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Staples Canada is looking at downsizing 39 of its 330 stores and sublet space to improve its bottom line.

Shannon Stapleton/REUTERS

Office supplies giant Staples Canada is looking to shrink almost 40 of its 330 stores, underscoring the pressure that big-box retailers feel from rival e-commerce and discount players.

Staples has circulated a list to landlords and real estate brokers of 39 stores that the chain plans to downsize, industry sources say. The retailer wants to sublet space to other merchants to reduce its costs and improve its bottom line. About a dozen of the stores' leases expire within a year, which means Staples could close them at that time without penalties, they said.

Staples joins other big-box retailers that are scaling back their store space as shoppers increasingly turn to the Internet to buy a wide array of goods ranging from computers to printer cartridges, leaving merchants with redundant space and financial strains.

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In January, electronics specialist Best Buy Canada announced it will close 15 of its almost 230 stores across the country. Last year, home improvement retailer Rona Inc., started to shut or shrink 23 big-box outlets.

"It's all generic products," said Edward Sonshine, chief executive officer at landlord RioCan Real Estate Investment Trust, which has been told by the retailer that it wants to downsize six Staples outlets in RioCan centres.

"All these big boxes, these category-killer-type of tenancies, were based on having the best prices and the largest selection. But once the Internet got more mature, you can't have the largest selection any more and it's tough to have the best prices … Eventually there will be a lot of downsizing."

Internet selling is beginning to transform bricks-and-mortar retailers, whose merchandise can be sold easily and cheaply on the web. The shift is forcing merchants to rethink their strategies and offer new, hard-to-find products or services in their stores, in the process reshaping the look of the mall.

"This will be a turning point where we see large-format retailers looking for alternatives," said Michael Kehoe at retail adviser Fairfield Commercial Real Estate Inc., in Calgary. "All large-format retailers are looking for efficiencies."

U.S.-based parent Staples Inc., whose fourth-quarter sales weakened, said last September that it plans to reduce its North American retail space by about 15 per cent by the end of fiscal 2015. Its fourth-quarter profit sank by 72 per cent on restructuring charges tied to store closures and downsizings.

Staples is feeling considerably more heat south of the border, where Internet retailing and other competition are more intense. In February, Office Depot Inc. agreed to merge with smaller rival OfficeMax Inc., combining two companies battling the effects of too many stores, an increasingly digitized office and pressures from discounters and online sellers.

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Even so, Staples isn't standing still but rather rapidly revving up its own e-commerce offerings. In February, Staples Canada said it was carrying 90 per cent more products on its cyber site.

As well, Staples Canada is running an "innovation lab" store in Guelph, Ont. to test new services focused on small-business customers. The store is piloting rental office and meeting rooms, a self-serve BannerXpress machine to print banners, business and tech training services as well as a Starbucks coffee shop.

Brian Coupland, director of marketing and innovation at Staples Canada, said the lab store is unrelated to any plan to reduce the size of stores, which he and other company officials did not comment on. The Guelph store "gives us the room to really test multiple things at any given time," Mr. Coupland said.

The stores earmarked for downsizing are as much as 25,000 square feet but could end up at at 15,000 square feet, sources said. Of the stores, 13 have leases which expire within a year or so (which give Staples the option of shutting them at that time) and two are company owned. The average Staples outlet is about 20,000 square feet.

Mr. Sonshine said Staples pays relatively low rents of about $12 to $13 per square foot and RioCan can potentially generate twice that much from another tenant. Potential candidates to take over the space are dollar stores, such as Dollarama and Dollar Tree, or a restaurant operator.

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About the Author
Retailing Reporter

Marina Strauss covers retailing for The Globe and Mail's Report on Business. She follows a wide range of topics in the sector, from the fallout of foreign retailers invading Canada to how a merchant such as the Swedish Ikea gets its mojo. She has probed the rise and fall (and revival efforts) of Loblaw Cos., Hudson's Bay and others. More


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