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This is my team's PowerPoint presentation on Office Depot for Economic Analysis of the Firm. We disagreed on the level of success the company will have as we all emerge from the recession.

This is my team's PowerPoint presentation on Office Depot for Economic Analysis of the Firm. We disagreed on the level of success the company will have as we all emerge from the recession.

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  • 122 stores in 19 states
  • Junior Achievement, the Leukemia Society of America and the March of Dimes
  • 10th Anniversary Announced plans to open the first Office Depot stores in Japan
  • providing free backpacks filled with school supplies
  • on the basis of its in-kind donations
  • Celebrated 20th anniversary in 2006
  • I’ll be covering Office Depot’s major competitors at the same time as describing the industry in which it operates.
  • “ The U.S. office products market is the largest in the world,” says OPI.net, the website of Office Products International (OPI), which was formed in 1991 by two former British dealers to report on global issues affecting the office supplies sector. “From this position of strength, it often leads the way with innovations and industry developments. The superstore started here along with many other industry changing trends.”
  • Industry leader Staples, Inc., includes Office Depot and Office Max, Inc., on a list of 20 peers. None of the other companies on the list is in the office supply sector. When the group was reviewed in mid-2008, “peer company candidates were selected from a universe of 345 potential companies and analyzed using various metrics related to business model, revenue, market capitalization, global reach, brand recognition and whether we compete for executive talent or customers.”
  • The three do not necessarily price to match Walmart or even Target, but we can all see they price competitively with each other. That being the case, the three companies (commonly identified as the office supply sector) account for only a small portion of the nation’s overall sales of office supplies. Office Depot estimates the superstore companies comprise just 9.7 percent of the overall U.S. office supplies market. “The rest of the market is divided widely between supermarkets, wholesale retailers, discount stores (including Walmart) and smaller independent companies” (Office Depot, Inc., 2010).
  • For most items, you can go to a Walmart or even a drugstore, but I challenge you, if you’re looking for a specialty item, to find it somewhere but an Office Depot, Staples or OfficeMax. I was recently looking for a mailing envelope for a thick sheaf of legal-size documents, I started off at Walgreens, then Walmart and Target and it was no-go. Tried at Office Depot and found a bubble-wrap-style mailer; then I went to Staples and found the same thing for the same price. If you have a special ink you need for your printer and you forget to order it online, you’re going to wind up at an office-supply big box.
  • What you’re seeing here in green and red is total revenue or sales and how the recession knocked them back in 2008. I had to look up CAGR, and it is just a performance metric, but it’s a little different from what we’ve discussed in Dr. Allen’s class. I would bet we’ll get more into that in our finance class.
  • Hoover’s industry indicator is U.S. corporate profits. They jumped 37 percent in the second quarter of 2010 compared to the same period in 2009, and they’re an indicator of corporate demand for office and paper supplies.
  • Both OfficeMax and Office Depot see international sales as one of their few opportunities for growth. A website called wikinvest says that “One clear advantage Office Depot holds over Staples is in the international market, where Office Depot is clearly ahead in terms of sales and operating margins. This lead in the international regions may also help buffer Office Depot's business in the case of an economic downturn in North America.”
  • We’re limiting our discussion to the U.S. big three, accounting for about $378 million of the $3.9 billion market. Sector leader Staples also leads in the number of U.S. locations, although not as dramatically as might be expected, with 1,555 in the continental United States. Office Depot is second with 1,330, including two in Alaska, four in Hawaii, and six in Puerto Rico. OfficeMax’s 933 superstores are the farthest flung and include three in Alaska, eight in Hawaii, 13 in Puerto Rico, and two in the U.S. Virgin Islands (OfficeMax, Inc., 2010). The stores are concentrated in the Sunbelt of Florida, Texas and California.
  • Here, we just see a bit of the rationale we used in calculating the HHI. Our approach is supported by a 13-year-old action of the Federal Trade Commission. The FTC, based on Justice Department analysis, denied a merger between Office Depot and Staples because, it said, the HHI value would exceed 5000 in 42 metropolitan areas for the merged office supply superstore companies.
