Groundhog day?

During the question and answer session at OfficeMax’s Investor Day on 16 November, financial analyst Gary Balter said it felt like ‘groundhog day’ with the office supplier presenting its second strategic plan in the space of 20 months.

‘Max announced a five-year growth plan in April 2010 when Sam Duncan was still in charge and it seemed that the global economy was moving in the right direction.

Times have changed; Duncan and a good part of his former management team have now left and, as Ron Sargent has put it, we are still in a period of “economic purgatory” with no visible signs of a sustainable recovery.

Ravi Saligram has had his feet under the CEO’s desk for just over a year now. He has already made a number of changes, especially in terms of the executive team around him, with only CFO Bruce Besanko and supply chain specialist Reuben Slone surviving from the Duncan days.

 In truth, many of the strategies outlined in the latest investor presentation have been mooted by ‘Max before. For example:

• Optimising the retail store portfolio

• Expanding the product ranges to adjacent categories such as jan/san and technology

• Focusing on higher-margin services such as technology services and copy/print

• Developing new channels such as store-in-store and category management with other retailers

• Gaining a greater share of wallet with existing customers

• Winning more business in the small and mid-market segment

• Improving the online experience for customers

• Controlling costs and improving productivity.

What Saligram argued was that the previous plan had been more of a financial plan with over-optimistic assumptions about the economy and was not based on a realistic view of the “state of the nation” of the company.

Execution would be the differentiating factor this time around, he stated. 2012 is being seen as a transitional year and sustainable, profitable growth is not being predicted before 2015. With about 100 stores likely to be closed by then, top-line improvement – a key component of the plan – is dependent on meaningful growth in new categories.

Read this month’s Big Interview with CEO Ravi Saligram for more insight into the company’s strategic plan.

The 'Max plan

• A pilot mobile initiative with Radio Shack which will see mobile phone kiosks in around 20 OfficeMax stores in the San Francisco area, stocked and staffed by Radio Shack

• Plans to divest the Croxley manufacturing and distribution business in New Zealand

• The renewal of the international contracts agreement with Lyreco for a further three years

• The continued pruning of the retail footprint in the US, with an average of 15-20 stores to close annually for the next five years

• Regional acquisitions to be made in the US to quicken growth in the SMB and jan/san segments

• 70 new positions created for the SMB sales team, to be in place by January 2012

• Further expansion in Mexico, including growing the small contract business there

• The trialling of smaller store formats in business districts where ‘Max has a strong presence

• No short-term geographical expansion

• A doubling of the ratio of direct import penetration for private brand products

• An increase in private label sales to 32% (currently at 28%) and a focus on the main brands – OfficeMax, [IN]PLACE, TÜL and Divoga.

'Down under' commitment

It has been suggested on several occasions by OPI that OfficeMax could offload its Australian and New Zealand operations, with Lyreco and Staples possible candidates to acquire all or part of them. 

However, CEO Ravi Saligram confirmed that Australia and New Zealand remain core assets of ‘Max’s international contract business. Former Managing Director David Kelly has come out of retirement to return to the business which has been led by acting Managing Director Simon Finch since David Armstrong’s departure. 

However, ‘Max has said that it plans to divest the Croxley business in New Zealand.

Croxley – with estimated annual sales of around $100 million – is the country’s leading distributor and its ‘Max ownership has traditionally been viewed with suspicion by the dealer community. An obvious purchaser does not spring to mind, but local group Paper Plus and Australia’s Pelikan Artline are two names thrown into the ring. Another option could be a private-equity-backed MBO led by Croxley CEO Joe Naus.

Keywords: OfficeMax, Ravi Saligram, investor day, OMX, big boxes, financial