Office Depot Inc. Overview

Office Depot Inc.

Introduction

An international provider of office supplies and services is Office Depot, Inc. With the inauguration of our first retail location in Fort Lauderdale, Florida, the firm was officially founded in 1986. Office Depot, Inc., a leading global provider of products, services, and solutions for every workplace, whether your workplace is an office, home, school, or car, was created by the merging of Office Depot and OfficeMax.

Office Depot was a pioneer in the area of discount office supply retail, with competing businesses Staples and Office Club, Inc. Office Depot in Florida, Staples in Massachusetts, and Office Club in California were the three businesses that were formed within a few months of one another in 1986. They all recognized the potential in providing office supplies to smaller firms at bulk discount prices, which had previously been a perk of dealing with larger organizations. Small businesses were at the mercy of conventional merchants who, in the absence of price competition, could sell at manufacturer’s suggested retail prices and take markups of up to 100% because they had never acquired supplies in sufficient quantities to qualify for bulk discounts. A discount store might provide products at discounts ranging from 20 to 75 percent off full price by purchasing directly from manufacturers rather than wholesalers and maintaining low overhead. The rise of warehouse-style discount retailers in the 1980s was another development that benefited these three businesses; Office Depot, Office Club, and Staples aimed to do for ballpoint pens and legal pads what Price Club had done for general merchandise and what Circuit City had done for consumer electronics.

In Boca Raton, Florida, businessman F. Patrick Sher and partners Jack Kopkin and Stephen Dougherty established Office Depot. In October1986, the business opened its first physical location in Fort Lauderdale, and before the end of the year, two additional Office Depot locations had popped up in Florida. The business kept expanding quickly; in1987, it added seven more locations in Florida and Georgia, and its revenues surpassed $33 million. Sher, unfortunately, did not have much time to enjoy his accomplishment as he passed away from leukemia only a year after his first store had opened. David Fuente, a seasoned retail leader who Office Depot enticed away from Sherwin-Williams, where he served as president of the paint store division, succeeded him as CEO.

In order to seize market share before imitators entered the fray, Fuente’s strategy called for Office Depot to continue expanding at an exponential rate. Each year, he intended to expand 50 stores and penetrate 10 new markets. Fuente achieved his objective in 1989 and1990, despite Office Depot opening only 16 locations in 1988 while growing into Kentucky, North Carolina, Tennessee, and Texas. 1988 saw sales of almost $132 million, and in June Office Depot went public with a $3.33 initial public offering of more than 6 million shares. A minimum of one analyst anticipated in 1989 that discounters would constitute the fastest expanding specialty-retail market for several years to come, even though they accounted for only a small portion of office supply retail sales by the end of the decade.

In the final two quarters of 1988 and the first two of1989, Office Depot achieved the distinction of becoming the first of the three original bargain chains to post a profit for a stretch of four consecutive quarters. With stores that more closely resembled warehouses than anything else, the company found success. Their interior design was straightforward and practical, with items placed floor to ceiling on steel shelves in a design described as “simple pipe rack” by a correspondent for Fortune. David Fuente described it thus: “In any case, customers can only choose from the first six feet of “shelf” space. As a result, we store things in the space above.” Office Depot locations averaged $150,000 in weekly sales by 1989. Of course, the company’s rivals shared the same lack of regard for interior design aesthetics. Office Depot had an advantage in that the South had lower commercial rents than the rest of the country, which allowed it to develop extraordinarily big stores while maintaining relatively modest overhead costs.

Office Depot’s rapid expansion into the Midwest from its regional base in the South continued in 1989 and 1990. By the end of1990, the business had 122 outlets spread across 19 states and $625 million in revenues. A significant portion of that development was funded by the $41 million sale of 3.6 million shares of stock to Carrefour, a French chain store company with affiliates all throughout Europe.

As more businesses, including OfficeMax and BizMart, entered the lucrative sector in the early 1990s, the office supply discount market grew increasingly crowded and competitive. Office Depot and Office Club made the decision to merge in 1991 as the competition for market share became increasingly intense. Office Depot’s position on the Pacific Coast was instantly strengthened by the move, which also gave it a significant number of new locations in an area where it had previously only a minimal presence. Office Club, on the other hand, had not fared quite as well as its fellow discounting pioneers; over the course of Office Depot’s first profitable one-year period’s four quarters, Office Club lost $2.7 million, as opposed to Office Depot’s gain of $5.1 million and Staples’ slightly smaller loss of $1.9 million. Therefore, Office Club also benefited from the merger.

In 1986, Mark Begelman, a former executive with British American Tobacco, co-founded Office Club in northern California with a friend who had been selling office supplies to Price Club. They reasoned that retailers specializing in that kind of merchandise would benefit from the same marketing strategies that allowed Price Club to sell office supplies at steep discounts. In Concord, California, the first Office Club business debuted in January 1987. Though not as soon as Office Depot, Office Club expanded. Office Club had opened five outlets by the end of 1987. It had 59 locations, the majority of them in California, and had $300 million in yearly sales at the time of the merger.

In April1991, Office Depot shareholders voted to accept the deal. Mark Begelman was appointed president and chief operating officer of Office Depot as a result of the agreement, which included a stock swap worth $137 million. David Fuente remained chairman and CEO. All Office Club locations were either shut down or transformed into Office Depot locations over the course of the following 13 months, and Office Club stopped charging its regular customers a membership fee.