  • Here are the details. Current market share for Office Depot is less than half of that for Staples, and Office Max has just about two-thirds of the market share of Office Depot. The challenge for Office Depot and its two major competitors is to gain market share within the sector and within the overall industry.
  • Office Depot and its rivals consistently provide “household-brand” products in their big-box stores from companies such as Hewlett-Packard, Canon, Brother, Pilot, Sanford, 3M and Bic. Like many retailers, it purchases these products from distributors and resells them. All three also package their own brands of such popular items as ink, toner and paper.
  • Direct sourcing allows companies such as Office Depot to offer its own line of private label goods, which typically see higher margins than branded goods.
  • Like the rest of the sector, Office Depot concentrates heavily on back-to-school retail. Office Depot told its investors it was pleased with this year’s back-to-school performanceI guarantee the other two have made similar statements. For the sector overall, U.S. sales during the three-month period from July through September increased by 2 percent over 2009 sales for the same period, “pretty consistent with overall retail trends in the U.S.” (Office Products International, 2010).
  • Biggest problem seems to be not knowing exactly when to expect the purchasing push. During the recession, consumers have been buying BTS supplies as late as possible.
  • Also, around 17 percent of the U.S. population are unemployed or under-employed, so there is a large percentage of consumers who are living paycheck to paycheck and have little impetus to make purchases ahead of the time the items are needed.
  • The holiday retail season is only second to Back to School, but marketers still give it a try. This is a well-known holiday campaign from OfficeMax that’s back this year.
  • 12.1 billion in sales in 2009, down 18% compared to 2008 About the same decrease year over year for each of the three divisions Revenue growth attributed to M&A’s. joint ventures and licensing agreements
  • Revenue and profit year over year trends, show some bright signs The decline in sales quarter over quarter is improving Comparing 2009 vs 2010, profit margin has improved for 5 straight quarters
  • - Go over breakdown of performance for each of the three divisions, and their strategic initiatives moving forward Largest concentration of stores in Florida, California and Texas. Sales through chain stores Revenue down 1%, Profit down $5M compared to last year Closed 120 underperforming stores in 2008 and 2009 Strong back to school season for this division Focus ad expenditure on brand awareness to differentiate offering from competitors Point of sales system improve efficiency and give a unique advantage to loyal customers Streamlining marketing efforts with other divisions, to leverage similarities and reduce cost
  • 3Q10 Sales down 4%, and profit increase of 4M compared to 2009 Profit increase due to higher sales mix and improved productivity in sales expense Sells nationaly branded and private branded office supplies through e-sites and catalogues Dedicated websites for contract customers Direct contracts with state and local government contracts, school districts and not for profit organizations Largest opportunities lie in North America for large contracts. Consolidating efforts in many areas with other divisions where there are synergies to become more efficient
  • Sales down 10%, and profit down to $30M, driven exchange rate and volume decreases Sold to customers in 51 countries, managed through regional headquarters. Expand the reach through joint ventures, licensing and franchising agreements Retail operations closed in Japan in 2009 Closed deal to acquire Carvajal International business to business in Mexico and CAM Major factor to become more price competitive and efficient in international markets
  • Reduce consumer confidence impact discretionary spending of consumers, which impacts office supplies Small business spending on office supplies decrease with low levels on the optimism index Overall, with the poor economic conditions, the retail sector has been extremely impacted
  • Store closures as mentioned before, and reducing store foot prints based on demand needs in the area Becoming more automated and efficient across various business workflows and streams to reduce cost Simplify, consolidate and globalize IT systems. Implement same ERP systems
  • 5 year stock price trend shows negative sloping Went from a high of 46.52 to a low of .590
  • Overall, outlook not good from various investment analyst firms. Many have the stock on a SELL or HOLD rating Concerned about ODP becoming very selective when signing accounts in an effort to become more profitable

Office depot red Office depot red Presentation Transcript

  • Tyler Kerner, Catherine Klasne, Tony Padilla OFFICE DEPOT: ANALYSIS AND EVALUATION
    • Off and running in 1986
    A HISTORY OF OFFICE DEPOT
    • The first three were opened in 1986.
