March 6 - Deeper discounting than usual bites into Costco's profit, while Staples sees discounters like Wal-Mart grab sales away. Fred Katayama reports.
Costco and Staples didn't blame bad weather for the dismal earnings they produced in the latest quarter. The warehouse retailer's profit fell partly because it had to discount even deeper than usual during the holiday season and weaker foreign exchange rates cut into overseas income. The bright side: comparable store sales in the U.S. rose 5 percent. But Staples' same-store sales plunged 7 percent as it sold fewer computers and office supplies. Its problem is more structural: Customers are going to discounters like Wal-Mart and Amazon.com for office supplies and equipment. It sees sales further falling in the current quarter. As a result, Staples will close up to 225 stores by 2015. It's part of a $500 million plan to cut costs. But Barclays Capital analyst Alan Rifkin said: "There is very little substance behind $500 million in cost savings... Greater urgency will be necessary... the problem is deeper rooted, given the commodity driven nature of the company's product offerings." Staples' stock fell sharply, adding to its 15 percent decline this year. Costco's shares also fell further.