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Retail Trends

Power Players Office Supply

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Office supply power players are under siege. The prolonged economic malaise has slowed the growth of smaller businesses, precluding the need for more supplies, and general merchandise retailers cherry-pick popular merchandise classifications from among office supply staples. Even small e-commerce merchants are able to undercut the industry giants saddled with fixed costs of store networks and distribution facilities. As a group, office supply retailers have sustained six consecutive years of same-store sales declines.

The response among office supply stores has been threefold: reduce store space, both in terms of number of stores and the size of individual units; increase efforts in all the various formats of digital retailing; and provide more services to relieve the pressure of relying on sales of commodities like paper and ink.

The hardest-suffering of the Big Three is Office Depot, which has entered into an agreement to merge with OfficeMax. Shareholder approval is not as great a concern as that of regulators from the SEC and the Federal Trade Commission. Office Depot’s financial woes have continued into this year, as the company posted a first quarter loss of $17 million in contrast to earnings of $41 million in the year-earlier period.

OfficeMax is not ready to abandon the world of bricks-and-mortar: This spring the company unveiled a new format called OfficeMax Business Solutions Center, occupying 5,000 sq. ft. in an enclosed mall in downtown Milwaukee. Services include web hosting, customizing websites and cloud storage.

Staples posted a profit in its first quarterly report of this year, but after including extraordinary costs for restructuring and store closings, it was down considerably from the previous year. Still, Wall Street saw strengthening in Staples’ core earnings, and some analysts believe Staples could benefit from any Office Depot-OfficeMax merger that results in store closings.