    OFFICE DEPOT’S GROWTH IN NUMBER OF STORES
    • Office Depot - 1986
    • Office Depot Inc., was founded in 1986 in Florida by Pat Sher, Jack Kopkin and Stephen Dougherty
    • Opened first store in Fort Lauderdale in October
        • Opened two more stores by year’s end
    • Recorded sales of $2 million
  • OFFICE DEPOT IN 1987
    • Appointed David I. Fuente Chairman and Chief Executive Officer
    • Sales of $34 million
    • 10 stores in Florida and Georgia
    • 800 employees
  • OFFICE DEPOT - LATE ’80S
    • 1988
    • Initial public offering of common stock completed on June 1, 1988. Listed on the NASDAQ under the symbol "ODEP.“ Employee Stock Option Plan adopted.
    • Sales of $132 million
    • 26 stores in seven states; 1,600 employees.
    • 1989
    • Sales of $315 million
    • 67 stores in 12 states
    • 3,500 employees
  • OFFICE DEPOT - 1990
    • Merged with Office Club, Inc., on December 20
    • Introduced Office Depot private label credit card
    • Opened 100th store in September
    • Began selling personal computers and peripherals
    • Introduced extensive line of recycled paper products, initiating company's environmental focus
    • Opened first delivery center
    • Sales of $626 million
    • 5,600 employees as of February 28
  • OFFICE DEPOT - 1993
    • Entered the contract stationer business via the acquisition of Wilson Stationery & Printing Co. and Eastman Office Products Corp.
    • Miami Herald names Office Depot the Company of the Year in April
    • Adopted corporate social responsibility program
    • Established Office Depot Foundation to assist employees and members of the community at large in times of extreme hardship
    • Sales of $2.6 billion
    • 351 stores in North America
    • 20,000 employees
  • OFFICE DEPOT - 1994
    • Acquired six additional contract stationers in North America
    • Went international by opening licensed Office Depot stores in Israel and Colombia
    • Announced retail joint venture agreement in Mexico and licensing agreement in Poland
    • Launched sports and event marketing programs around the country
    • Raised more than $1 million for its charities
    • Sales of $4.3 billion
    • 420 stores in North America
    • 26,000 employees
  • OFFICE DEPOT - 1995
    • 500th store opened in North America
    • Opened stores in Mexico and Poland
    • International expansion in France and Thailand
    • Established Office Depot's Business Services Division
    • Introduced Arnold Palmer as the Company's spokesperson
    • Introduced a Regional Vendor Diversity Initiative
    • Sales of $5.3 billion
    • 30,000 employees
  • OFFICE DEPOT - MID-’90S
    • 1996
    • Pioneered its first B2B e-commerce site
    • Sales of $6 billion
    • 570 stores in North America; 31,000 employees
    • 1997
    • Opened 21 new foreign locations, ending year with 45 international locations in eight countries, excluding Canada
    • Designed the first public website to offer the convenience of "point and click" for office supplies needs
    • Dilbert TM introduced as new print and broadcasting icon – online, too
    • Sales of $6.7 billion
    • 602 stores in North America; 35,000 employees
  • OFFICE DEPOT AND DILBERT
  • OFFICE DEPOT - 1998
    • Merged with Viking Office Products, direct marketer in Europe and Australia
    • By end of year, owned and operated 15 stores in France and had 72 Office Depot locations in Colombia, Hungary, Israel, Japan, Mexico, Poland and Thailand through joint venture or international licensing agreements
    • Over $1 billion in international sales
    • Over 100 new store openings in North America, highest in the company's history
    • North American Retail stores sales exceed $5 billion
    • Launched public website officedepot.com in January
    • E-commerce sales totaled $66.5 million
    • Sales of nearly $9 billion (8.99)
    • 702 stores in North America
    • 44,000 employees
  • OFFICE DEPOT - 1999
    • Sales exceed $10 billion, first in office supply industry to reach this milestone
    • Office Depot is included S&P 500 listing in June
    • Internet Retailer . Office Depot ranked "Top 25 of the Web"
    • Fortune Magazine . Office Depot named as one of "10 Companies that Get It"
    • Sales of $10.3 billion
    • 825 stores in North America
    • 48,000 employees
  • OFFICE DEPOT - EARLY 2000 S
    • 2000
    • Appointed Bruce Nelson CEO
    • Adopted strong commitment to corporate values of Respect for the Individual, Fanatical Customer Service and Excellence in Execution.
    • Sales of $11.6 billion; 888 stores in N. America; 48,000 employees
    • 2001
    • Acquired 4Sure.com
    • $1.6 billion in worldwide e-commerce sales
    • Inaugurated National Backpack Program for underprivileged children
    • Sales of $11.2 billion; 859 stores in North America; 45,000 employees
  • OFFICE DEPOT - 2002
    • $2.1 billion in worldwide e-commerce sales
    • Expanded into Central America with new retail stores in Guatemala and Costa Rico through a joint licensing agreement
    • Sponsorship of 2002 and 2004 U.S. Olympic Team announced
    • Won naming rights for the sports and entertainment center in Sunrise, FL. Office Depot Center became the official home of the NHL Florida Panthers
    • Sales of $11.4 billion
    • 861 Stores in North America
    • 43,000 employees
  • OFFICE DEPOT - 2003
    • Acquired Guilbert S. A., a leading contract stationer, doubling the size of the company's European business
    • First office supply superstore to offer fully-functional and comprehensive Spanish website
    • Number two global online retailer with sales of $2.6 billion
    • Implemented Ink and Toner Recycling program in stores nationwide; introduced "Green Book" Catalog
    • BusinessWeek magazine listed Office Depot among the top corporate philanthropists in the U.S.
    • Sales of $12.4 billion
    • 900 stores in North America
    • 46,000 employees
  • OFFICE DEPOT - 2004
    • Appointed Neil Austrian interim Chairman and CEO
    • Launched first free, nationwide in-store electronics recycling program and free, in-store cell phone and rechargeable battery recycling program in the U.S. and Canada
    • State of Florida, Office of Supplier Diversity- Corporation of the Year.
    • Powered 20 retail stores with renewable "Green Power" to reduce greenhouse gas emissions
    • Listed on Companies That Care Honor Roll
    • Sales of $13.6 billion
    • 969 stores in North America
    • 47,000 employees
  • OFFICE DEPOT - 2005
    • Steve Odland appointed Chairman and CEO
    • Named Official Office Products Partner of NASCAR; sponsored the No. 99 Office Depot Roush Racing Car
    • Relaunched the Taking Care of Business tagline
    • Opened 1,000th store
    • Listed on Companies That Care Honor Roll
    • Sales of $14.3 billion
  • OFFICE DEPOT - MID-2000 S
    • 2006
    • Announced $4.5 million in contributions to higher education
    • Sales of $15 billion; 1,158 stores; 50,000 employees
    • 2007
    • Opened first store in Puerto Rico
    • Opened new Global Sourcing Office in Shenzhen, China
    • Named to the EPA's list of the Top 10 Retail Partners in the Green Power Partnership
    • Sales of $15 billion; 1,222 stores; 50,000 employees
  • OFFICE DEPOT - 2008
    • Introduced "Office Depot Green" product line
    • Launched Office Depot Tech Trade-In Program
    • Announced alliance with Netbizz Office Supplies in Singapore
    • Formed partnership with AGE in Sweden
    • Established alliance with bigboXX.com in Hong Kong
    • Opened new facilities in Großostheim (Germany) and Zwolle (The Netherlands)
    • 1,267 stores
    • Almost $15 billion in sales
    • More than 51,000 Employees
  • OFFICE DEPOT - 2009
    • Opened first retail store in Kuwait
    • Celebrated first season as sponsor of Tony Stewart, driver of the No. 14 Office Depot/Old Spice Chevrolet Impala SS in the NASCAR Sprint Cup Series™
    • Expanded line of digital cameras, writing instruments and specialty papers
    • Announced new assortments of teaching products and plastic storage solutions
    • 1,152 stores, over $12 billion in sales; more than 41,000 employees
  • OFFICE DEPOT STORE COUNT
  • GROWTH IN OFFICE DEPOT’S RANKS
  • OFFICE DEPOT SALES HISTORY
  • OFFICE DEPOT - STOCK PRICE HISTORY
  • OFFICE DEPOT - STOCK PRICE 2010
  • OFFICE DEPOT - STOCK SPLITS May-92 2: 1 Stock Split June-93 3: 2 Stock Split June-94 3: 2 Stock Split April-99 3: 2 Stock Split
  • OFFICE DEPOT - CURRENT STOCK PRICE
    • OPD - $4.95
    • Average volume over 6 million shares per day
    • 52-week range: 3.36 – 9.19
    • Office Supply Sector
    ANALYSIS OF THE INDUSTRY
    • The market structure in which the firm operates: An oligopoly of large international retail-chain businesses that offer:
    • general office supplies
    • technology products
    • office furniture
    • and services
    • to the public through its retail stores
    • to other businesses through one or more divisions
    • and, in some cases, to schools.
    MARKET STRUCTURE
    • Office Depot competitor and industry leader Staples, Inc., places itself among 21 peers – which it reviews every three years. They are retailers with which the company competes for customers or executives.
    THE LARGER UNIVERSE
    • Similarly, OfficeMax illustrates its relationship with other office supply superstores and other retailers, which their investor report calls “niche players.”
    MAJOR COMPETITORS ARE OBVIOUS IN THIS GRAPHIC.
    • This slide, part of a 2010 Office Depot shareholder presentation, shows how the Office Supply Sector fits into the overall U.S. office supplies market.
    ODP : OFFICE DEPOT SPLS : STAPLES OMX : OFFICE MAX
    • The valuation of the office products industry at $309 billion, based on revenues, came the year the overall economy was slipping into a recession.
    CAGR: COMPOUND ANNUAL GROWTH RATE
    • Not surprisingly, OfficeMax relates industry sales during the recession to the employment of office workers.
    THEY TOOK A HARDER HIT THAN WORKERS OVERALL.
    • Competitor OfficeMax also sees an opportunity for industry growth during recovery by expanding office supply sales internationally, an area that is increasingly being explored by Office Depot.
    ALTHOUGH THE BIG THREE ARE LOOKING TO THE WORLD AT LARGE FOR OPPOR-TUNITIES, THEIR PUBLIC FACE REMAINS THEIR DOMESTIC SUPER-STORES .
    • Office Depot: 1,330 (144 in Florida)
    • Staples: 1,555 (97 in Florida)
    • OfficeMax: 933 (55 in Florida)
    NUMBER OF STORES IN THE U.S.
    • A merger between Office Depot and Staples was denied by the FTC in 1997 because, it said, the HHI value would exceed 5000 in 42 metropolitan areas for office supply superstores after the merger.
    • The U.S. Justice Department considers a value over 1800 for any industry to indicate their market is highly concentrated.
    • Overall, we estimate the HHI for office supply superstores to be about 4300 and calculate the individual scores of the big three to be:
    HERFINDAHL-HIRSCHMAN INDEX
  • HERFINDAHL-HIRSCHMAN INDEX
    • Exploring direct sourcing
    UNIQUE CHARACTERISTICS OF SUPPLY:
    • In its own 2009 annual report, Office Depot mentions it is expanding the categories of products it sources and countries it utilizes.
    UNIQUE CHARACTERISTICS OF SUPPLY One “initiative to increase profitability involves direct sourcing, whereby retailers purchase goods directly from suppliers and cut out any middlemen. … Office Depot and Staples are very competitive in this regard, with about one-fifth of all goods sold coming from respective private labels.” -- wikinvest.com
    • 3 Words: Back to School
    SEASONALITY OF SALES
  • 2010: SLIGHT RECOVERY
    • “ Promotions played a significant role in the marketing of OP suppliers. And although results were a little mixed during the bid to drive early traffic in July, promotions did play their part in the strong September.”
