There’s been plenty of talk of the need for change in the office products industry. Office Depot’s recent CompuCom acquisition and Smith’s plans to combine the IT services company’s offering with Office Depot’s products, store base and distribution infrastructure, certainly mark a turning point in the company’s strategic direction.
Underlining this need to try something new, Depot’s Q3 results were a familiar tale of decreasing sales – both in delivery and retail – while profits also came under pressure from lower gross margins, supplier and distribution-related consolidation issues and stiff competition. While some of these profitability issues are shorter term, the negative sales trends are expected to continue, although the rate of decline in delivery should improve as Depot’s contract pipeline and win/loss ratio returns to a degree of normality.
Here are the most fundamental takeaways from the earnings call:
CompuCom combination
Depot will immediately begin to incorporate service aspects from CompuCom into the Office Depot offering now that the transaction has closed. The first of these are the BizBox small business platform and the Tech-Zone IT services area which will be combined to form a new services area located near the entrance of Office Depot stores. Almost 30 of these zones are expected to be up and running in test markets in Texas and Florida by the end of the year, with Smith promising an “aggressive” roll-out in 2018.
The customer overlap between CompuCom and Office Depot’s Business Solutions Division contract unit was revealed to be just 25%, so there are clearly opportunities to be had from cross-selling products and services. How that will pan out in terms of sales team structure remains to be seen, but it appears that Depot is not planning a full integration of CompuCom in order to minimise the chances of disruption.
Staff training and fostering a new team spirit/identity – both in stores and with the field-sales teams – will be crucial. For example, Smith referred to “excess capacity” within the network of technicians; whether this means using current store associates to staff the Tech-Zone and BizBox areas, or that CompuCom employees will be seconded to retail outlets is not clear – either way, there will need to be a rigorous training programme.
A component of the services sales model will be through third-party, value-added reseller partners, which is something new for Depot. Smith said that Janet Schijns, who recently joined the company from Verizon, will be leading these efforts.
Keeping the core
Smith was at pains to underline that Office Depot is not abandoning its core business products offering; in fact, he vowed to expand the customer reach and add more adjacent categories and services. He also revealed that Office Depot has acquired four small independent resellers in the past few months to expand the company’s mid-market presence as well as its cleaning and breakroom penetration.
As we reported recently when Office Depot acquired leading independent dealer Complete, the strategy here would appear to be to let these acquired businesses operate by and large as before, keeping management and sales teams intact. Judging by Smith’s comments, we can expect to see more of these types of acquisitions in the coming months.
Conclusion
On paper, the combination of CompuCom and Office Depot is one of these ‘new box’ strategies needed by the traditional office products reseller channel. However, as Smith said at the end of the conference call: “Now, we have to prove it to you guys”. That will not happen overnight, of course, and Smith is giving himself and his team 2-3 years to get the job done. In the meantime, there will no doubt be a few choppy waters to navigate to bring these services and product offerings together.
