Office suppliers bet on "value" to win shoppers

By Dhanya Skariachan - Analysis

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.