Dive Brief:

• Office supplies retailer Staples announced it is selling its U.K. retail business and operations to British restructuring firm Hilco Capital Limited for nominal proceeds, and that the Staples brand there will be wound down in the coming months.

• Staples also closed 16 North American stores during the third quarter as part of a plan to close at least 50 locations this year. The latest round of closings brings its total to 35 stores.

• Staples reported a 4% decline in same-store sales in Q3, missing Consensus Metrix analysts expectations for 3.6%. Total Q3 revenue was $5.4 billion, down 4% from the same period last year, in line with analyst estimates, and Q3 net income fell to $179 million or 27 cents per diluted share, down from $198 million, or 31 cents per share, in Q3 2015. 

Dive Insight:

In the wake of a failed $6.3 billion merger attempt with rival Office Depot halted when a U.S. District Court Judge granted the Federal Trade Commission's request for an injunction on antitrust concerns, Staples is now scrambling to find a path forward. The retailer has said it will work to dominate in core office supply categories like ink, toner and paper, and divest its European operations while exploring other acquisitions; the Hilco sale is a major step toward that goal. (Office Depot made its own divestment of its European assets official in September, with a sale to investment firm Aurelius.)

In September, Staples also announced the permanent hire of Shira Goodman as CEO. Goodman had served as chief of the office supplies retailer's North American operations and was named interim CEO in May after Ron Sargent stepped down. 

Despite the dramatic changes, Staples' turnaround effort continues to be a struggle, and it’s not clear that its strategy will find traction in the longer term, according to Conlumino retail analyst Carter Harrison.

“Despite the fact that Staples claims to have pivoted during this quarter, there are very few signs that the new strategy has had a material impact on its results,” Harrison said in a note emailed to Retail Dive. “Indeed, if anything the numbers show a fair degree of consistency with prior periods. In essence, they tell the age-old story of the stationery and office supplies market: A segment under pressure from both a shift in where consumers buy product and from the incursion of generalist players like Wal-Mart, Amazon and many others.”

In another worrying sign, Staples' business segment is suffering along with its retail segment, Harrison said. “Aside from some growth in China, there are very few parts of the Staples business which are in growth mode,” he noted.

Staking a comeback on new categories like furniture, print and other areas could aid the business side of its operations, but will likely do little to transform Staples' appeal to retail customers, according to Harrison.

“While some of the services, like printing, are relevant to consumers, they are too niche to turn around the company’s fortunes,” he said. “In our view, Staples’ retail offer and proposition is simply not up to scratch and, other than through having a wide assortment, it does little to inspire customers or give them a reason not to shop elsewhere. The blunt truth is that the vast majority of Staples stores, even newer, smaller format ones, are devoid of any inspiration or excitement: they present products in a functional and warehouse like fashion.”

That threatens to send customers to mass merchandisers for their stationery needs, reducing traffic and basket size for Staples. “In our view, until Staples gets a proper grip on its retail business it will struggle to generate more positive results,” Harrison said.