Staples, Inc. (NASDAQ:SPLS) needs all the help it can get in a languishing market for brick and mortar office supplies. By partnering with Vistaprint, it can push off necessary capital investments while offering a range of printing services to its customers. Consolidation in the industry may help Staples fend off competition in the market for business supplies to massive multi-national companies, but small businesses have a multitude of choices. Amazon, Wal-Mart, Target, and other stores sell necessary office supplies at lower prices, all of which can ship products to customer’s doors.
The partnerships couldn’t be better for Vistaprint. The company taps into a network of thousands of office supply stores around the country for local delivery. In essence, the company can use someone else’s stores to sell their wares at no cost to the company.
These strategic partnerships put even more strain on the company’s local competitors, while providing FedEx Office and Staples, Inc. (NASDAQ:SPLS) with a greater selection of business products to draw in new customers.
Why I’m a long-term bull on Vistaprint
VistaPrint Limited (NASDAQ:VPRT) is in the mix of a bitter, very price competitive business. The only way to win a price-competitive, commodity business is to do it on price. That typically sends me running, but a few companies can pull it off without destroying shareholder value.
There is only one way to generate above-average returns on invested capital and compete on price: have the scale to best competitors. Wal-Mart Stores, Inc. (NYSE:WMT) is a perfect example of a company that operates in a commodity business (retail sales) but won its market because it has the best selection at the best price. Wal-Mart Stores, Inc. (NYSE:WMT) could source products less expensively, leverage national advertising to build its brand (which regional grocers could not) and compete on price to steal competitor’s customers.
Wal-Mart is using its scale to invest in its customers. The company announced as much as $6 billion in price cuts to stay competitive through 2017. While such a move might bankrupt smaller grocers and superstores with thinner margins and significantly lower volumes, Wal-Mart’s effective monopoly and wide moat allow it the convenience to invest in price cuts and maintain profitability. At less than 14 times future earnings expectations, Wal-Mart Stores, Inc. (NYSE:WMT) is worthy of an investment due it its monopolistic position.
VistaPrint Limited (NASDAQ:VPRT) is the Wal-Mart of microbusiness supplies and promotional materials.
Where small print shops do have the capacity to print low volume orders, they cannot do so cost-effectively. Local printers have high fixed costs, low operating efficiencies, and expensive direct sales overhead that force them to target mid-sized businesses in their geographic region.
Eventually, I wouldn’t be surprised to see small print shops close their printers to work as a direct sales force for Vistaprint. That bodes well for investors, who can grab a piece of a fast-growing business ready for persistent, double-digit annual growth.
The article This Company Is Building Monopoly Power originally appeared on Fool.com and is written by Jordan Wathen.
Jordan Wathen has no position in any stocks mentioned. The Motley Fool recommends Vistaprint. The Motley Fool owns shares of Staples. Jordan is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
