Office Depot's Hail Mary - Betting on Smaller Stores
Office Depot's Hail Mary - Betting on Smaller Stores for their very Survival!
Office Depot (ODP NYSE)
Boca Raton, FL
May 26, 2011
Office Depot has just announced that septuagenarian & long term board member Neil Austrian is the company’s new CEO. 71 year old Austrian will be faced with the unenviable task of showing investors, analysts and customers that Office Depot is still relevant. The task seems daunting to say the least, as Office Depot is plagued by overcharging scandals, shareholder lawsuits, declining sales now for 13 consecutive quarters and an office supply market that has dynamically changed over the last three years, and continues to change.
One hope that Office Depot is counting on, is that shrinking the size of their stores will cut cost and improve profits. What Office Depot is in effect doing is making a blind Hail Mary for their survival.
There are those who think Office Depot might be making the mistake of a life time, especially since they are more or less pinning their very survival on this new and as yet unproven strategy. In an interview by the Street.com Nomura analyst Aram Rubinson said “Despite some likely benefits, our conclusion is that shrinking is not a winning strategy, in our view, the solution to a discerning customer and the e-commerce threat is great merchandising."
Office Depot does not have the leeway to get this wrong, for such a grandiose error in judgment could be the proverbial straw that breaks the camels back.
The Great Retail Shrinkage: Will Smaller Stores = Higher Profits?
NEW YORK (TheStreet) -- You can supersize soft drinks, French fries and giant rolls of paper towels, but the era of supersized stores may be coming to an end.
Indeed, after decades of big-box stores that housed everything from food to clothing and appliances, retailers are realizing bigger might not be better.
Looking for ways to cut costs amid the recession, retailers have tightened inventory levels, slashed jobs and shuttered stores. Now as the consumer slowly returns, the sector continues to seek ways to squeeze the most profits out of its business.
If consumers are unwilling to shop or if a retailer doesn't have the right merchandise, it doesn't matter how small the package gets.
Despite some likely benefits, our conclusion is that shrinking is not a winning strategy," Nomura analyst Aram Rubinson wrote in a note. "In our view, the solution to a discerning customer and the e-commerce threat is great merchandising."
Office Depot(ODP_) has started opening stores as small as 5,000 square feet, about one-fifth of its traditional stores.
On average, the office supply retailer is taking its 24,000-square-foot stores down to 15,000 to 17,000 square feet, a 30% to 38% decrease. The new stores will focus on the office supply retailer's best-selling items, with an emphasis on technology and print and copy services.
These remodelings are taking place in Florida, Maryland, Washington D.C. and Virginia.
Office Depot, along with the entire office supply sector, has struggled in recent years as its core small business consumer reduced corporate spending.
Rival Staples(SPLS_) has also adopted a similar model in recent years with 4,000 square-feet locations.
The three big players in the sector all reported disappointing first-quarter earnings, leaving Wall Street to question the relevancy of the group.
Ah, I see you've omitted the rest of thestreet.com's article in that link. You omitted the links that show how several other businesses (such as Walmart and Target) are also trying out smaller store concept, which apparently means they're "throwing the hail mary pass for their very survival". Very sneaky indeed.
You David Sherwein towdogs80 just to tell you something : it is not your business what office depot is doing it is only office depot. Please go and Scratch while you'r getting drunk. Leave Office depot alone it has been 3 years sine you gt fired. Go F yourself.