Staples Plans to Buy 9 HQ Office Supply Stores

The hotly competitive discount office supply business lost its second Southern California player in a week as Staples Inc. said Friday that it plans to buy nine area stores from faltering HQ Office Supply Warehouse Inc.

HQ, based in Long Beach, said it plans to close its remaining stores in California and Nevada and will concentrate on the Canadian market through a subsidiary in Vancouver, B.C.

Staples, headquartered in Boston, said it wants the strategically located HQ stores to speed its expansion in Southern California.

The $8-million deal comes just eight days after the nation’s largest chain of discount office supply stores, Office Depot Inc. of Boca Raton, Fla., said it will acquire the Office Club Inc. chain of San Francisco. The all-stock purchase will give Office Depot a nationwide chain of 172 stores and an increased presence in Southern California. But the 51 Office Club locations will continue operating under the Office Club name.

Staples claims to have been the first chain of office discount super stores when it opened in 1986. But it admits to being a latecomer to the Southland.

Since entering the market earlier this year, Staples has grown to eight stores operating from a California regional headquarters in Fountain Valley.

The chain has a total of 74 stores in California and the Northeast.

By more than doubling its Southern California stores with the HQ acquisition, Staples hopes to market itself more effectively and make more efficient use of its distribution network. “We’re extremely excited about the Southern California market,” said Staples Chairman Thomas G. Stemberg.

Bo Cheadle, an analyst for Montgomery Securities in San Francisco, said Staples should be able to make the most of the former HQ stores. “It gives Staples instantaneous market share down there,” he said.

Staples generally has operated with smaller stores than HQ and with higher-visibility locations than Office Club, Cheadle said. Staples needed additional locations, but could not find adequate sites.

HQ, meanwhile, “sort of ran out of money and it was obvious that their inventories were devastated. These were office supply stores that didn’t have legal pads,” Cheadle said. He said he went to one HQ store that had only one Cross pen in stock.

HQ Chairman Robert J. McNulty, who plans to work as a consultant to Staples, said the chain had the highest sales per store in the industry in the first quarter of 1989. But the company could not obtain needed financing, he said, and the lack of funds forced it to sell the nine stores to Staples.

Mark D. Begelman, the former Office Club chairman who became Office Depot president in that merger, said Staples’ heightened presence in Southern California will not escalate competition.