What's Office Depot's future

[storewanderer]

At this point they should just let Staples and Office Depot merge. During the original merger proposal, weren't they going to use the name, Staples, the office depot? Go for it! The only thing they seem to be competing against each other is who can close more stores. In my area, there are only two Staples left. Amazon and their own eCommerce sites have pretty much taken over the office market. The only thing we occasionally use Office Depot for are some printing jobs but the quality has diminished forcing us to look elsewhere.

ODP (literally the name of the former Office Depot parent) has finally decided they have no interest in merging with Staples. Staples was taken over by private equity which is why they now operate in the classic PE manner: low investment, no payroll, weird "get rich quick" schemes like renting counter space to Idemia and now becoming an Amazon return desk. They don't pay any attention to the actual operations and let them stagnate, and any cost increase results in a closure.

Once again I'm sure everyone can point out examples here and there of their Staples or their Office Depot, but I've personally seen the memos to real estate brokers that got passed along. For the last decade the majority of both chains stores have been available to take over the leases on. Once again that doesn't mean it would be worth taking over if say there's only 3 years term left and then you need to fully renegotiate with the landlord, that's how it winds up closing and sits with temporary tenants like a Halloween store. But in general both companies spared no expense to try to clobber each other in the 90's and 2000's, signing leases focused more on how to be across the street from their rival versus being financially viable to be in that location for decades. Obviously the best options for other retailers at this point have probably been picked off as many of these sites have gone to Sprouts, Total Wine, TJX and even Target. Whatever is left is probably more difficult to work with in lease term remaining, landlord cooperation etc.

Now you have those situations like overvalued leases they're leaving, undervalued leases they can sub out and make more money than the actual store did, and landlord situations where better stores they do want to keep are getting booted anyway. So they wind up with pretty much the worst locations nobody wants that happen to break even or make a puny operating profit. I used to work with many Office Depot people and they shared that the spread between locations in rent was shocking, sometimes one store paid 5X the rent of another store a few miles away simply because it was placed to "get after" a Staples.

What both chains need to figure out is what they could sell that would bring in traffic again, but I think they are more focused on real estate than retail now.

This is the way these drugstores do business too. They placed stores to "get after" each other. Especially CVS and Walgreens. Rite Aid got crippled after the Martin Grass situation and couldn't play that game anymore but I think it was still costing them for many years after.

What is funny is these drugstores still do this operationally. I have an intersection with a CVS and Walgreens. These two keep pharmacy open later than other nearby locations- 8 PM or 9 PM (when some other CVS not far away close pharmacy at 5 PM) and keep front ends open until 10 PM despite having no evening traffic especially after pharmacy closes.

[reymann]

At this point let Office Depot merge with Staples but, it may not be anything more than a band-aid for both chains. Walmart has pretty much sucked them dry with all the office supplies you can buy there. I just think both chains are on death watch at this point.

[ClownLoach]

At this point let Office Depot merge with Staples but, it may not be anything more than a band-aid for both chains. Walmart has pretty much sucked them dry with all the office supplies you can buy there. I just think both chains are on death watch at this point.

I believe ODP will be the last one standing. Staples went to PE so it's most likely been smothered with debt which will make it unproductive and unprofitable to merge. That's why ODP walked away from the last deal proposal instead of fighting to merge, why assume all that debt and kill both companies?

Both are diminishing, dying companies on the retail side. For a consumer Walmart or Target are fine, but don't think they have any meaningful share of the category.

Their business to business divisions with direct ordering are where all the revenue is, and they could both shutter all the stores overnight and have little to no meaningful impact on their business. But as long as they break even then there's no reason to close, and as stated before they keep making profits on Real Estate plays although not as many as 5 to 10 years ago.

[reymann]

Honestly, ODP's future will be as a digital business to business model. As a brick and mortar consumer store, it's pretty much redundant when going against the targets, walmarts, and best buys at this point.

[ClownLoach]

Honestly, ODP's future will be as a digital business to business model. As a brick and mortar consumer store, it's pretty much redundant when going against the targets, walmarts, and best buys at this point.

It already is.

[FrankMoore99]

Are they like LifeWay??

[mbz321]

The only way I see either chain surviving long term is if they shrink their stores down to something maybe a bit larger than a 'Fedex Office/UPS store' sized space and focus on services like printing, shipping, and perhaps a very abbreviated selection of office supplies.

[ClownLoach]

The only way I see either chain surviving long term is if they shrink their stores down to something maybe a bit larger than a 'Fedex Office/UPS store' sized space and focus on services like printing, shipping, and perhaps a very abbreviated selection of office supplies.

Office Depot and Staples have both tried smaller format stores in SoCal and both have closed or struggled. They flopped hard. Office Depot had two in Orange County (Costa Mesa and Huntington Beach), they both closed very quickly. One is now Five Below and I believe the other is an AutoZone. Staples tried small format in Ladera Ranch, Aliso Viejo and Oceanside. One was new (Ladera, closed and becoming a Trader Joe's), other two were downsizing. Aliso downsized and gave half the building to Five Below, it appears to be doing very poorly and I expect it to close at lease end. Oceanside moved from a full size store around the corner to a small format and I spoke to the manager who volunteered that it was a massive sales loss and they're stuck with a brand new lease. It'll surely close the day the lease is up, basically a FedEx Office size store.

From a Wall Street perspective, small format is a complete train wreck when you're moving from an existing location because comps will crash and drag down company results for a whole year. On top of that you're spending the majority of the capital it would take to set up a big store but in a small location. You still have the biggest costs which are about the same for either size store, electrical, general contractors, data and wiring etc. The only real savings are on fixtures which are relatively cheap. I'm familiar with a retailer working a small store initiative and it's costing almost the same for small format as large to build out and set up in existing buildings. The only savings is if the building is being built from the ground up brand new.

Small format only works when you're a growing chain and trying to add new units into areas you otherwise can't fit a store.

The other issue with these office stores is they're already running skeleton crew staffing, so small format or large the payroll is the same thus making the small format even less profitable as payroll and overhead are de-leveraged.

[storewanderer]

Somewhere in the past I saw a Staples Express format. It reminded me of a Kinkos with a few more office supplies. I can't remember where this was. It was in some large city.

I think the problem with small format in this segment is it misses the few "high dollar" type transactions they still get- the occasional furniture or computer/printer sale... and with as low as their sales volumes are they probably can feel those few missing high dollar sales.

The "Express" format almost felt more geared toward print services than supplies.

[ClownLoach]

Somewhere in the past I saw a Staples Express format. It reminded me of a Kinkos with a few more office supplies. I can't remember where this was. It was in some large city.

I think the problem with small format in this segment is it misses the few "high dollar" type transactions they still get- the occasional furniture or computer/printer sale... and with as low as their sales volumes are they probably can feel those few missing high dollar sales.

The "Express" format almost felt more geared toward print services than supplies.

You're right, I forgot to mention the very short lived Staples print centers. They tried using the Staples Print and Copy name, then Staples Express. There was one near Marina Del Rey. I think where these died was when the cell phone business and computer repair business collapsed as they were the only other profit centers planned into the concept. There could be a few left in NYC...

The furniture business is very high profit and delivers decent volume. More than you might expect. All my office furniture is from a Office Depot collection and I've moved it three times, it's still in great shape. These stores hold onto a lot of that merchandise as it can sit in the warehouse for years without taking much room.