Poor Office Depot (NYSE: ODP). Have you checked the price of the retailer's stock lately? It closed on Wednesday with a value of $2.10. It actually rose over 11% that day upon news of its third-quarter earnings. I can assure you that I wasn't buying the stock.
The numbers didn't tell the story of a company that would make a worthy addition to a stock portfolio hell bent on hanging tough during a market meltdown. Instead, the 7% revenue decrease and the loss per share, on an adjusted basis, of $0.01 relate a tale of a business that one should ignore. At least that's the way I see things. Comps in the North American retail division were horrible. The return on invested capital as calculated by management took a significant drop. Let's face it, Office Depot just isn't cutting it. Granted, the economy is wreaking havoc on the business, but come to think of it, I don't really have a good picture of what the brand is supposed to be about. Well, I know it's about office supplies, but why should I shop there as opposed to Staples (NASDAQ: SPLS) or OfficeMax (NYSE: OMX)? Good question, huh? Looks like the retailer needs to get the message out as to why the shopping experience at its locations is of a higher value compared to the office stores mentioned. For that matter, I'm sure a lot of people use Wal-Mart (NYSE: WMT) to pick up office supplies too. My point is that management needs to step up its game and create some better marketing programs for its stores. Be creative like Staples. That "easy button" device is turning into a cool cultural icon (well, I might be exaggerating, but I think it's creative, at any rate).
Earlier, I said "at least that's the way I see things" in terms of my opinion about the sad state of Office Depot, but I suppose I should point out that there are obviously a lot of investors out there who don't see a lot to love when it comes to this chain. The stock is down over 63% on the one-month period at the time of this writing. I see no reason to speculate on this business. The economy isn't getting better, and Office Depot just doesn't seem to be in a strong position. What will it take to turn things around? Like I say, in addition to hoping for an improved macro climate, come up with a better advertising campaign, build a more intense connection with the consumer. Office supplies are commodities, but shopping experience is not. That's the opportunity. Differentiating a brand from the competition based on things like customer service and an easy time of it at the checkout register is a traditional strategy in the retail industry. If Office Depot can offer something in that area, it should let me know about it. Since just about every retailer is struggling to keep the traffic coming into their chains, now is the time to exploit the other guy's weakened state and grab every customer possible.
Disclosure: I don't own any company mentioned; positions can change at any time.
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Reader Comments (Page 1 of 1)
10-30-2008 @ 12:12PM
Kent said...
I may have the wrong impression about these office supply chains, but I don't enjoy shopping at these stores. Mainly, the personnel attitudes are wanting when asking for advice or information. They seem too busy doing what I don't know to accomodate their customers. Shows lack of management. If you don't like these companies, I agree with Steve Mallas, why buy their stock?
11-05-2008 @ 10:03PM
mike said...
In todays economy the "specialty"stores will be the first to go. People will not pay full retail or items they can get at much lower prices at discount stores. That point of "convenience" is something people can not afford now. They wil spend a little more time to save a little money.
11-13-2008 @ 9:40AM
Suzanne said...
Having the unique position of both owning stock and working for Office Depot, here's some facts if anyone should bother to check or come by MY store. I would argue that it is just our time to suffer, as Office Max isn't really Office Max but Boise Cascade redux. As for Staples.....they have a clever campaign on TV and have for a long time....but knowing personally the local stores' customer service base versus my own, I am lucky enough to work in a high volume store with a great regular customer base.
Right now the way I see it, there is a crisis of confidence in spending. We have the deals...people are jittery about spending if they think you wont be there a month or two from now. It also doesn't help that most consumers, almost ALL consumers are absolutely IGNORANT about how it retail works. But thats ok, because in the end, the consumer will create the monster they ask for with their pocketbooks.
We're still standing and fighting. Its not over till the opera lady sings.
11-20-2008 @ 1:11AM
James said...
I worked at an OD in district 51 (before our DM got fired and half our district was taken over by the upper east coast district). Here are some things I took away from how not to run an office supplies store over the five summers I worked there:
1) It is not possible for a district manager to effectively run 18 stores - once you get over 6-7 you just don't know what's going on unless they are all identical, close, and in markets that are similar.
2) Our cashiers asked every customer:
Did you find everything alright?
Do you need any ink or toner with that?
Would you like a drink or chips?
Have you heard about our work life rewards program?
Would you like a protection plan with that?
Something do do with our copy and print center?
And I think there were more. The point is you don't rescue a business by pushing return customer programs and high margin single buy items. (NO ONE HAS A WALMART REWARDS CARD)
3) The extent to which protection plans (warranties) were pushed was ridiculous. If you did not sell enough you were reprimanded constantly. Not to mention, if you had a bad day in PP sales yesterday your manager would be in a shitty mood the next day after waking up to a chastising by your DM.
4) Mark-up - our supplies items are so overpriced, Walmart just makes more sense, the business model of pulling in customers with electronics then adding on (market basket) items is broken.
5) I could go on but most likely no one will ever read this....email me with any comments - don't buy OD brand products or stock.