OfficeMax and Office Depot Merger Could Lead to Price Cutting and Re-branding

Feb 21, 2013 1:43 PM  By

Industry experts predict price cutting, store closings and possible re-branding will be part of a merged OfficeMax and Office Depot as they go after some of their biggest competitors in the office supply industry.

The companies promise a more efficient global provider in order to compete with the office supply industry, according to a joint press release.

OfficeMax and Office Depot announced this week the two companies will be merging to create an $18 billion global office supply company.

Some of the key benefits, according to the press release, include a merger of equal structure, enhanced financial performance, increased scale and competitiveness, broader global footprint and improved customer experience to build brand loyalty.

Stuart Rose, managing director for Tully & Holland said the direct-to-customer office supply seller is essentially going up against two to three of the big retailers since the merger.

Rose said “it’s going to be tough out there” since Staples has really dominated both companies over the years and has a strong online presence and Amazon is moving into B2B world.

Rose said since OfficeMax has stores in the United States and Mexico and Office Depot is world-wide, there is some overlap in customers but not as much as one might think.

“There is no room for expansion for retail for brick-and-mortar and they are not going to find another 500 locations in the U.S. to expand,” said Rose.

According to Rose, there are three or four competitors keeping the price low especially online. Amazon has their low prices every day and so the brick-and-mortar stores can’t stretch too far from that.

According to Robert Passikoff founder and president of Brandkeys, when speaking about overlap with customers, the customer base is one in the same. It is an un-differentiated category that is currently overstored and facing an entirely new set of channels. This allows Amazon and Costco Price Club to become the default channels.

“They are not even brands, they stand for cheap paper and paper clips. They are totally interchangeable,” said Passikoff.

Passikoff said with office supplies, there aren’t any aspects of emotional engagement to the brand having to do with the purchase.

Rose predicts the future of this merger will strip a bunch of duplicate costs and if they are smart, they will re-brand under one label but that could take time. Re-branding will allow them to go after Staples in a much stronger manner.

Passikoff expects to see store closings because they have already processed and re-engineered the operations.

“It’s not like you can make it slicker or more efficient. They will fall back into the lowest price paradigm,” said Passikoff.

Passikoff said he doesn’t see OfficeMax and Office Depot having the same products across the board with different branding when it comes to its catalogs and ecommerce presence.

“It takes way too much effort to try and establish a real and resonant emotionally engaged brand,” said Passikoff. “It’s one of the reasons why a lot of people are willing to sign on a celebrity than to establish a brand on their own.”