Office suppliers bet on "value" to win shoppers

NEW YORK (Reuters) - Office supply retailers hope to avoid margin-sapping discounts during the important back-to-school season, but those attempts may not pass muster with consumers looking for the lowest prices.

"The consumer is clearly in a deal mindset right now. Some parents even say, 'If I don't get a steal, I won't buy it,' said Britt Beemer, founder of America's Research Group, which polls consumers on spending behavior.

The back-to-school season takes on even more importance this year for office supply retailers, as cutbacks in Corporate America have hurt sales to business customers.

"Some of the businesses may have suffered cutbacks and General Motors may be bankrupt, but everybody's sending their kids back to school," Michael Miles, president and chief operating officer of industry leader Staples Inc (SPLS.O), said in an interview.

Analysts expect Staples and rivals Office Depot (ODP.N) and OfficeMax Inc (OMX.N) to play the "value-for-money" card prominently to woo recession-weary customers this season.

But "value" does not necessarily mean offering cut-rate goods.

"Simply lowering price doesn't stimulate demand," Piper Jaffray analyst Mitchell Kaiser said, adding, "it's going to be all about offering quality products at a reasonable price."

Companies agree.

"Fitting the right price points and giving customers a great value will be more important in the current economy," Miles said.

Staples plans to expand its private-label offerings in a bid to give cash-strapped shoppers more value for their money.

For the big three in the industry, private label -- in which retailers put their own labels on what are often lower-priced goods made for them by vendors -- accounts for anywhere between 20 to 30 percent of sales, Kaiser said.

While private-label products tend to cost less than brand-name products, they also tend to carry higher margins for retailers, helping profits.

TO WAR WITH BINDERS

Office supply retailers are also placing renewed stress on quality, hoping the consumer might not mind shelling out an extra buck on a durable product.

"Traditional binders can fall apart after a semester or so ... You could go to war with our better binders and they will still hold together," Staples' Miles said.

As companies tighten their belts in the recession, office products sellers hope the back-to-school season will help take up some of the sales slack.

The good news for retailers is that to some extent, back-to-school shopping is not entirely discretionary.

"If you go to school and you need five binders, you are not going to buy four," Credit Suisse analyst Gary Balter said.

Despite their fight with rising mortgage payments and falling home values, cash-strapped parents will have to shop for books, stationery, pens and other essential supplies as kids gear up for a new year at school.

But retailers' attempts to preserve margins may run afoul of parents' quests for a good deal.

Lisa Husbands, a 40-year-old mother of four from Brooklyn, said she will spend on school uniforms and try to spend the minimum on anything else this back-to-school season.

"We have some stationery left from last year ... With the markets in this state, I better save," she said.

Most analysts expect this year's back-to-school season to be worse than or just at par with last year.

"Consumer spending has been trailing down. It is somewhat accepted all the companies are going to do slightly worse. It's a question of how much worse," Credit Suisse's Balter said.

As part of their efforts to take on discounters this season, office supply retailers are expanding their assortment of goods and forming tie-ups with schools.

Office Depot, for instance, plans to have a much larger assortment of teacher supplies, which include goods ranging from flashcards and stickers to learning books, said Wade Eveleth, Office Depot's senior director of merchandising for back-to-school.

Of the three office supply retailers, analysts clearly favor Staples, citing what they view as better management by the industry leader and an advantage in the contract customer side due to its recent acquisition of Dutch rival Corporate Express.

Staples shares have fallen about 15 percent in the past year, while rival Office Depot's stock is down 62 percent. OfficeMax shares have dropped 59 percent in the past 12 months.

(Reporting by Dhanya Skariachan, editing by Matthew Lewis)