Dive Brief:

• Staples is in early discussions with private equity firms for a potential sale, The Wall Street Journal reports, citing unnamed sources.

• A Staples spokesperson declined to comment on the report to Retail Dive.

• Last month the office supplies retailer said it would shutter 70 stores in 2017 as it regroups after the failed $6.3 billion merger with rival Office Depot last year. 

Dive Insight:

Cost-cutting measures have been top of mind for both Staples and Office Depot as they move to execute new strategies after their merger was blocked last year over antitrust concerns. Since then, Staples has sold its U.K. stores and a controlling interest in its remaining European operations. To draw more entrepreneurs and remote workers to its stores, the retailer has also experimented with a partnership with workspace startup Workbar. 

But Staples has continued to struggle. In the fourth quarter, it posted a net loss, calculated on a GAAP basis from continuing operations, of $615 million or 94 cents per share. Overall Q4 same-store sales fell 1%; for the full year 2016, total company sales decreased 3% to $18.2 billion year over year, and same-store sales fell 1%. 

And while the judge who granted the Federal Trade Commission its injunction against their deal didn’t buy the rivals’ argument that Amazon was enough of a rising player in the space to provide enough competition, Amazon has indeed increasingly muscled its way into office supplies — as have Target, Wal-Mart and other general merchandisers. What has been something of a surprise in the months since the Staples-Office Depot merger fizzled is Amazon’s success in the business-to-business side, an area thought to be more protected than the retailers’ consumer retail sales, says Matt Sargent, Senior Vice President of Retail at Frank N. Magid Associates: Staples Business Advantage, the company’s North American contract business, saw Q4 sales flatline year over year.

“The impact that Amazon has had on Staples' consumer segment cannot be underestimated, but what is more concerning is the impact that Amazon is having within the B2B space,” Sargent told Retail Dive in an email. “Amazon is penetrating small, medium and large corporations within office supplies. This is a red flag for Staples given that corporate office supplies are the most profitable segment of Staples' portfolio.”

Nearly a quarter of corporate buyers “frequently” shop at Amazon, according to Magid’s research. “This would not necessarily be a shock for small businesses, but we found this to be true even in large businesses where 22% of buyers buying for business over 250 employees indicated they use Amazon ‘frequently.’ When seeing that 38% of Staples' customers use Amazon for business on a frequent basis, it really hits home for the company.”

A private equity sale could be tricky for Staples and could mean more closures and layoffs, as well as more debt. Private equity debt has hobbled several other retailers, including The Limited, American Apparel and Wet Seal, who were unable to stage turnarounds under private equity control.