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 2,000 retail stores in about 60 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 (about two-thirds of sales), 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 acquired by Staples.
Change in Company Type
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 is expected to close by the end of 2015. Office Depot signed a definitive merger agreement under which Staples will acquire Office Depot, which would then become a wholly owned subsidiary of Staples. Following FTC approval of, and completion of the acquisition of Office Depot, Staples will have pro forma annual sales of $39 billion.
Office Depot rings up more than 75% of its sales in the US. The office products giant sells to customers in some 55 countries, including Australia, France, New Zealand, South Korea, and Sweden.
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 $447 million in 2014, $378 million in 2013, and $402 million in 2012.
The recession and its lingering effects (not to mention the decline in the use of paper) have taken a toll on Office Depot's sales. The 43% growth in revenues in 2014 was due to growth in all its segments as a result of the addition of OfficeMax sales. Excluding the revenues from OfficeMax, the company’s net sales declined as the result of store closures.
Office Depot’s net loss was increased by 1,670% to $354 million due to higher selling, general and administrative expenses and merger, restructuring, and other operating expenses.
The company reported cash inflow of $156 million in 2014 over a cash outflow in 2013 due to a loss on the disposition of joint ventures.
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. The company expects to close approximately 175 retail stores in 2015 and at least 60 additional stores in 2016 In addition to closing retail stores, Office Depot 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.
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. In 2015, the company launched a new Office Depot app for Apple Watch, available for free on the App Store.
In 2014 company sold its stake in the Office Depot de Mexico joint venture to its partner Grupo Gigante for about $690 million. Theits joint venture (formed in 1994) in Mexico operates about 250 stores in Mexico, as well as in Colombia, Costa Rica, El Salvador, Guatemala, Honduras, and Panama.
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.