A few eyebrows were raised in October 2010 when Ravi Saligram was named to succeed retiring OfficeMax CEO Sam Duncan. The market had been expecting a seasoned CEO with a strong B2B background, but the ‘Max board turned to the 54-year-old International President of food services giant Aramark.
India-born Saligram has certainly had his hands full for the last 12 months, making a number of key organisational and senior management changes. Almost a year after taking over, he presented a new five-year strategic plan to analysts in New York as the company looks to offset secular declines in its traditional markets. OPI spoke to Saligram just a few days after the New York conference.
OPI: You’ve been in the hot seat a year now. What are your overall impressions of your 12 months in charge at OfficeMax?
Ravi Saligram: The year has gone by very quickly. It’s been an exciting ride and I can promise you I’ve not been bored. It’s had its challenges, but I’m feeling very good as I believe we’ve got a very clear strategic direction. There is a sense of excitement and we’re happy to turn now to execution because ultimately that’s the name of the game.
OPI: How did you assess the company?
RS: I’d done some due diligence before I joined, but when I started things were slightly different. We’d had a relatively decent year and the economy had started picking up, but when I joined we began seeing the first signs of some issues in Q4. Coming in, I thought the journey would be about transforming the company, but as I sunk my teeth in it became clear we had to continue to turn it around.
I reviewed our previous five-year plan and a lot of assumptions had to be revisited. I decided to put in place a journey to develop and evolve the strategic direction, and brought in a consulting firm because there were a lot of insights and facts that we needed to pin down. That proved to be a very good idea because, ultimately, what you get out of consultants is only as good as the direction, input and engagement of the team, which was certainly highly engaged. We got a terrific diagnostic about our strengths, capability gaps and how we chart out a direction.
OPI: Hadn’t the consultants been in ten months before for the previous plan?
RS: I think that they’d been used in a different way. I was really looking for a complete and overall diagnostic and a 360°, objective view of the company and customer base.
OPI: Any sense of disappointment on your part when you realised you had to go back to turnaround mode?
RS: No, because I didn’t have preconceived notions on what the strategy ought to be. I was delighted that my team was quite candid and we started looking at it. The big issue really was the economy. One of the fundamental assumptions that we had worked on was that the economy would rebound, but conditions have been tough. So it was more about pragmatism and readjusting the lens, looking for opportunities.
We started looking at our subsidiaries and customer service centres and took a series of cost actions. Probably the most specific change was that there was the perception within the company – true or false – of a retail bias in terms of resources. I’m not a retail guy, I’m just a customer guy, and I looked at various customer segments to see which represented our opportunities. We decided we needed to put a bit more emphasis on contract, and I think that this has borne fruit. Our retention today is at an all-time high at 92.5% and our net new business has been positive for two quarters in a row.
OPI: Looking at the new strategic plan, it does appear to be very similar to the previous one.
RS: Well, parts of it are because we’re building on what was done before. That’s a good thing because you don’t want pride of authorship to come in the way of good ideas and doing the right thing for the business. Having said that, I would say that the previous plan was probably more of a financial nature. This is more of a strategic plan that has the underpinning of a very solid diagnostic. We’re taking into account that we will probably not get a lot of tailwind from the economy so will have to more vigorously prioritise growth initiatives.
I believe that our plan is also well informed on how we will use each channel to go after different customer segments. For example, our whole store-in-a-store retail effort is aimed squarely at the individual consumer who’s buying on impulse in the drug and mass channels, while in our retail stores most customers are micro-businesses and some home offices. I believe the integration of the channels and driving multi-channel further across the enterprise will also be a positive thing. Finally, we have created a different organisational model based on individual business championship in each channel.
OPI: What does that mean exactly?
RS: Well, if you take retail as an example we’ve brought in Michael Lewis as President with full P&L responsibility for that channel. We made a similar appointment in contract but Mike MacDonald unfortunately had to leave for family reasons. SMB, which we’ve said is a standalone unit, has Steve Mongeau as its champion. Reuben Slone is heading print solutions and we’ve appointed Jim Barr to drive our digital strategy.
