Analysis: Office Depot execs impress at analyst conference

Gerry Smith and his leadership team woo analysts in New York.

Office Depot Inc CEO Gerry Smith and his new senior management team delivered a high-calibre series of presentations to the financial community at the company’s analyst day in New York on 17 May.

After ringing the closing bell on the NASDAQ on 16 May, Smith and his team spent most of the following morning going through Depot’s strategic plan — and the progress made so far — to transform the company into an omnichannel business services platform.

Apart from Smith, those who took to the stage were Jerri DeVard (customer and marketing), Janet Schijns (merchandising and services), Steve Calkins (BSD), Dan Stone (CompuCom), Kevin Moffitt (retail) and Joe Lower (finance). Only Calkins and Moffitt remain from the ‘old’ Depot as Smith has revamped his leadership team and aims to instil a new, more dynamic corporate culture at Office Depot.

Walking the talk

The enthusiasm and energy levels of the presenters were evident, and as analyst and Jefferies Managing Director Dan Binder put it in a note to clients: “[Office Depot] hosted a high-energy meeting in New York City where it outlined its vision as a company in transforming from a sleepy declining office products business, hindered by a lack of strategic focus, old processes, management deficiencies and underinvestment, to an energised, B2B services-focused, omnichannel reseller ready to leverage existing assets and relationships to penetrate the SMB market.”

Binder called Depot’s strategy “intriguing”, but added the caveat that execution of the plan now needs to follow. Indeed, that was a sentiment echoed by Smith himself on several occasions during the conference. He said that it was all very well presenting the plan in front of a group of analysts, but that the talk had to be backed up by results. That didn’t really happen in the first quarter, but it’s early days and there were still a few signs from Depot’s Q1 results that it is moving in the right direction. For example, online traffic in the quarter was up 9% and there was a 16% increase in the number of business customers.

The investor day’s tagline was ‘Depot. Different!’ This was not only to highlight the new, differentiating strategy, but also to — once again — try and change the perception that investors and (potential) customers have of Office Depot as being predominantly a consumer-focused retailer whereas, in fact, 60% of sales are derived from B2B.

Smith admitted that 12 months ago, Depot’s strategy had been based on synergies arising from the acquisition of OfficeMax, and that this was not sustainable. Something had to be done.

The CEO talked a lot about Depot’s assets and their potential. These include: 28.6 million annual active customers; 18 million+ loyalty customers that spend on average twice the amount of non-loyalty customers; 200,000 enterprise accounts; more than 50% of US school districts as customers; 5.9 million SMBs located within three miles of an Office Depot store; ability to provide next-day delivery to 98.5% of the US population.

SMB market is key

One could question the $1 billion paid for CompuCom, but Depot does have a clear, strategic roadmap on how it intends to develop a combined products/services offering for business customers, with a focus on small and medium-sized businesses (SMBs).

“SMB appears to be the bigger opportunity,” said Binder. “The technology and services areas that management wants [Office Depot] to be a player in were defined as an $83 billion market with $55 billion in technology solutions and $28 billion in SMB business services. Given the challenges in the enterprise side of the business (as we have seen in the negative CompuCom sales results), most of the opportunity appears to be in the SMB space where customers have sought out expensive services in a fragmented market.”

With the move to business services, Depot said it is now playing in a $225 billion addressable market, but it is not all about that. Interestingly, more than 50% of this market figure is still from office and technology products (including furniture) which are estimated to be worth approximately $116 billion. “We are not abandoning products,” stressed Smith.

See opi.net for a more in-depth look at Office Depot’s 2018 analyst day.

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