Market Consolidation: Boise Buys OfficeMax

Boise Cascade’s acquisition of office supplies cataloger/retailer OfficeMax, expected to close in the fourth quarter, will no doubt transform the $7.4 billion paper manufacturer and office supplies marketer. But those in the industry are less certain of the acquisition’s effect on the office supplies market as a whole.

“I don’t think this deal will reshape the entire industry, but it will create another very formidable player that will have a strong retail presence it didn’t have prior to the acquisition,” says Mark Hampton, senior vice president of marketing for office products wholesale distributor United Stationers.

Through its Boise Office Solutions division, which includes the Reliable Office Products catalog, Boise, ID-based Boise Cascade had direct sales of $2.76 billion last year. With the addition of the $4.77 billion OfficeMax, which had $480 million in direct sales last year, Boise will gain a new outlet for its paper products. Shaker Heights, OH-based OfficeMax has nearly 1,000 stores.

The combined Boise-OfficeMax will become a more serious multichannel rival to $11.4 billion Office Depot (which includes 870 stores and the Viking Office Products catalog business) and $11.6 billion Staples (roughly 1,500 stores and the Quill catalog business). The deal also leaves $4.63 billion Corporate Express as the sole major player without a retail presence.

For its part, Broomfield, CO-based Corporate Express is already turning that distinction into an advantage. “There are significant business opportunities for an exclusively business-to-business-focused office products distributor,” the company said in a statement responding to the Boise/OfficeMax deal. “When the transaction closes, Corporate Express will be the only global, exclusively business-to-business office products supplier.”

The fate of Reliable

Some observers wonder if, in acquiring a retail chain, Boise may consider scaling back its Reliable catalog or eliminating it altogether. Reliable accounts for an estimated 20% of Boise’s direct sales — a not-insubstantial $552 million. But the OfficeMax catalog business, while smaller, shares the branding benefits of its larger retail division.

“It would seem to make sense for Boise to focus on OfficeMax rather than Reliable because OfficeMax has much better name recognition,” says Irwin Helford, chairman emeritus and retired vice chairman of Office Depot, who ran Viking Office Supplies from 1984 until Office Depot bought it in 1998.

“The Reliable catalog business has become less important to Boise and more of a support vehicle than the free-standing business it was in the past,” Helford continues. Acquiring OfficeMax, he notes, “seems to make Reliable even less important, since Boise will be more focused on the retail business. That means Boise will have to give less importance, time, and resources to Reliable.”

But consultant Victor Hunter, president/CEO of Milwaukee-based Hunter Business Group, isn’t so sure that Boise will shut Reliable or fold its direct business into that of OfficeMax. Hunter, who equates the deal to Sears’ blockbuster purchase of Lands’ End last year, speculates that Boise will keep the two brands separate, but leverage the two organizations within one strategy. The deal “will create some new opportunities for management talent. Some from Boise will be actively involved in OfficeMax, and vice versa,” Hunter says.

“My superficial understanding is that Boise will move very quickly on this,” Hunter adds, “and I’d be surprised if there isn’t a cohesive strategy in place by the end of the year.”

If Boise Cascade expects to make any changes to its businesses, the company isn’t saying so yet. “Over the next several months we will be reviewing all aspects of the business, how they work and how they will work together,” says Boise spokesperson Ralph Poore. Until the deal closes, he adds, “the businesses will remain the same and conduct business as they have been. No decisions have been made” beyond that.

Retail reduction?

The Boise-OfficeMax deal could make more of an impact on the retail side of the business than on the catalog/Internet side. Boise may find that it’s operating too many OfficeMax stores, Helford says, which could “lead to some good judgments as to which stores to keep and which to dispose of.”

Helford contends that “in the long term, this could bring some rationalization to the office products retail market, because there are too many two- or three-store markets where none of the players do very well.”

The big chains aren’t the only ones that may feel the need to close stores in order to better compete. “Boise’s new [retail] competency will create an additional level of competition to independent resellers,” says United Stationers’ Hampton. The number of smaller office supplies retailers in the U.S. has dwindled, he says, from 20,000 in the late 1980s, when the category killers were just starting to become gargantuan, to no more than 5,000 today. Additional price competition among the big boys could cause greater consolidation among the smaller players.

But independent catalogers and retailers aren’t necessarily doomed, Helford says: “My feelings haven’t changed on this in 20 years. If smaller catalogers have unique and better service levels, they’ll be fine. It’s those that are ‘me toos’ that won’t make it.”

Boise — OfficeMax by the Numbers

Boise Cascade, which has owned the Reliable Office Supplies catalog since 1994, is the second largest contract stationer in the U.S., providing midsize and large businesses with office products through a field-sales-led business model that uses catalogs to complement the sales approach. The company will pay $9 a share for the Shaker Heights, OH-based OfficeMax, a 25% premium over OfficeMax’s closing price of $7.18 a share on July 11. Boise Cascade will pay 30% of the price in cash and 70% in stock.

With nearly 1,000 retail stores, the $4.78 billion OfficeMax operates a $480 million catalog/e-commerce division targeting small businesses.

According to Catalog Age estimates, catalog and Internet sales at Boise Cascade Office Products, which includes the Reliable catalog, surpassed $500 million in 2000, then dipped to $487.5 million in 2001. For 2002, however, the company lumped its catalog sales to its considerably larger contract/field sales business, which propelled it to $2.76 billion in sales for 2002.

For the most up-to-date catalog news, visit Catalog Age online at www.CatalogAgemag.com

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