When you have people with expertise focused on specific areas, you achieve success. I’ve used the model in the past to drive growth efforts.
OPI: So have you got the team now that you need to take the business forward?
RS: More or less, yes. Clearly, filling the Contract President role is important and we’ll get there soon. We are going to recruit a new Chief Merchandising Officer and I think with that we will be in pretty good shape. I’m proud that our company has welcomed in a number of really sharp, top-notch people who are having an impact.
OPI: Looking at the US industry generally, there are three main players in the OP space and you’re number three. Analysts say there should be two or even just one and they’re asking for consolidation. To what extent do you agree and what does that mean for OfficeMax?
RS: Overall, clearly there are concerns about store saturation; industry store productivity has gone down.
At the investor meeting I said that in real dollars retail store productivity has declined 31% from 2002 to 2010. So that creates a lot of speculation and commentary.
OPI: Is the issue purely on the retail side?
RS: Everything that we’ve heard is that the focus seems to be more on that space and we’ve taken a number of steps to address this. Since 2005 we’ve closed 195 stores and we’ve reduced our square footage by a net 1.3 million. I think the industry suffers from some of the superstores being too big.
This is one of the reasons we looked at various strategic options. On the store spacing front we announced a mobile device pilot offering with Radio Shack. I would also say that while we’re number three, I’m very proud of our team and that we’ve been profitable in the last five years under very difficult circumstances. We remain profitable, which is a great testimony to our teams and ultimately this is all about whether we can create shareholder value long term.
OPI: Is there any pressure from the main shareholders, at least in the short term, to get the stock value up?
RS: We conducted a survey, and our findings indicate that most investors believe we have a clear direction. The message for them is we cannot influence the stock price, nor can anyone; we can influence our performance and that’s what we’re laser-focused on. It will take some time; we admit we have some capability gaps and we have to improve on execution, but I believe we have the right team and strategy in place.
OPI: What would you say are the main capability gaps that you need to focus on?
RS: There’re a few. We are now proactively tackling the issue of space in our stores. A second gap has been on the contract side – the website that we use to connect with our contract customers needed improvement so we’re taking the necessary steps.
In terms of stores, I think we’ve done a very good job of running clean, efficient store operations. We need to get better at selling in stores; we have very good associates who are very helpful to customers, but we want a higher level of expertise that converts those interactions into sales. We’re putting in more sales consultants who are more tech-savvy because we haven’t focused much on this area.
OPI: It sounds as though some of these initiatives are going to take time.
RS: When we articulated the whole strategy I talked about three phases: 2012 being a foundation year where we improve on what we’ve talked about; beginning to gain momentum from 2013 to 2015; by 2016 we aspire to be an enterprise that is beginning to deliver sustainable, profitable growth. We believe that this is a realistic outlook.
OPI: How dependent is your growth plan on some form of economic recovery?
RS: We’ve used the best forecasts that are available and we’re not expecting a huge robust recovery, nor are we assuming a double-dip recession. The key is that we’ll continue to focus more and more on what we can control as opposed to being totally at the mercy of the vagaries of the economy.
OPI: Would you agree that OfficeMax seems a bit behind its main competitors in terms of some initiatives? Take jan/san, technology, website capabilities or the SMB focus; Staples and, to an extent, Depot would appear to have a headstart on you.
RS: It depends on the initiative. The key fact is that we’ve been profitable. Having said that, would it have been better if we had been further along on some growth segments such as jan/san? Yes, but I am confident that we now have the right teams, tools, directions and tactics in place. The important thing is where we go forward from here. In terms of being behind, I can cite examples on the whole gross margin side where the team has done a terrific job on private brands – our private brand sales penetration is up to 28% which has been one of the big engines helping us despite the fact that we lost a considerable amount of revenues during the recession.
We’ve actually been openly self-critical. I don’t think any of our competitors has ever put out as comprehensive a strategic plan as we have. But we’ve committed resources to where we feel we have gaps and we’re gaining traction in a number of areas.
