SUSIE GHARIB: If you`re an Office Depot (NYSE:ODP) shareholder, the last
few years have been rough. The stock has plummeted as the economy tumbled,
particularly the environment for small businesses. But Office Depot
(NYSE:ODP) has a new strategy to reinvent itself and improve its
profitability. Suzanne Pratt explains.
SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: Big is what you
think of when it comes to Office Depot (NYSE:ODP). Most of the company`s
1100 U.S. locations are 25,000 square feet. But, that`s not true of one of
Office Depot`s newest stores, based in Hoboken, New Jersey. It`s a fifth
of the size of its larger brethren and part of the company`s new strategy
to improve profitability. There are now eight mini stores like it in the
U.S. North American President Kevin Peters says the big stores simply
KEVIN PETERS, PRESIDENT, OFFICE DEPOT NORTH AMERICA: Customers were
looking for a much smaller, intimate shopping experience. Most importantly
a shopping experience that would allow them to get in, get what they need
and get out.
PRATT: The small stores offer half the products found in the larger
ones, but can do 90 percent of the sales.
PETERS: It`s more profitable really for two reasons. One, it`s a
smaller store so we`re paying less in occupancy costs and two, are margins
are a little bit higher because we`ve got a full suite of services.
PRATT: Other big box stores like Staples (NASDAQ:SPLS) and Best Buy
(NYSE:BBY) are using the same strategy, opening smaller operations in urban
centers like New York City. And, while the strategy may be working, some
experts say it`s this box that`s really killing office supply retailers.
After all, paper, pens and post-its are really just commodity items, easily
bought online. Still, analysts like Joe Feldman say the weak economy is
the biggest threat to Office Depot (NYSE:ODP), because of how its hurt
JOSEPH FELDMAN, RETAIL ANALYST, TELSEY ADVISORS: Small business
formation is really the crux of the story here in my opinion. And, until we
get to that point, we`re not going to see much strength in same store sales
for the office supply guys.
PRATT: Office Depot`s Peters couldn`t agree more.
PETERS: If you look at the things that our business, the office
products business correlates with, it`s white collar employment. It`s
consumer sentiment, and it`s unemployment in general and I guess probably a
fourth is building permits. And so for our business to be successful,
people have to be at work.
PRATT: Office Depot (NYSE:ODP) says it`s extremely committed to the
strategy of smaller stores. There are 100 large stores up for lease renewal
this year and the possibility that many of them could be converted into
small stores. Suzanne Pratt, NIGHTLY BUSINESS REPORT, Hoboken, New Jersey.