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.

Additional functions such as barcoding and pick-to-light will be added as activity increases. They weren't included from the start due to Staples's desire to get the facility up and running quickly, as well as the need to spread out its substantial investment in the DC and call center.

For the moment, it relies on a warehouse management system from GDA, by which incoming items are received manually and keyed in according to purchase-order numbers. The system keeps track of product location within the warehouse, generating replenishment alerts when needed. Outbound shipments are prepared according to daily pick lists. Nothing stays on the shelf for long; Bosems expects to turn the inventory six to eight times a year.

Some of the facility's most ingenious features are decidedly low-tech. Box labels are color-coded according to the day they are supposed to be shipped. If Bosems spots a blue label on a "yellow day," he knows right away that something didn't get out on time. Customer-service agents, meanwhile, work hard to meet delivery commitments while generating instant backorders for the occasional stockout. Customers are kept informed about the item's progress through the pipeline, with most backorders filled within a few days.

The early days of Staples's catalog operation, prior to opening of the Tongeren DC, were marked by inefficiency and a general lack of direction. Staples had originally thought it needed a warehouse in each country, Bosems said. Instead of an overall strategy for Europe, Staples managers were focused on doing business within individual countries - hence the ownership of a warehouse in Hamburg. All that came to an end with the consolidation of European management in Brussels, and construction of the new distribution facility in Tongeren.

Now, Staples must find ways to streamline operations across its sales channels, instituting common practices wherever possible. Information technology and human resources are among the areas of possible cooperation between the supposedly incompatible retail and catalog businesses, Bosems says. Moreover, the move toward centralized distribution of retail inventory could lead to the sharing of physical facilities and transportation providers.

That would square with Staples's desire to maintain a coherent brand identity in the minds of its customers. Shoppers who fail to find product in stores are encouraged to consult the catalog, which offers a much wider selection. Conversely, says Bosems, Staples doesn't seek out direct business in areas where it has no stores.

The Dotcom Channel
The European operation is now preparing to add another channel: customer ordering via the internet. The division known as Staples.com has been up and running in the U.S. and Canada since 1998, but has yet to plant a flag in Europe. In the process, Staples will broaden its product offering there to some 200,000 items, versus 20,000 in its catalogs and 7,000 in stores.

"It's not as simple as putting our catalog on the internet," notes Verbeek. 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. "The bricks-and-clicks approach is extremely challenging," he says, "but we think we can make it work."

Staples.com will probably get off the ground in Europe in September of this year. How its supply chain will look remains uncertain, but it seems logical that Staples would funnel much of its dotcom business through the catalog distribution centers. Such a move would go a long way toward generating economies of scale at all the company's European warehouses.

Whichever option it chooses, Staples will need a system that can handle rapid growth. Already Staples.com is growing at the rate of 40 to 50 percent a year, says Verbeek, with annual sales at $450m.

The internet also will play an important role in connecting Staples Europe with its suppliers. A standardized system for merchandising, accounts payable and other functions is already in place, says Verbeek. But it will take time to build up a data warehouse that will permit the company to link up to vendors with maximum efficiency.

The status of Staples's fourth sales channel, contract stationery, has yet to be determined by European executives. Through a U.S.-based web site known as Stapleslink.com, the company can essentially take over the role of office-supply manager on behalf of business customers. The dedicated option is aimed at the largest companies, presently serving some 300 of the Standard & Poors 500, according to Verbeek.

But Staples Europe has other priorities to address first. "We're still evaluating contract stationery," he says. "It's not on our radar screen at the moment."

He faces the additional, if more mundane, challenge of moving product across European borders. The common view of Europe as a single market doesn't tell the whole story. Companies still must cope with differing requirements for labeling in local languages, a mishmash of value-added and sales tax regimes, and environmental restrictions on building new stores.

"There's a big lack of commonality," says Verbeek. In addition, like every company doing business in Europe, Staples is struggling with the European Union's painful transition to the euro, marred by the currency's disappointing performance against the dollar in its first year of existence.

Ahead of the Game
But these appear to be temporary roadblocks for a company that has made its mark in office supplies in the U.S., and is now poised to do the same in Europe. Office Depot may have gotten a headstart through the acquisition of Viking's direct business, but Staples is still more efficient than most European retailers, says stock analyst Mark Mandel, senior vice president of the Robinson-Humphrey Co. Inc. in New York City. Staples, he says, "is the most sophisticated company in the office products superstore space."

Mandel agrees that Staples's combination of retail and direct merchandising will maximize the efficiency of its distribution network. In addition, he says, the company's reliance on centralized distribution puts it ahead of Office Depot and OfficeMax, both of which are only now embracing that cost-saving strategy. Staples's origins in the U.S. Northeast, where space is tight and real estate pricey, contributed to its early desire to keep inventories low at the store level, he says.

Mandel joins other analysts in adopting a fairly bullish attitude toward Staples. He still has a "buy" on the stock, despite disappointing results over the past year. Driven by investor enthusiasm over internet stocks, and feeling pressure from number-one Office Depot, Staples poured money into Staples.com, encouraging analysts to follow it separately as a tracking stock.

More recently, with the dotcom mania on the wane, the company has backed away from that position and returned to a consolidated earnings model. Third-quarter net income of 19 cents a share was down from 20 cents in the same period of the prior year, even though sales were up 17 percent. Staples has warned that its fourth-quarter results, while equaling or exceeding those of the year before, will fall short of analysts' consensus estimates.

There is, however, good news on the horizon. Mandel says Staples's heavy investment in the internet makes it well positioned to benefit from that growing channel, both in the U.S. and Europe. While other chains are closing down stores, Staples continues to expand its retail network. Moreover, the company predicts that per-share earnings in fiscal 2001 will grow at least 30 percent from those of 2000.

Regardless of events at the corporate level, European executives, given the task of crafting a multi-channel supply chain in their part of the world, won't be distracted from making the necessary investments and strategic moves. "Europe is totally different [from the U.S.]," says Bosems. "That's the reason why we installed a European management team."