The Staples rule has accurately anticipated big swings in the economy and the stock market for longer than I can recall. So why isn’t it working now?
The rule: Simply watch small-business customers who buy supplies at Staples Inc. of Framingham, the office superstore giant. They get cold feet as soon as the economy begins to go soft and start buying again ahead of clear evidence of a recovery. They offer a ground-level view of the economy and where it is headed.
But that part of Staples’ business has not bounced back as the economy regains steam ever so slowly. Staples’ sales improvement is so modest it almost looks like a flat line on a chart. Sales trends are even worse at the other two big office superstore companies - where 2011 sales are down so far.
There is more than one possible explanation for this turn of events. The real-life economy may be worse than government statistics suggest, or perhaps other competitors are nibbling at business. Common sources of credit for small business owners - from commercial loans to home equity lines - are harder to tap in this recovery. In the case of Staples, diversification into Europe has led the company to countries with even bigger problems than our own.
One more theory: Companies are finding new ways to trim their office supply expenses, in large part by embracing technology and cutting back on paper. Once businesses find savings like that, they don’t go back to their old ways.
That idea is advanced most assertively by Goldman Sachs, the investment bank that helped take Staples public 22 years ago. Analyst Matthew Fassler wrote extensively about it a week ago, when he cut Goldman’s recommendation on Staples stock to a “sell.’’
“The office supplies sector continues to face a secular decline in paper consumption resulting from changing office technology, environmental concerns, and companies’ ongoing quest for efficiency,’’ he wrote.
Fassler first spotted businesses holding the line on office expenses a year ago, based on a compilation of research that included Goldman’s own survey of companies that buy supplies from retailers such as Staples.
The business results of the past year seemed to support his argument. Follow-up research, including a new Goldman survey, suggests attitudes for the year ahead haven’t changed, according to Fassler.
Goldman Sachs compares sales of office product to all sorts of economic measures - from industrial production to payrolls - and concludes they haven’t kept pace. Those sales started to recover with the economy in 2009 but could not maintain a comparable growth trajectory.