Battle for Survival of the Office Products Retail Chains
Battle for Survival of the Office Products Retail Chains ”and then there were two?”
Stock Market Insider (SMI)
SPLS, ODP, OMX
June 30th 2011
The first half of 2011 was a stock-market bloodbath for the retail office supply chains of Staples, Office Depot and Office Max. All three saw there market capitalization evaporate and shareholder’s value plunge.
Industry analysts have now become almost universal in their view that market consolidation is needed urgently, as industry leader Staples lesser rivals Office Depot and Office Max teeter on the precipice of financial disaster.
Conventional wisdom within the financial community and office products industry pointed to the merger of Office Depot and Office Max as a more or less last ditch effort for survival. This theory was given a boost when Oppenheimer reported that Office Depot CEO Neil Austrian was open to and favorably inclined to a merger with Office Max. The report from Oppenheimer gave an immediate boost to the stock price of Office Depot (ODP) and Office Max (OMX). The euphoria over the potential marriage of these two struggling companies was short lived however, when Reuters reported that Austrian stated that he believed the FTC would block any merger attempt, and he would not start down that path because of the legal obstacles presented by the FTC. The Reuters report pinned Austrian down to removing almost all chance that a merger would be attempted as Austrian and Office Depot attorneys saw little chance of success.
Staples dominates its lesser rivals and is considered a sure bet to survive the coming industry battle. That leaves Office Depot and Office Max to fight each other for the one position left in the market. Both companies are weak and struggling, and are almost mirror images of each other in poor performance. Office Depot has lost market share and seen declining sales for 13 consecutive quarters (that is over three straight years), and Office Max has seen sales declines for 13 out of 14 of the last quarters.
Office Depot seems to be a floundering company without any clear path to survival. The greatest single change at Office Depot is playing copy-cat to other retail establishments and Staples by reducing their store size and retail footprint. For Office Depot their logic is faulty and fraught with potential disaster. Office Depot is fighting to maintain relevance in the fractionalized office supply market. Sales and foot traffic at its retail stores have been on a steady decline for nearly four years. In some convoluted plan, Office Depot believes reducing the size of their stores will be a panacea that will change shopper’s habits and bring them rushing back to Office Depot. One only has to think back to the last retail panacea that Office Depot came up with, the Millennium store format. If you remember it was hailed by Office Depot as a cutting edge industry make-over that would make Office Depot the “go to” location for office and school supplies. Where has the Millennium store format gotten Office Depot? Well, at a cost of untold millions in store by store major renovations, it seems it has gotten us to the present; lower store traffic, lower store sales, lower store margins and higher cost of store operations. Now the Millennium store seems to face the same fate as the Dinosaurs-extinction!
Like an out of touch Ostrich, with its head firmly embedded in the sand, Office Depot believes their new smaller store format will be the “save all to end all”.
The fact of the matter is Office Depot just doesn’t get it, it is not the size of the store; it is the changing market, stupid!