Office Depot Case Study Introduction The Office Depot case study is designed to measure the skills of success of the well known office supply chain. This study analyzes key strategic issues that are important for Office Depot’s sustained growth and success. Office Depot maintains its success as the result of their relentless focus on a simple formula: To offer the broadest selection of high-quality office products, services and information that their customers need at everyday low prices. Office Depot’s mission statement is to be the most successful office products company in the world. Office Depot’s simple formula and mission statement has created an industry leader. Corporate History Since Office Depot was founded in 1986, they have revolutionized the way office products were sold through warehouse retailing. Warehouse retailing involves buying directly from manufacturers in high volumes, this has been successful due to its low overhead costs and savings to customers. Low overhead trickles down to the consumer, who is able to purchase its every conceivable office needed product at up to 60% off of list prices.
Office Depot had opened 10 stores within its first year, following the immediate success of its first store in Florida. With direction from Office Depot’s Chairman and CEO, David I. Fuente, Office Depot opened 16 additional stores in 1987. By 1989, Office Depot had a total of 67 stores. In April, 1991, Office Depot merged with another growing office supply chain, Office Club.
This merge put Office Depot on top as the largest office products retailer in North America. In 1992, Office Depot went international. Office Depot entered the international arena when it acquired the Great Canadian Office Supplies Warehouse chain in Canada. After successful conversion of five Canadian Office Supplies Warehouses to Office Depots in Canada, Office Depot opened additional stores throughout the country. Office Depot continued its expansion when it entered the market in Colombia and Israel in 1993. By 1997, Office Depot had opened locations in Poland, France, Hungary, Japan and Thailand. The company ended 1999 with 825 stores in the U.S. and Canada alone.
This expansion is one of the strategies used by Office Depot to lend to its successful growth and plans to continue its expansion in the future. Business Strategies In the highly competitive market of office supplies, Office Depot has proved itself to be at the top of its game, holding a strong second place over their biggest competitor, Staples. Competitors, such as Staples, have shown only a 6% increase in sales over the past year while, Office Depot reported sales of $10.3 billion, a 14% increase over the $9.0 billion reported for 1999. They have reached this level of sales and success by achieving major goals and objectives set by the company. Office Depot has developed excellent standards for customer service, successful advertising campaigns and expanded into global markets.
Each of these accomplishments have aided Office Depot in gaining a strong foothold in the office supply market and brought them one step closer to becoming number one. In spite of Office Depot’s growth and success, its greatest challenge may be yet to come. In order to surpass Staples and become number one in the industry, Office Depot must carefully and successfully plan and execute two key strategic plans. The first is a continued level of excellent customer service and increased convenience for their customers. Office Depot needs to maintain a knowledgeable and helpful staff, comprised of quality people that can provide an atmosphere in the stores that makes customers feel welcome.
A welcome atmosphere with a knowledgeable staff is necessary in order to continue to build a larger customer base for the company. In a world of technology, customers are constantly looking for ways to receive their merchandise quicker. To maintain its current success, Office Depot must remain on top of the changing technology and expand its already established Internet ordering system. Customers, at the present time, can look through an online catalog, place an order and have it shipped directly to their home or office. Several companies, like the telecommunication company, GTE, have contracted with Office Depot in order to offer discounts of up to forty percent to their employees when they place their orders online. With this service comes the guarantee that the order can be picked up at any store with in two hours.
With technology comes a need for extreme efficiency so that products reach the consumer as quickly as possible. Office Depot currently maintains this demand by operating a national business to business delivery network that includes over 2,000 trucks, 1,000 account managers, 30 customer service centers, more than 60 local sales offices and seven regional call centers. This national business to business delivery network is part of Office Depot’s Business Services Group (BSG). This group caters to the needs of the delivery customer. Delivery sales through BSG are Office Depot’s second largest contributor of sales and operating profit. The second major strategic plan that Office Depot must implement is to continue to expand into markets that have not been tapped by other companies in the industry.
In August of 1998, Office Depot completed its purchase of Viking Office Products, one of the industry’s leading direct mail marketers of office products. This merger has helped Office Depot’s total sales for the first quarter of 2000 increase 17% to $3.1 billion from the $2.6 billion reported for the same period in 1999. Through this wholly owned subsidiary, Office Depot now has operations in 19 countries including Australia, Austria, Belgium, Canada, Columbia, France, Germany, Hungary, Ireland, Israel, Italy, Japan, Luxembourg, Mexico, the Netherlands, Poland, Thailand, the United Kingdom as well as the United States. Overall, this increase in its domestic and international store base has been Office Depot’s largest driver of their overall sales. Although it has been a relatively short time since the acquisition, Office Depot has been very careful with the transition and take over of their new company. Instead of sweeping through the company and eliminating employees and leaders from Office Depot personnel, they have simply combined the executives from each company and integrated employees together from each company.