    • -- OPI Magazine
    AS BTS GOES, SO GOES THE YEAR
    • The intense competition from other retailers in areas such as electronics makes this traditionally busy time second to BTS.
    HOLIDAY SEASON
    • Sales & profits, demand factors, investor analysis
    OFFICE DEPOT: FINANCIAL ASPECTS
    • Historical &
    • Current
    SALES & PROFITS
  • SALES HISTORY Strong historical revenue growth until recent downturn in economic conditions
    • Revenue (Year-over-Year)
    • Total company sales of $2.9 billion decreased 4% vs Q3 2009
    • Year over year sales change improving in recent quarters
    • Profit (Year-over-Year)
    • Fifth consecutive quarter of year-over-year margin improvement
    SALES & PROFIT ANALYSIS
    • Strategic Initiatives
      • Offering exciting new assortment in technology
      • Increasing brand awareness using direct mail and broadcast media
      • Nationwide rollout of U.S. Postal Service offerings in retail stores
      • Increased marketing of Copy and Print Depot and Tech Depot services
      • New point-of-sale system to provide customer recognition, including Worklife Rewards Members
      • Integrating marketing efforts with BSD’s Direct business to reach small business
    NORTH AMERICAN RETAIL DIVISION
    • Strategic Initiatives
      • Implementation of large market business development teams
      • Stronger focus on National Account business development
      • Continued focus on growth in the small-to medium-sized business customer space
      • Continued growth in the Federal Government sector
      • Adding sales resources in the area of cleaning and break room supplies
      • Continuing growth and increasing momentum in Copy and Print business
      • Launching new marketing programs and loyalty programs
    NORTH AMERICAN BUSINESS SOLUTIONS
    • Strategic Initiatives
      • Focused on winning new customers by refining business model to become more customer centric, with better segmentation, refined and coordinated contacts, refreshed branding, improved pricing and more robust e-commerce tools
      • Replacing analog equipment with voice over IP digital telephony in all our major European markets. This will allow automated call distribution solutions to route incoming service requests to the first available agent with the appropriate skill set
      • Increasing Office Depot’s global reach and capitalizing on market opportunities
    INTERNATIONAL DIVISION
    • Economic Indicators & Cost-Cutting Measures
    DEMAND FACTORS & IMPACTS
    • Macro
    • Economic Indicators
    DEMAND DRIVERS
    • North American Retail and Business Solutions
      • Office Depot’s U.S. business tracks closely with a number of macro economic metrics
    • International demand drivers
      • Impacts of foreign exchange translation
  • ELASTICITY
    • Office Depot elasticity is theorized to be >1.
    • There are many competitors
    • Easy for buyer to go elsewhere
    • Ease of entry into the marketplace
    • Capital Spending
      • 2010 capital expenditures will be allocated in order to fund ongoing maintenance and other investments needed to drive strategic plan and improve return on investment
    • Created a Business Process Improvement (BPI) Organization
      • Currently identified $80 million of cost savings opportunities from indirect spend reductions, finance process improvements and IT integration
      • Identified working capital reduction opportunities of about $50 million
      • Targeting a $100 million cost savings annual run rate by late 2013
    • Supply chain initiative
      • Automated order fulfillment is more productive, accurate and flexible than other warehouse automation
    COST CUTTING EFFORTS
    • Sales Mirror Economic Recovery
    INVESTOR ANALYSIS
  • INVESTOR OUTLOOK
    • Investor Projections
      • Expect sales to rise 1.3% in 2011, following a projection of a 3.9% decline in 2010
      • Project a slight widening of gross margins in 2011, reflecting inventory optimization and increased private label sales, slightly offset by a product mix shift to lower-margin goods
      • We think the loss of market share and macrorelated challenges have created an overhang of uncertainty, as has the recent departure of the firm's chairman and CEO
    INVESTOR OUTLOOK