Office Depot Essay

Comprehensive business Analysis: Office Depot]| Background Office Depot was founded in 1986 by F. Patrick Sher, Stephen Dougherty and Jack Kopkin in Boca Raton, Florida. The three envisioned a warehouse style store that could offer office supplies at discounted prices. The first store was opened in October in Fort Lauderdale. It was immediately successful and before the year was over, two more stores were opened in Florida. While Office Depot was one of the first companies to tap into this new market, they were not the only ones.

Rivals, Staples and Office Club, both opened their first stores within three months of Office Depot. All had the same basic strategy: Buy products directly from manufacturers rather than wholesalers and offer them at lower costs than conventional retailers. Each company was started in a different corner of the country and each found the market to be promising. It was soon obvious to Office Depot that this market had a lot of potential, the next step was growth. In 1987, seven more stores were opened in Florida and Georgia. Unfortunately, CEO Pat Sher was unable to see the company grow to what it is today.

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He died of Leukemia about a year after the opening of the first store. He was soon replaced by David Fuente and the company continued its growth. Fuente’s plan was to open as many stores as quickly as possible. He did not want to wait around and see how things played out. So far, all of the stores had generated profits, so he wanted to establish as much dominance in the market as they could before imitators could establish themselves. The next year the company expanded into Kentucky, North Carolina, Tennessee and Texas. Then in 1989 and 1990 the company opened at least 50 new stores each year.

In 1988, the company went public and had an initial offering of 6 million shares at $3. 33 per share. The company was the first of the three main competitors to turn a profit for three consecutive quarters. Much of that had to do with the fact that the Office Depot stores were really just huge warehouses with products stacked either on the floor or on steel shelves. Not much attention was put into decorations or flashy advertising. Instead the stores were kept simple yet functional and low commercial rents in the South, where most of the tores were located, helped keep overhead costs low even though the stores where quite large. By the end of 1990 Office Depot had 122 stores in 19 states. The company was expanding rapidly and with new companies, OfficeMax and BizMart, entering the industry, competition grew stronger. 1991 saw the merger of Office Depot and Office Club. Office Club stores were primarily located in the western states, an area Office Depot had yet to target. This merger gave Office Depot immediate access to that specific market area.

In addition to the 59 Office Club stores, Office Depot opened 57 new stores and recorded sales of $1. 3 billion. In 1992 Office Depot began to shift more of its focus towards the sales of computers and other electronics. Store layouts were redesigned to accommodate more machines such as printers and copiers. Also the company acquired the Canadian company, HQ Office International. This was Office Depot’s first move to expand internationally. Office Depot also began to look for ways to attract larger businesses, when previously most of the company’s customers were businesses with 20 or fewer employees.

Contract stationers were hired to attract larger corporations. In 1996, Office Depot agreed to be acquired by Staples, the industry leader. However, the Federal Trade Commission (FTC) deemed that this buy out would give Staples too much price control in many metropolitan areas. The two companies were numbers one and two as far as market share went and by removing one, too much power would be given to the other. The FTC sued to stop the deal and in 1997 a federal judge granted a preliminary injunction to block the deal. Both companies would have to continue on their own.

Regardless of the failed buy out plans, Office Depot managed huge overseas growth between 1995 and 1998. Through licensing agreements stores were opened in Poland, Hungary and Thailand and through joint ventures also opened in France, Japan and Mexico. They also acquired Viking Office Products Inc. This was the world’s largest direct-mail office products marketer. It was based in California, yet it had 11 delivery centers in Europe and Australia. During the same year, 1998, Office Depot launched its first website and in 1999 entered a contract with United Parcel Service Inc. UPS), which allowed them to offer UPS packaging and shipping services in Office Depot stores. By the end of the decade sales were topping $10 billion and the company boasted 825 stores in the U. S. and Canada and 32 overseas. The early 2000’s did not start out quite as well as the 90’s had finished. After the fallout with the Staples deal, the company scrambled to make up for lost time and seemed to open many stores with reckless abandon. Often store location was chosen poorly and many were placed in areas were competitors had already established themselves.

Competition from other warehouse retailers such as Costco and Sam’s Club were also causing Office Depot to cut prices on paper and ink. In mid 2000, after earnings had dropped 22 percent, David Fuente was removed from his position as CEO and was replaced by Bruce Nelson, a former executive at Viking Office Products. Nelson immediately began making changes. He planned to close 70 of its North American stores, reduce the size of new ones by 5,000 square feet and cut 1,800 products from the shelves. The following year, overseas growth continued with the purchase of Sands & McDougall, an Australian contract stationer.

Office Depot operations expanded into Ireland, Italy, the Netherlands and France, through Viking into Switzerland, Spain and Portugal in 2002 and through its Mexican joint venture partner Grupo Gigante, S. A. de C. V. into Costa Rica and Guatemala. In 2003, the acquisition of their licensee in Hungary and Guibert S. A. in France helped the company set a solid foundation for future growth in Europe. Neil R. Austrian took over as interim CEO in 2004 and the company restated its commitment to find ways to improve financial performance and growth.

Advertising was a big focus of 2005 and the Office Depot reintroduced its slogan “Taking Care of Business”. They also announced a multi-year agreement with NASCAR to become the sport’s first ever Official Office Supply Partner. That same year Steve Odland was hired as Chairman and CEO. Continuing growth overseas highlighted the next years. The company’s presence not only grew in Europe, but also expanded through mergers, licensing agreements and acquisitions to many parts of Asia and even the Middle East. