A-hed
When Staples Offers Items for a Penny, New York Buys Kleenex by the Pound
Offices Order Products 'Up the Yin-Yang'; The 200 Cans of Dust-Off Nobody Wants
July 23, 2014 10:30 p.m. ET
Big box retailer Staples scored a major contract to sell
office supplies to the State of New York. But a penny-pricing
arrangement on some items, and some savvy procurement agents, meant NYS
made out like a bandit -- and left Staples wondering what went wrong.
Staples Inc.
SPLS +0.27%
made the State of New York quite a promise: Buy your office
supplies from us, and we'll sell you a bunch of things for a penny
apiece. This unleashed a rush on the retailer as government offices and
qualifying organizations across the state gobbled up the one-cent items.
A
Brooklyn charity benefiting disabled people ordered 240,000 boxes of
facial tissue and 48,000 rolls of paper towels, according to documents
obtained in a public-records request. Rome, N.Y., wanted 100,000 CD-Rs. A
State Department of Motor Vehicles office ordered 8,000 rolls of
packaging tape.
"We ordered things we
didn't even need," said Nancy Sitone, manager of office services at
United Cerebral Palsy Association of Greater Suffolk Inc. "I have some
products up the yin-yang."
Staples was
named New York's official office-supplies vendor in May 2013. Besides
state agencies, those able to order under the contract include city
halls, schools, police departments and many charities.
To
win the three-year contract, Staples agreed to sell 219 popular items
at a penny apiece. It hoped to turn a profit from thousands of other
items that weren't on sale.
The
one-cent bargains ranged from a 12-pack of chalk with a list price of
$1.01 to an $1,100 paper shredder, and included products such as a
high-capacity computer flash drive and a 72-pack of C batteries.
Enter the law of supply and demand.
"People
were going hog wild," said Ken Morton, purchasing manager for the
Kenmore Town of Tonawanda school district near Buffalo. "It was like a
gold rush."
His district in the
contract's first few months paid $254.69 for penny goods with a
list-price value of $596,000, documents show. "When an invoice comes in
for a truckload that says $27, you're scratching your head in
disbelief," said Mr. Morton.
Office supply stores long have offered penny pricing on items that aren't expected to be big sellers, said
Jay Baitler,
a retired Staples executive who until 2012 oversaw big commercial contracts.
But
"to have it abused in this fashion is something I'm unaware of in my
40-plus years in this business," he said. He is critical of customers
buying things they didn't need, but he also said, "I'm surprised Staples
didn't put a stop to it sooner."
Staples
delivered penny items with a list-price value of $22.3 million in the
contract's first few months, for which it was paid $9,300, documents
provided by the state show. (List prices in office supplies typically
are inflated; discounts from list prices are the norm.)
Staples declined to comment on its pricing strategy.
Ms.
Sitone of the Cerebral Palsy Association says she thought at first the
penny pricing was a mistake, but when she found out otherwise "it was a
free-for-all." The agency ordered "a thousand of everything."
Ms.
Sitone got $74,000 in one-cent items, now stored in a trailer, for less
than $70, including, she says, 200 cans of Dust-Off that nobody wants,
and enough pens—24,000—that "we'll be set for life."
Before
signing the contract, seemingly incredulous state officials asked
Staples to confirm "your company offered one cent ($0.01)" prices on
many items and that Staples could fulfill orders at the offered prices
for three years.
"We are committed to the pricing at the highest levels of Staples," a company executive replied in an email.
Two
months into the contract, a senior Staples official complained in an
email to John Traylor, a state official, about "excessive orders,"
citing as an example the request for 240,000 boxes of Kleenex, or 5,000
cases at a penny per 48-box case.
"This order alone exceeds the capacity of 10 tractor trailers [and] has a retail value of $399,500," the executive wrote.
Arguing
that demand was unreasonably above estimates, Staples never delivered
the truckloads of tissues or many other orders, and blocked some items
from sale.
The state "is still in
active negotiations to resolve this disagreement," a spokeswoman for New
York's Office of General Services said. "Staples did not ask for a
limitation in ordering quantities," she said, "and OGS would not have
accepted such a limitation had it been made."
Staples is "in full compliance" with the contract, a spokeswoman said.
The
state spokeswoman said 56 of the penny items recently were still
available. She said the state isn't aware of any supplies being resold
for a profit.
Aside from the penny items, Staples collected $8.8 million for regular-priced goods in the contract's first few months.
The
Monroe-Woodbury school district, about 50 miles north of Manhattan, was
the top bargain hunter, taking delivery of $677,000 of penny items at
list prices during the contract's first few months, paying $299.15. The
numbers come from spreadsheets provided by the state in response to a
Freedom of Information Law request.
Sheri
Patterson, finance officer at Monroe Woodbury High School, said boxes
were "stacked in hallways…we didn't have any place to keep" them.
There
were surprises. Ms. Patterson thought a penny paid for a roll of paper
towels—instead, it was for a 24-roll pack. The school received 53 packs,
records show. "We were just wondering whose idea this was," said Ms.
Patterson, "and if they still had their job."
Staples declined to comment on personnel matters.
A sign hangs outside a Staples store.
Getty Images
The No. 1 item purchased by Attica
Correctional Facility, the famous maximum-security prison, was Premium
#1 Paper Clips—a half million of them. The clips came with a list price
of $3,750. The prison paid $5.
"They
were cheap," a prison spokeswoman said. Could they be used to jimmy jail
doors? "Inmates are prohibited from having paper clips," she said.
A
coveted penny item was a 64GB SanDisk flash drive, a large "thumb
drive" to store or transfer data. It listed for $249.99 but recently was
priced at $54.99 on Staples.com.
Customers
ordered 128,978 of them in the contract's first few months, documents
show, compared with anticipated annual demand for 33. Staples delivered
1,080 in that period. Had it delivered all those ordered, it would have
sold drives with a current retail value of $7.1 million for $1,290.
The
state estimated there would be just 41 takers annually for the 18-sheet
commercial shredders, recently priced at $599.99 on Staples.com but
available under the contract for a penny.
New York customers ordered more than 6,000 in the first few months. Staples delivered 154 in that period, each costing a penny.
Five
went to the home of Mary Ede, a purchasing employee with the
Kenmore-Tonawanda schools who was allowed to order for her personal use.
She said she gave a shredder to each of her four adult children, and
kept one. Hers has since broken.
"I would have been more upset if it was the actual cost," she said. "For a penny, I'll throw it out."
Write to Mark Maremont at mark.maremont@wsj.com
No comments:
Post a Comment