In a surprise move, $14.4 billion office products conglomerate Office Depot on Sept. 12 said it planned to close the domestic operations of its Viking Office Products business and merge it within its Office Depot operations.
The Delray Beach, FL-based cataloger/retailer, which acquired Viking Office Products in June 1998 for $3 billion, mails an estimated 296 million catalogs under the Office Depot, Viking Office Products, Tech Depot, and Guilbert brand names. Last year its direct-to-consumer sales reached $4.0 billion.
Office Depot said it has no plans to consolidate the Viking and Office Depot brands in Europe, where the Viking brand gave Office Depot entry into numerous foreign countries.
The migration of Viking customers to Office Depot will begin immediately. Office Depot expects to complete the process by the end of 2005 or early 2006. The company will close two warehouses and an undisclosed number of call centers. The charges associated with exit and consolidation of activities will total approximately $19.3 million.
In a Securities and Exchange Commission filing, Office Depot said the distinction between its Office Depot and Viking catalog offerings “has become less clear to consumers.” Office Depot spokesperson Brian Levine says there is about 80% product overlap between the two brands.
“The Viking customer is a ‘higher touch’ customer,” Levine says. because Viking customers generally require more in the way of service, with personalized attention from call center reps, Office Depot spends more money servicing the Viking customer than the Office Depot customer.
On the other hand, Viking customers spend more than Office Depot customers, according to Levine. Nonetheless, Office Depot contends it will spend less money migrating and transitioning Viking customers than it would in continuing to operate the brand. Among other marketing efforts, the company will try to migrate Viking customers with dollar-off and percentage-off discounts.
Not everyone is convinced of the wisdom of the move. “Eliminating a known and trusted brand that has been with us 20-plus years is a mistake,” says Mark Amtower, a Highland, MD-based consultant specializing in businesses-to-government marketing.
“The bean-counting approach will not work here. Office Depot is making a quantum leap in thinking they are going to migrate a significant number of buyers,” Amtower continues. “The attrition rate is going to be a lot higher than their model says it is.” He estimates that Office Depot could lose up to 40% of the Viking business.
Office Depot also said it would close 16 U.S. stores and 11 stores outside the U.S. by the end of the year. The expected costs total approximately $30.1 million.