At the end of the day we shouldn’t forget that OfficeMax in its present form is a very new company. It is the result of a major merger between two companies and then the recession hit, so I would say the team has done the best it could under the circumstances.
OPI: Looking at an individual segment, what is your strategy in the SMB space?
RS: In the past there was a tendency to try to restructure the independent businesses we acquired along the lines of our large contract operations. I think this may have caused them to lose the essence and spirit of what they were all about.
So now we’re really building a group that thinks small. The compensation systems are different and the type of individuals we’re hiring as salespeople, especially with the greater focus on hunters, is quite different. We’re taking a very methodical rolled-out, as opposed to a national, approach because ultimately SMB is a high-touch local game, so you’ve got to do it market by market.
OPI: Which markets have you focused on?
RS: At this point we’ve not publicly disclosed those.
OPI: Are they traditionally areas where you have a stronger retail presence, meaning you can develop a true multi-channel approach?
RS: We looked at a number of criteria – the strength of retail was one, but we also studied things like where our delivery routes could be maximised. We were very scientific about it. We’ll get up to about 70 salespeople fully dedicated just to SMB and we’re going to move the telesales group under Steve Mongeau so that they’ll work in tandem. Then we’re looking at which product assortments are right for the SMB audience. That’s how we’re going about things.
OPI: You have alluded to some possible tuck-in acquisitions; would this be targeting successful local dealers to use as a springboard into certain markets?
RS: Yes, I think that describes it well. It’s a way of jump-starting growth and providing some platforms. We’re currently doing the work to get a sense of where the right opportunities are.
OPI: How do you see the larger contract business developing?
RS: The key is to continue to win new business, not only in the US but in Canada, New Zealand, Australia and Mexico. We’re encouraged by the success we’ve had in the last two quarters.
OPI: Sequentially there does seem to have been an improvement. How important are the healthcare and the education verticals in all this?
RS: They’re very important. There are a whole range of issues about hospital productivity in the US at the moment. We don’t want to think of ourselves anymore as in the office products business, but more in the productivity business. We’re all about workplace services, products and solutions that help our customers work better. That’s something that has resonated in the healthcare sector and we’ve had a number of important wins. The same with education; that’s a really vibrant business model with a lot of opportunity.
OPI: What is your view of the state and local government space at the moment?
RS: We will continue to work on this. On the federal side, in particular, we’ve not been particularly big and we had some issues with a major account, the US Postal Service, which has gone through its own set of challenges. So I think we see opportunities for us and the state and local government as we go forward.
OPI: You mentioned hunters and winning new business. How do you manage the price versus the margin issue?
RS: We incentivise our sales teams both on margins and revenues as they are equally important. Sales without margins is not a viable
way to run a business. Having said that, we run our account as a portfolio at different stages and levels of competitive pricing. One has to be very sophisticated about go-to-market pricing. It’s not about winning accounts at any cost.
OPI: Some of my sources in the US have said that you’re being very aggressive at the moment in some of your pricing…
RS: People draw out the price card and routinely allege that the other guy’s more aggressive. To me the key is that we are very focused on customer margins.
I brought in one of the top pricing guys in the country Rajeeve Kaul and we’re very focused on making sure we’re not only winning good business, but that there is opportunity to build up and migrate margins and that it’s a win-win for both the customer and ourselves. You can’t run a business on just opportunistic pricing, that’s never ever sustainable.
OPI: You’ve mentioned on several quarterly calls that the East has been a problematic region for you. What was the problem and how has that panned out?
RS: That is less and less of an issue as time goes by. When I first started out at ‘Max we had certain management issues; we probably didn’t have the right leadership and the right team. In 2010 we’d lost some major accounts there, so we had a few executional issues too. Every month we’re continuing to make progress and I think the worst is behind us.
OPI: Turning to international, you’ve said you’re looking to divest the Croxley business in New Zealand. What does that represent for your international sales?
RS: We’ve not disclosed that in terms of specific numbers. It’s an extremely well-managed company: a great team, profitable, a good track record of performance and a very fine reputation. It’s a wholesale business, not directly what we do and one part of our strategy process was to look at non-core assets. Croxley came to the top of the list so we have started to evaluate the divestiture.
