Office Depot’s Oct. 4 announcement of the departure of chairman/CEO Bruce Nelson did not stun some industry observers. After all, comparable-store sales at the Delray Beach, FL-based cataloger/retailer had declined for 15 consecutive quarters, and rival office supplier Staples was outpacing it in terms of growth.
“The performance gap between Office Depot and Staples is actually widening,” says Anthony Chukumba, a stock analyst with Chicago-based equity research firm Morningstar Chukumba. “I can’t say I’m terribly surprised at Nelson’s departure.”
Last year Office Depot’s total revenue grew 9%, to $12.36 billion. But most of that increase resulted from its June 2003 acquisition of European contract stationer Guilbert. In comparison, Framingham, MA-based Staples’ sales increased nearly 14%, to $13.18 billion. Office Depot’s direct sales increased 1%, to nearly $3.97 billion; Staples’ direct sales climbed 10%, to $3.74 billion. What’s more, while Office Depot’s operating profit margin was 3.8%, that of Staples was 6.1%
Office Depot director Neil Ausrian is serving as interim chairman/CEO; the company has hired Chicago-based executive search firm Heidrick & Struggles and hopes to find a replacement by early next year. Nelson, who was president of Viking Office Products when Office Depot bought it in 1998, was promoted to the top spot at Office Depot in July 2000. “He’s had plenty of time to put his stamp on the company and help improve results, but it just hasn’t happened,” Chukumba says.
Meanwhile, to boost its bottom line, Office Depot will outsource most of its call center functions, which means laying off up to 900 employees. In the short term, the move will cost the company $12.9 million in severance expenses. But within the next year, Office Depot expects to save $15 million. Office Depot already has about 800 third-party customer service reps working from their homes, says spokesperson Brian Levine. In June it signed a one-year deal with Golden, CO-based Alpine Access Corp. to provide inbound call center support using home-based agents. Office Depot has used a similar program with Miramar, FL-based Willow CSN since 2002.
And the company is going ahead with the M2 retail concept Nelson had announced in July; it plans to open 80 M2 stores by the end of 2004, Levine says, as well as 100 next year and 100 more in 2006. The M2 (which stands for “Millennium Two”) stores are designed more efficiently than existing Office Depot stores, with among other features lower shelving to make it easier for customers to access products.