine condition. But judging from Staples's European expansion plans, Verbeek's dream is about to get a lot harder to achieve.
Framingham, Mass.-based Staples, second only to Office Depot as the largest office products superstore retailer in the U.S., is acting aggressively to boost its sales and market share in Europe. It is moving forward on all fronts: physical stores, catalog orders, contract stationery, and the internet. Verbeek says Staples is aiming for annual growth of 20 percent in sales, and 25 to 30 percent in profits. Current revenues are close to $10bn.
The trick is to duplicate Staples's success in the U.S., while meeting the unique needs of the European market. The company's first steps in that direction came last fall, with the opening of a new European headquarters, distribution center and call center, all in Belgium.
Verbeek presides over the catalog business, serving mostly smaller companies, from a nondescript suite of offices on the outskirts of Brussels. The DC is a 50 miles east, in Tongeren, close to the Dutch and German border, in the Flanders region of Belgium. The call center is in Eupen, another 25 miles away in French-speaking Walloonia.
Staples does no business in Belgium itself. The country was chosen for its central location, less than 200 miles from major European cities. According to Luc Bosems, DC manager in Tongeren, 60 percent of Europe's purchasing power lies within a 500-kilometer radius of Flanders. Favorable tax treatment from the Belgian government and local authorities helped to seal the deal.
Staples currently has around 165 retail outlets in Europe. Fifty are in Germany, 70 in the United Kingdom, and the rest are scattered throughout the Netherlands and Portugal. But that's a small portion of the company's 1,200 superstores - New York City alone boasts 100 - which together account for 60 percent of sales. Bosems says a new store opens somewhere in the Staples network every 60 hours.
The challenge now is to integrate Staples's various sales channels from a marketing perspective, even as it maintains separate supply chains for them. Shipments to stores mostly come direct from vendors, while the Tongeren DC supports the catalog business. But the company isn't ruling out some type of physical integration in future, especially in light of its move toward regional distribution centers on the retail side. "The retail model in Europe is one of more centralized delivery," Verbeek says.
His more immediate task is expanding the catalog arm and solidifying the new European management structure. Staples promises next-day delivery to most European catalog customers who order by 6 p.m. (with a 5 p.m. cutoff for Germany). And it's up against even faster turnaround times by the competition. Viking Office Products, a subsidiary of Delray Beach, Fla.-based Office Depot, reaches most of its direct accounts in Europe with same-day service.
The difference is that Viking maintains many more distribution centers in major European cities, a more expensive strategy than that of Staples. Says Verbeek: "Our bet is that we can run fewer DCs and be at least as efficient."
Proceed With Caution
He has no illusions about a single DC serving Staples's entire European customer base. Yet the company plans a conservative approach in opening new distribution facilities, as it moves gradually into new areas. The overseas catalog business, for example, is currently restricted to customers in Germany and the United Kingdom, with one DC for each country.
By the end of this year, Staples expects to have launched operations in the Netherlands and possibly France. Portions of the latter will likely need a DC closer to the customer base, in order to maintain Staples's strict service policy.
Germany remains the country with the biggest near-term potential for sales, now running at between $85m and $88m a year. But it's not necessarily the most profitable one. Costs are high, and the competition is fierce, Verbeek says. Smaller markets, such as Scandinavia or the Benelux countries, may yield better returns.
High real-estate costs and cultural considerations caused Staples to close its Hamburg warehouse and begin serving German catalog customers from Tongeren, about 15 minutes from the border. The company also was looking beyond its current situation to markets with long-term possibilities. For that, it needed a multilingual staff. A large percentage of the workforce in Flanders speaks at least three languages.
"If you want to grow in Europe," says Bosems, "Germany is not really the location to create a European distribution center."
For now, Germany continues to drive most decisions on customer service. Staples's call center is in Walloonia because more people there speak German, Bosems says.
The Eupen call center currently has about 50 agents and can be expanded to more than 300, at which point speakers of multiple languages will staff it. But, as with physical distribution, Staples will still need more than one call center to serve all of Europe. Verbeek foresees a series of regional centers that match customer profiles and maintain tight turnaround on orders.
Staples doesn't expect to outgrow the Tongeren D.C. for some time. At 12,000 square meters, it can handle twice current volumes without expanding in size. (Only 20 to 50 percent of the warehouse's racks, which were specially installed to allow for the easy addition of a second story, are currently occupied by product.) That should be good enough for another four to five years, Bosems says. The facility's staff of 50 will likely grow to around 150 over the next few years.
The Executive Hunt
Finding the right people won't be easy. In recent years, unemployment in Belgium has been relatively high. Yet top managers are getting harder to come by, especially in places like Tongeren that are well removed from any city center. As Belgian farmland gives way to sprawling distribution facilities and corporate offices, companies can expect to suffer a scarcity of executive talent.
The basic layout of the facility was copied from one in Dallas, Tex., partly because the design worked and partly because Staples was in a hurry to build it. But it was high Belgian salaries, and the overall cost of maintaining 24-hour service to catalog customers, that prompted Staples to incorporate more conveyors and room for automation than are typical of a European warehouse. By relying on systems from the start, it can build up volume without a commensurate increase in bodies.
|Staples is determined not to cannibalize one of its divisions to the benefit of another. It fully expects the dotcom, catalog and retail store channels to coexist, meeting the needs of all its customers.|
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