OPI: You’ve committed to your Australian and New Zealand contract businesses, but they do seem out on a limb when you look at a global map of OfficeMax’s operations. Why don’t you just look to sell them?
RS: Well, it’s a fair comment that it is geographically quite far. But in 2010 our Australia, New Zealand and Canada businesses together represented $1.15 billion; that is slightly more than 15% of our company revenues and they’re good, profitable businesses. There’s a lot of synergy between what we do here and what they do there, they have very much the OfficeMax DNA; they learn from us, we learn from them and today the geographic dispersion is less of an issue. We have a strong leadership position in New Zealand; we’re number one in that marketplace and there’s opportunity in Australia. We believe that we can continue to optimise their performance to the extent that they can drive shareholder value. If, at a later date, they don’t meet expectations then we’ll revisit that.
OPI: You could return some money immediately to shareholders through a sale or invest the proceeds into speeding up some of the initiatives in the US.
RS: Fair enough, but it’s a good business, has some good trajectories and is very much part of the plan. If that changes down the road…
OPI: Let’s look at partnerships. The Radio Shack agreement on the mobile side is in pilot phase at the moment in the San Francisco area. How does this model work in terms of profitability for OfficeMax?
RS: Obviously, the arrangement between Radio Shack and ourselves is confidential, but suffice to say that both sides looked at the economics and we hope that it will be a win-win for both us. And to me the strategic idea here is that of two strong brands coming together and helping our store become more of a destination. They bring expertise in mobile devices, which we really don’t have. Putting in Radio Shack allows us to complete the whole concept of a technology section.
But another aspect is to leverage strategic relationships and alliances so that there’s not this view of ‘not invented here’.
I think one of the keys for us is how we capitalise on our size. How do we create compelling partnerships where one plus one equals three? The other alliance, which is on the contract side, is with Lyreco and that’s a very good relationship.
OPI: What does that Lyreco agreement generate in terms of aggregate revenue or the number of contracts involved?
RS: I can’t give specifics on the revenue, but I can say that given we both renewed it and renewed it with gusto, both sides are very happy with the arrangement. We have a lot of admiration for Lyreco and our geographies and DNAs complement each other. They’ve brought us a lot of customers and we’ve brought them a lot, so it works well.
OPI: You made the point at the Investor Day that there’s no geographical expansion on the horizon. Why did you refer to that specifically? Was it anything to do with your relationship with Lyreco?
RS: We don’t normally comment on those sorts of issues, but I’ll say what I meant by the geography issue. Because of my global background, I had questions from analysts and investors as to whether I was going to take the company on a massive expansion geographically. I wanted to just be clear that, at least in the near term, we are not planning to enter new countries. I think there are plenty of opportunities in the geographies we’re in.
OPI: Any closing remarks?
RS: People always refer to our status as the number three player, but this industry is far bigger than the office superstore channel. It’s a $230 billion sector and there are a lot of opportunities. There’s a lot of fragmentation, plenty of customer segments and lots of channels. We’re intent on becoming an integrated brand that synthesises a channel view and a customer segment view and really redefines itself as a company in the productivity business.
We are very focused on are our execution and innovation. We have got to clearly articulated the strategy, we have a good team and I’m confident of success and that we’ll create shareholder value. We’re not cocky, but people tend to underestimate us. Ultimately, though, I hope that actions will indeed speak louder than words.
Full name: Ravichandra K Saligram
Born: India, naturalised US citizen
Education: BSc in Electrical Engineering from Bangalore University and MBA from University of Michigan
2003-2010: President International at Aramark
1994-2002: InterContinental Hotels Group, including a spell as Chief Marketing Officer & Managing Director, Global Strategy
Began career in advertising with Leo Burnett agency in Chicago
• Founded: 1988
• Went public: 1995
• Current business: Founded when Boise Cascade acquired OfficeMax in 2003
• 2010 sales: $7.5 billion
• Employees: c. 30,000
• No. stores in the US and Mexico: c. 1,000
• Also operates in: Canada, Australia, New Zealand