It would be difficult to put a positive spin on Office Depot’s foray into the Spanish retail space.
Its six superstores in the region lasted barely two years – one was shut last year, while the remaining five are currently in the process of closing.
Depot has yet to officially confirm that it is exiting the Spanish retail market. It revealed in an SEC filing that it intends to close a total of 11 retail stores in its international division and one warehouse but requested confidentiality while employees were informed.
But its intentions became apparent to OPI through an internal document that was sent to all Office Depot employees in Europe. This also revealed it was ceasing its mail order operation in Portugal.
Translated from French, the document says: "We do not believe that these activities will be profitable in the future. These closures will allow us to concentrate our efforts on our remaining distribution channels in Spain and Portugal."
Ultimately, it appears that Depot failed to take the bull by the horns and adapt its retail model to the Spanish idiosyncrasies.
When the news first broke of the company’s entry into the Spanish retail market in spring 2003, Mark Baccash had this warning. Speaking in the March issue of OPI, he told us that the Spanish retail market could make it harder for Depot to match the early success of its Viking operation.
He said: "Depot may have a slightly harder time of it (compared to Viking). Retail hours are weird in Spain, stores close at midday for lunch which dictates much longer hours and often an extra shift. Stationery stores do zip on Saturday and Sunday, as personal relationships are prized, which gives a slight edge to the franchise model… Depot and Viking using different trademarks will also not be a help."
And so it proved. Granted with the benefit of hindsight, local commentators are not too surprised at the news of Depot’s exit.
Kurt Querbach, managing director of Querbach Stationery Business Consultancy, says: "The urban structure in the Mediterranean is different to the US. People live in flats, they work in flats, and they use public transport. They don’t want to spend hours driving out of town to a hypermarket. Furthermore, paper and consumables are the biggest office products in Spain and they are heavy articles to carry without a car."
Querbach also believes that Depot’s decision to open all its stores in Madrid was a mistake. "A lot of people in Madrid work in public administration or big companies, which don’t allow employees to make purchases in this type of store.
"If a retail chain wants to be successful, it needs to go to smaller towns where there is a larger number of medium-sized enterprises. As much as 75 per cent of purchasing power in Spain is outside Madrid."
Local knowledge is clearly important. "You can’t just jump in here," Querbach adds. "You need to adapt to local conditions."
Another industry source in Spain remarks: "It was bound to happen. I gave them five years, but it was just a little over two." He believes this is because Depot’s locations were expensive and overstaffed. "To produce margins you need to cover costs, and this was obviously not happening.
He also blames the American format. "The format was not right and the image was wrong. The hypermarket outside town doesn’t work in Spain. And the pricing was wrong – products were way more expensive than those of local chains."
Meanwhile, Office Depot’s exit is good news for Office 1 Superstore. The franchise operation opened its first superstores in Spain at roughly the same time as Depot, and recently opened its 11th outlet (in the Canary Islands) with the expectation of two more stores by the end of the year.
The Spanish retail market is a tough nut to crack, admits Office 1 Spain’s managing director Pedro Echeguren, but local knowledge is standing the company in good stead. "It has a mature market, and clients require a high level of service – often 24 hours a day – and good locations," he says. "It takes time and effort to get new clients in Spain and you need local knowledge."
Depot will no doubt write off the episode as an experience, and redouble its efforts to get the rest of its international house in order. As for the whereabouts of its other closures, that remains conjecture for the time being at least. But for the record, it currently has 43 stores in France, 24 in Japan and four in Hungary.