Despite the merger, Office Depot kept growing. In order to finance anticipated growth, it sold another 1.8 million shares of stock to Carrefour in June 1991 for $40 million, giving Carrefour an 18% ownership stake. Along with the stores it had already bought from Office Club, the business added 57 new ones in 1991. Office Depot had 229 locations at the end of the year and had $1.3 billion in sales.

Office Depot started putting increasing emphasis on this area of its business around the same time that sales of office equipment, especially personal computers, started to soar. Begelman asserted in an interview in December 1992 that Office Depot sold 10% of all fax machines sold in the US. In order to display more equipment, store layouts were modified. In addition to PC knockoffs made by Packard-Bell and Compaq, the company started selling genuine PCs as well. In August1991, IBM permitted Office Depot to sell its PS/1 computers, and around the same time, Apple authorized them to sell the Macintosh Performa line.

By purchasing HQ Office International, the parent company of the Great Canadian Office Supplies Warehouse business, which had seven stores in western Canada, in1992, Office Depot expanded internationally. Robert McNulty established HQ Office International, Inc. in 1990 as a Canadian branch of his failed California-based HQ Office Supplies Warehouse company, which was split up and acquired by Staples and BizMart the same year. Office Depot quickly adopted its own name in place of HQ Office International and started growing its footprint in Canada by launching two stores in Manitoba. With its introduction into the Canadian market, Office Depot prepared itself for a potential conflict with Business Depot, a tiny chain with operations in eastern Canada and in which Staples had a modest investment.

Office Depot started growing its customer base in addition to entering new regions. Office Depot planned to acquire contract stationers and incorporate them into its retail company in order to appeal to larger customers after initially serving companies with 20 or less employees. Wilson Stationery & Printing, a subsidiary of Steelcase Inc. that provided contract stationery, sold its office supply business to Office Depot in May 1993. The transaction was worth $16.5 million. The business added three more contract stationers the next year.

Office Depot was convinced they could disrupt the traditional system that catered to larger corporations after successfully entering the established retail office supply industry. In May1994, CEO David Fuente spoke to Forbes, “We all offer the same products—legal pads, pens, and pencils—and we all source our supplies from the same supplier. Are you pricing them better? That’s going to make the biggest difference in performance. providing superior service? giving better results? The execution, not the strategy, makes the difference.” Office Depot was obviously on the correct track because Staples and OfficeMax both copied it by hiring their own contract stationers. However, Office Depot hadn’t seen a significant return on its investment two years later. Office Depot was confident that the more diverse client base would ultimately make the investment worthwhile despite the fact that integrating the contract stationers into their core retail company had cost more than anticipated.

In 1993, the business generated $2.6 billion in revenue and $63 million in profit. With 362 locations by 1994, Office Depot had expanded beyond its original idea of warehouse-like structures stocking office products at discounts ranging from 30 to 60 percent off manufacturer’s list prices. The Kmart Corporation subsidiary OfficeMax, the company’s closest rival, was only half as big. Office Depot had not been happy and intended to increase the number of its stores over the following five years.

Office Depot agreed to be purchased by Staples, its biggest rival, in September 1996 in a $4 billion deal. Regarding discount chains, these businesses were ranked first and second, respectively, prompting immediate concerns about antitrust issues. According to the Federal Trade Commission (FTC), the combined business would have price control in many major cities, and in regions where Office Depot and Staples were directly competing, price increases of between 5 and 10 percent could be anticipated. A federal judge issued a preliminary injunction to halt the transaction in late June 1997 after the FTC filed a lawsuit to stop the merger. At this point, Staples and Office Depot decided against pursuing their merger plans and gave up.

Office Depot introduced their initial website, www.officedepot.com, in January 1998, expanding its expanding distribution channels. One year later, the company’s first European e-commerce website, www.viking-direct.co.uk, was launched in the UK. Additionally in 1999, Office Depot and United Parcel Service, Inc. (UPS) partnered to offer UPS packaging and shipping services at its U.S. locations. In that year, revenues first exceeded $10 billion, reaching $10.2 billion, and profits reached a record $257.6 million. Office Depot had 825 locations in the US, 825 in Canada, and 32 abroad at the end of the decade.

Through a joint license agreement, Viking Direct expanded to Central America in December 2001 and opened new retail locations in El Salvador, Guatemala, and Costa Rica. In September 2017, Office Depot sold the parent company of Viking Direct, Office Depot Europe, to a financial institution.

Office Depot and OfficeMax would merge in an all-stock agreement, subject to regulatory approval and stockholder approval, it was announced on February 20, 2013. November 5, 2013, saw the completion of the merger. Office Depot announced the closure of 400 stores in May 2014 as a result of declining sales and a shift in customer behavior toward online retailers.

On February 4, 2015, it was revealed that Office Depot and rival Staples had reached a $6.3 billion cash and equity agreement. But in December 2015, the Federal Trade Commission decided to forbid the merger. The proposed merger was abandoned when the FTC was granted a preliminary injunction by the United States District Court for the District of Columbia on May 10, 2016.

Gerry Smith was appointed the new CEO of the business in January 2017, beginning on February 27. Smith oversaw operations for the Lenovo Group.

Office Depot acquired CompuCom, a provider of technology services, in 2017 to help it compete with Amazon. At the time, the company informed investors that the acquisition would result in disappointing revenue for the quarter that would be reported in May 2019. As a result, shares experienced a large decline in early April 2019.

Short Comings

Office Depot and Support.com, Inc., a California-based provider of tech support software, agreed to pay a total of $35 million in March 2019 to resolve Federal Trade Commission claims that the companies deceived customers into spending millions of dollars on computer repair and technical services by falsely claiming that their software had discovered malware symptoms on the customers’ computers.