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 some 1,800 retail stores in 59 countries following its merger with OfficeMax. The big-box retail stores sell to both consumers and small and medium-sized businesses. In addition to general office supplies, its stores offer computer hardware and software, 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. Faced with declining organic sales, in 2015 the company agreed to be bought by Staples, but the merger was called off in 2016.
Office Depot rings up more than 75% of its sales in the US (from 1,564 stores). The office products giant sells to customers in some 59 countries, including Australia, France, New Zealand, South Korea, and Sweden.
The company has three reportable segments: North American Retail Division, North American Business Solutions Division, and International Division.
The North American Retail Division (42% of the total revenues in 2015) includes retail stores in the US, including Puerto Rico and the US Virgin Islands, which offer office supplies, technology products and solutions, business machines and related supplies, facilities products, and office furniture. Most stores also have a copy and print center offering printing, reproduction, mailing and shipping.
The North American Business Solutions Division (39%) sells office supply products and services in Canada and the US, including Puerto Rico and the US Virgin Islands. North American Business Solutions Division customers are served through dedicated sales forces, through catalogs, telesales, and electronically through its Internet sites.
The International Division (19%) sells office products and services through direct mail catalogs, contract sales forces, Internet sites, and retail stores in Europe and Asia/Pacific.
Sales and Marketing
Sales are processed through multiple channels, consisting of office supply stores, a contract sales force, Internet sites, an outbound telephone account management sales force, direct marketing catalogs and call centers, all supported by a network of supply chain facilities and delivery operations.
Office Depot advertises in major newspapers in most of its North American markets. It also advertises through local and national radio, network and cable television advertising campaigns, and direct marketing efforts, such as the Internet, an outbound telephone account management sales force, direct marketing catalogs and call centers and social networking.
Advertising expense was $370 million in 2015, $447 million in 2014, and $378 million in 2013.
In 2015 Office Depot's net revenues decreased by 10%.
Sales in North American Retail Division declined due to the negative impact by store closures.
Sales in North American Business Solutions Division decreased by 4%, representing declines in both contract and direct channels.
Sales in International Division decreased by 6%. Contract channel sales decline reflected competitive market pressures that contributed to the loss of certain customers in the private and public sectors, reduced spend from existing customers in the largest European and Pacific markets, and disruptions related to the company's aborted acquisition by Staples. These declines were partially offset by sales increases in Sweden and smaller European markets. The sales decline in the direct channel reflected the continued competitive market pressures, disruptions associated with the channel realignment resulting from restructuring activities, and the continued decline in catalog and call center sales, partially offset by online sales increases. Retail sales increased in Sweden and Korea, partially offset by decreases in France.
In 2015 Office Depot's net income improved by $362 million due to a decrease in selling, general, and administrative expenses and a drop in merger, restructuring, and other operating expenses, net.
Cash from operating activities decreased by 19% compared to 2014 due to changes in inventories and trade accounts payable, accrued expenses. and other current and other long-term liabilities.
In a major industry consolidation move, in early 2015 Staples agreed to buy Office Depot in a deal worth more than $6 billion. The deal was expected to close by the end of 2015 but was ultimately called off in May 2016 after the Federal Trade Commission sued to block the merger and won. The FTC cited concerns that the consolidation would leave only one major brick-and-mortar office supply retailer, which could have led to higher prices for US consumers.
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 the US, between 2016 and 2019, the company plans to close 300 additional retail stores, following completion during the second quarter of 2016 of the 400 store closures that were part of Office Depot's 2014 Real Estate Strategy metrics.
The company has also been selling off operations outside of the US. In 2016 Office Depot announced it was selling its European business to investment firm AURELIUS Group. Over the past several years the company has seen increased competition in Europe and at home as a result of the 2008 acquisition of Corporate Express NV by Office Depot's larger rival Staples. Corporate Express was a major office products wholesaler in Europe, the US, and other markets. Aside from Europe, the company has in recent years also sold its operations in Mexico, Hungary, Japan, and Israel.
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.
While shrinking its operations both in the US and internationally, the company has implemented programs designed to bolster 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. 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 company also launched a new Office Depot app for Apple Watch, available for free on the App Store in 2015.
Mergers and Acquisitions
Office Depot acquired OfficeMax in a $1.17 billion all-stock deal that closed in November 2013. (Office Depot shareholders own 51% of the combined company, with OfficeMax getting 44%.) The combined company, known as Office Depot, has about $17 billion in annual sales and is led by its new chairman and CEO Roland Smith, formerly CEO of grocery operator Delhaize America. Together, the two office supply companies hoped to create a more formidable rival to market leader Staples and to save $300 million to $600 million in costs through the merger.