This was a smart move for Office Depot because many times when companies merge, there is a great deal of upheaval and profits and some of their customer base may be lost due to disgruntled workers and their families. In order to expand and gain a dramatic edge on Staples, Office Depot must expand into those industries it has not tapped, such as the manufacturing of office products. Manufacturing of their own products would allow lower costs to consumers due to decreased shipping and receiving costs. This would result in less mark up cost and an ability to sell high quality products while maintaining lower prices. Growth and Future Expansion Aside from the profit expanding possibilities of manufacturing of its own products, Office Depot has potential to grow in many areas. Office Depot’s continuous growth and expansion lends to its becoming a household name.
Store recognition and convenient locations are key to any business’s success. This growth includes the company’s continuous potential due to its growth in the international market. Office Depot made excellent preparations prior to entering its current international markets, this research and compatibility are necessary in order for concurrent efficiency of smooth and profitable entries into new international markets. For example, in November of 1998, Office Depot purchased their joint venture partner’s interest in their France Office Depot retail stores. This acquisition did not call for the closure of any existing operating facilities.
Instead, Office Depot and Viking headquarters were consolidated to offer a more conveniently located headquarters. Office Depot also was able to integrate the warehousing and delivery of Office Depot and Viking brand merchandise in each of their existing warehouses. Also, internationally, 53% of total sales increases in Office Depot’s International Division resulted from the start-up of their Japanese catalog operations and the consolidation of their Japanese retail operations in April, 1999. Catalog and store sales increased 6% and 20% respectively, however, unfavorable rates of exchange negatively affected these numbers. This is a continuous area of concern for Office Depot to consider as exchange rates and other competitive economic conditions which exist in international markets may impact sales in the future as well. The establishment of the Euro, the fixed conversion rate between existing European currencies, may affect their ability to price products differently in various European markets. Local taxes, customer preferences and product assortment may reduce the magnitude of price equalization.
It is not likely that the Euro will have a material effect on their financial position. Besides physical store locations, one of the fastest ways to become internationally recognized and accessible is through the Internet. Currently, 20% of consumer transactions are conducted electronically. From a marketing and advertising standpoint, the Internet can offer easy and economical advertising as well as entrance into new markets. Office Depot has a great many opportunities available to them through the Internet. However, there are many similar sites on the Internet so it is vital that Office Depot maintains an upper hand by offering easy browsing and other key points.
Consumers are looking for convience in the Web. Consumers want their information presented to them quickly and easily. Office Depot currently is ranked #1 of the Top 100 Electronic Business Innovators by E-Business 100. Neither Staples nor Office Max make this list. In order to strengthen their competitive position in pursuing new business domestically and internationally, Office Depot is expanding their highly successful electronic commerce platform.
Office Depot’s websites, www.officedepot.com and www.vikingop.com, provide individual customers with many convenient and time-saving capabilities. These websites offer real-time inventory, address and payment authorization, access to previous orders, access to status of orders, flexible delivery and returns, special speed features and cross-selling product suggestions. One feature of the website is the Office Solutions section which currently offers articles on topics which are particularly important to small businesses. These articles provide ideas in areas such as getting organized and tax time. By grasping what the consumer wants, Office Depot enhances its opportunity for growth by offering these special services for small businesses.
As small business is such a large, growing part of the business world and as more of these businesses gain international access through the Internet, there is a growing need for these types of services. In the future, Office Depot plans to improve and expand its Internet capabilities to offer assistance to a broader customer base. The range of services and products available through their Internet sites will be expanded greatly in the future. Another possible area for growth on the Internet would be for Office Depot to team up with universities or student prone sites in order to offer special discounts and or promotions. There are many sites specifically targeted at college students.
These sites often are linked with all sorts of merchandise which is ideal for the college student. This is an area of opportunity as college students are always looking for ways to save time and money. Additionally, Office Depot currently has a five year agreement with AOL to develop a small business site, offering business-related content and programming specifically addressing the needs of a small office consumer. This small business site will offer buying guides and directories as well as a quick checkout tool. The site will provide millions of small businesses with streamlined access to the tools and resources they need to remain competitive, while offering a broad array of Office Depot merchandise.
The small business proves promising however, Office Depot may be losing out on a potential profit maker by overlooking resources already available to them. Office Depot could gain substantially by offering special services within its stores and by out sourcing employees to help small businesses. While the Internet is widely used and recognized, there is still a need for in store service in the area of small business which Office Depot cannot let fall to the wayside. Letting the Internet be the sole focus on small business would be detrimental. Another area of expansion that Office Depot should consider would be the possible merger with a computer or software company. As computers are used in nearly every aspect of the business and personal world today, a merger with a computer superstore such as CompUSA could prove to be powerful and profit worthy step. This merger would open a new consumer base and much sales capability.
Office Depot has already proven its ability to merge with another company successfully and profitably when it merged with Viking Office Products. The only foreseeable problem could be the mammoth company a merger of this sort would create. It may be difficult to maintain its strong customer service while it continues to grow and expand. Ethical Scenario We have seen problems when large companies join in such instances as the Microsoft upheaval. It is necessary that Office Depot maintain high ethical standards i …