Office Depot CEO Nelson Resigns

Office supplies marketer Office Depot announced on Oct. 4 that chairman/CEO Bruce Nelson has resigned “by mutual agreement” with the board after a four-year stint. Nelson had been president of office supplies cataloger Viking Office Products when Office Depot bought it in 1998. He was promoted to the top spot at Office Depot in 2000.

The $12.4 billion Office Depot has lost market share to archrival Staples, according to director Neil Austrian, who will serve as interim chairman/CEO while the company searches for a replacement through a recruiter. Although Office Depot’s overall sales grew in 2003 by 9%, the $13.2 billion Staples enjoyed a nearly 14% gain. What’s more, Office Depot’s sales increase was for the most part buoyed by its June 2003 acquisition of Senlis, France-based Guilbert S.A., a contract sales business with annual sales of more than 1.4 billion euros.

“I can’t say I’m terribly surprised,” says Anthony Chukumba, a stock analyst with the Chicago-based equity research firm Morningstar. “He’s had plenty of time to put his stamp on the company and help improve results, but it just hasn’t happened. The final straw was in September when Office Depot brought down its guidance for the third and fourth quarters.”

Throughout Nelson’s tenure, two notable differences to rival Staples have continuously surfaced. While Office Depot’s North American Business Services Group, the unit that includes the Viking catalog, has struggled, Staples’ Business Delivery unit, including the Staples and Quill catalogs, has thrived. More notable has been the retailers’ operating profit margins.

Last year Office Depot’s operating profit margin was 3.8% compared with Staples’ 6.1%. And in the years prior, Office Depot labored through 15 consecutive quarters of declining comparable store sales. “So the performance gap between Office Depot and Staples is actually widening,” Chukumba says.

As for Nelson’s replacement, Chukumba believes the Office Depot board will look for candidates from outside the company. “The company is at a big crossroads and needs to make sure it gets the right person,” he says. “I’m encouraged by the fact that it has engaged a prominent search firm [Chicago-based Heidrick & Struggles[ and will take time finding a replacement. The company will need a very high-profile person to energize the troops and get investor confidence back.”

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