Paper and paper clips add up to big money for Office Depot. The world's #2 office supply chain (behind Staples), Office Depot sells office supplies through more than 1,100 company-owned and licensed locations throughout the US and 120 locations overseas. The big-box retail stores sell to both consumers and small- and medium-sized businesses. In addition to general office supplies (about two-thirds of sales), its stores offer computer hardware and software, office furniture, art and school supplies, and printing and copying services. Office Depot also sells goods through catalogs and call centers, the Internet, and a contract sales force. Amid declining sales, Office Depot has agreed to merge with OfficeMax.
Mergers and Acquisitions
Office Depot plans to acquire OfficeMax in a $1.17 billion all-stock deal. (Office Depot shareholders would own 51% of the combined company, with OfficeMax getting 44%.) Together the two companies will have $18 billion in annual sales. They hope to create a more formidable rival to market leader Staples and to save $300 million to $600 million in costs by merging. Many store closings are anticipated. In April, the two companies announced the formation of a special committee tasked with overseeing the selection of a CEO for the combined company and executives to manage their integration.
Office Depot rings up more than 70% of its sales in the US. The office products giant sells to customers in some 60 countries, including France, South Korea, and Sweden. Through its joint venture (formed in 1994) in Mexico, Office Depot de Mexico operates about 250 stores there, and in Colombia, Costa Rica, El Salvador, Guatemala, Honduras, and Panama. (The company has agreed to sell its stake in the joint venture to its partner Grupo Gigante for about $690 million.
Sales and Marketing
To help boost its small-business business, Office Depot in 2013 teamed up with NFL veteran and entrepreneur Fran Tarkenton. Office Depot launched a Small Biz Club to provide a one-stop shop for general business tips, customer-tailored advice, networking, and, of course, office supplies.
The recession and its lingering effects -- not to mention the demise of paper! -- have taken a toll on Office Depot's sales. In 2012 sales fell 7% vs. 2011. All three of the company's business segements posted declines, with the international division down 10%, followed by the North American retail division (down 8%). The contract sales channel (known as North American Business Solutions) saw its sales decrease by about 1%.
Indeed, 2012 marked the fifth consecutive year of declining sales for the office products retailer, with sales down 31% since 2007. Also, Office Depot was unprofitable in 2012, posting a loss of about $77 million. Cash flow from operations continued to decline.
In response to decreased demand for its products and services, Office Depot has reduced its store count by more than 150 locations in North America since 2008. In addition to closing retail stores, the company has shuttered distribution and call centers. Overseas it has abandoned Hungary, Japan and Israel, selling its stores there to an Israeli department store chain. Adding to its considerable woes, Office Depot is seeing increased competition in Europe and at home as a result of the acquisition of Corporate Express NV by Office Depot's larger rival Staples. Corporate Express is a major office products wholesaler, with more than half of its sales in the US through Corporate Express US. To spur sales by making shopping easier for its customers, Office Depot has adopted a new store format, called Millennium2 (M2), used in all new store openings and remodels. The M2 minimizes construction costs and strategically locates products to encourage sales consultation.
The recent decline in the company's international business reversed its previously growing contribution to Office Depot's coffers. To extend its reach into India, Office Depot partnered with Reliance Retail, a unit of India's Reliance Industries, in a joint venture to sell office products and services to business customers in India.
To raise cash in lean times, Office Depot in mid-2009 sold about $350 million in preferred stock to BC Partners, a private-equity firm based in the Channel Islands. As a result, BC Partners owns about 21% of Office Depot's shares through CIE Management and LMBO Europe.