EXCLUSIVE: Amazon Business To Take Officeworks Head On
As Officeworks struggles to find a private buyer, it’s emerged that Amazon is planning to enter the Australian office supply market, a move that Wesfarmers is believed to have known about prior to announcing the sale of their Officeworks operation.
Also, up for sale in Australia is Officeworks arch rival Staples, who have admitted that their business globally is under pressure from Amazon, who is currently rolling out a new office supply operation in the UK called Amazon Business that the Australian operation will be modelled on.
ChannelNews has been told that the Australian operation of Amazon will be overseen by Amazon UK executives.
In its first year of operation in the US, the business supply service generated more than $1bn in sales, most of this revenue is believed to have been stripped from Staples.
It launched a similar service in Germany last year.
In the US, overnight it was announced that Staples globally is up for sale, the Australia operation of Staples put the ‘For Sale’ sign up earlier this year.
As a result, Staples stock jumped 13% ahead of a pending sale.
During the past 18 months Staples, has struggled to fix its business after a mega-merger last year with rival Office Depot was scuttled by the U.S. government.
Last year Wesfarmers former managing director Richard Goyder said that their stores which includes Officeworks needs to be just as prepared to battle Amazon as Bunnings was when first threatened by Woolworths.
He admitted that he expects Amazon to take market share from their retail store operations.
In the UK Amazon is now targeting companies to set up direct Prime accounts so that they can sell them notebooks, PC accessories, office supplies and even cleaning products.
In the last quarter, Officeworks performed strongly, with a 5.1 per cent lift in pre-tax earnings.
“Officeworks is well positioned for future growth with a strong competitive position and ongoing initiatives to grow its addressable market” Goyder said earlier this year.
“In light of its performance, options to monetise the value created for shareholders, including via an initial public offering, are being evaluated. The business will be retained if divestment options do not meet Wesfarmers’ valuation hurdles.”
It is unclear what valuation Wesfarmers believes is achievable after they knocked back an offer last week from US investment group Kohlberg Kravis Roberts, it’s understood they offered about 12 times its earnings, compared to the hoped- for 13 and 16 times that Wesfarmers is hoping to achieve from a public float of the Company.
The Amazon Australia business which will benefit IT and technology suppliers will be called Amazon Business like the UK operation where the new Amazon online marketplace offers firms GST free pricing, as well as software to track and limit spending.
Amazon said there would be more than 100 million products available on the new marketplace in the UK, which would include ordinary office supplies and storage solutions as well as more specialist products such as microscopes and test-tubes.
Bill Burkland, Head of Amazon Business UK told the BBC that the service would offer “a new set of unique business features – from reporting and analytics to spending limits and purchasing workflow approvals”. It will also offer free one-day delivery on orders of £30 or more.
“For many small businesses, this will be a welcome opportunity to get everything in one place,” said Bryan Roberts a retail analyst at TCC Global.
Laith Khalaf, senior analyst and stockbrokers, Hargreaves Lansdown said further competition was likely to mean keener pricing for business supplies. He said Staples and Office Depot were the businesses most likely to be affected by the increased competition.
“I can’t speak to the quality or function of what [Amazon has] got, but if you’re in scenario that you’re ordering lots of stuff, having a service that tracks and analyses your purchases is very useful.”
For Amazon, it represented a logical move, he added. “It is a more natural extension of their business than video content or expanding into groceries. Its nearer to its core business than those enterprises.”
“They have got the infrastructure in place in terms of the website, the suppliers who’ll want to sell their services and the logistic services… so it makes sense to extend that to business customers as well.”
According to the Wall Street Journal, US stationary supplier Staples, which Officeworks is modelled on, is in early stage talks with a limited number of prospective private-equity bidders for a deal with no guarantees of happening, according the paper’s sources. A Staples spokesman declined to comment.
It’s emerged that the company’s retail business in the USA has been struggling for years as more office supplies are sold online, prompting it to close hundreds of stores a move that has not gone unnoticed by Wesfarmers management.
Comparable sales, which excludes the impact of newly opened or closed stores, fell 7% in the fourth quarter in the USA and Canada. Staples’ continuing operations lost $459 million in 2016.
Last month, it announced another 70 store closings in the USA alone.
In a research note issued last night Gimme Credit director of research Carol Levenson said that any private equity owner would likely pick up the pace of that and “slash the store base.” A few months ago, Staples sold a majority stake in its European business to Cerberus Capital Management, a private equity firm.
They said that Staples and other office supplies retailers around the world have been struggling to contain competition from Amazon.com with individuals, but also with business customers.