Keywords: big, boxes, Office, Depot, OfficeMax, Staples, 2011

Big boxes

Still as big as they come

As usual, it’s been a big year of change for the big boxes. How long they will hold their positions as the giants of the office supplies world is a matter frequently debated, as other players – such as Walmart and Amazon – move in on their ever-precious market share on two sides, B2B and retail. 

First, though, to the competition between each other. Staples remains, as Office Depot CEO Neil Austrian recently mentioned in November’s Big Interview (see OPI #214), bigger than OfficeMax and Depot put together. After a few less-than-rosy results earlier in 2011, the giant reported flat sales for the second quarter, as well as modest gains for its US operations, compared to same-store sales declines for Depot and ‘Max (at the time of writing, Staples’ Q3 results were not yet in). Looking still at Q2, Depot and ‘Max struggled to achieve top-line growth and positive bottom lines. As well as seeing sales declines, they reported net losses for the quarter of $29 million and $3 million respectively – this compares to a net profit of $176 million for Staples. The biggest difference between the three remains US contract.

Of course there are many factors behind these figures, but one we can look at is the leadership of each company. While Staples has remained a steady ship under the guidance of long-time CEO Ron Sargent, both Office Depot and OfficeMax have new CEOs at the helm. ‘Max’s Ravi Saligram has been in his post just over a year while Neil Austrian only became Depot’s permanent CEO in May. It won’t be the first time that continuity of leadership has prospered while new leaders still need time to get their feet under the desk. Austrian certainly has plans for the next two years to lead Depot back to prosperity, and Saligram recently unveiled a five-year plan – look out for the winter issue of OPI for our Big Interview with the ‘Max CEO. 

Retail

The size and number of stores in the US has remained a subject for consideration for all three superstores. The rush to populate the world with office superstore outlets is a thing of the past; at the beginning of 2011 Staples announced it would be opening fewer than expected and this has proved to be the case. 

However, Sargent did say at a Goldman Sachs conference in September that Staples would still invest in store growth, though less aggressively than in the past; collectively, the big boxes still own around 4,000 stores in the US, Canada and Mexico, almost half of which belong to Staples.

In terms of size, the average warehouse-style superstore of about 24,000 sq ft (2,400 sq m) is starting to become a thing of the past as the resellers tune in to what might be consumers’ preferred way of visiting a store – that is, to be in and out in a hurry. Many are being downsized to 15,000-17,000 sq ft, at Depot at least, and there has been an increase of smaller format stores (about 5,000 sq ft) in business areas. This smaller size could be another way that the big three are aiming to win market share back from smaller convenience stores that are now selling office supplies, as well as to save money on rent. The time to reflect as leases come up for review provides opportunity for new sizes, and locations, to be explored. 

It could be a wise decision for Staples, ‘Max and Depot to reassess store sizes, given the competition. Best Buy announced earlier this year a 10% reduction in its store format sizes, and Walmart is apparently pleased with the five Express stores it trialled this year and aims to bring the number up to 11 by the end of the year. Walmart also opened two new ‘pop up’ stores of 1,000 and 3,000 sq ft, designed to drive traffic to the online store. 

Technology

It seems as though the superstores, considered together, have been brought kicking and screaming into this decade in terms of technology. 

This year OfficeMax realised that it needs to stock technology products after all in order to drive customers into stores, although issues with its assortment contributed to its store sales in the US falling by almost 6% in the third quarter due to “teething problems”. Staples similarly has announced new technology offerings throughout 2011. 

All three now have more robust technology strategies, such as increased copy and print offerings. They are now stocking tablets and e-readers, while Staples is beginning to stock mobiles. Of course, the biggest downer for all three is that they do not stock the Apple iPad in the US – by far the market leader. They just don’t have the business relationship with Apple. Best Buy and Walmart both stock iPads in abundance, dooming the big boxes in this area from the outset given that customers are likely to want to compare all options.

An element to selling hardware that the big boxes must be aware of is the importance of add-on accessories and technology services, as margins are low in the products themselves. Computer repair centres are now present in many superstores, and perhaps this is an area for development in the coming year. Office Depot became the first big box to throw its hat into the managed print services ring in April, partnering with Xerox in Europe. 

Products aside, other technological developments have been occurring. Early in 2011 Staples relaunched its Staples Advantage website, which now has a cleaner look and a push to its growth areas such as jan/san. OfficeMax recently embraced Google Wallet, a mobile app that allows customers to use mobile payment terminals, as well as a mobile print app that allows customers to pick up orders in stores. 

Consolidation?

Rumours still abound about a possible merger between the big boxes. This wasn’t, of course, new to 2011 but it seems the rumour hasn’t vanished. Indeed, at a Goldman Sachs conference in September Sargent himself voiced the opinion that “consolidation will happen” in the next five years. 

Saligram and Austrian have been less forthcoming about the issue, with the former keeping his cards close to his chest – ‘Max is “reviewing strategic alternatives that maximise shareholder value” – and the latter saying he believes it will happen at some point, though not in the short term. 

Given continuing soft market conditions in the US and the ‘do more with less’ attitude of many companies that is affecting the whole industry, not just big boxes, 2012 isn’t likely to be a record-breaking year for any of the three. As Sargent said at the Goldman Sachs conference: “I wish I could say we’re seeing the upturn in 2011, but I think […] that’s probably a little premature.” 

Their quest for relevance continues as multiple retailers such as Target and Walmart increasingly become OP destinations for consumers (see ‘Alternative remedies’). And add to this bricks and mortar competition the fact that more and more consumers are heading online to purchase office supplies, is there still a need for the traditional office supplies store? The answer is probably yes, but not as we know it.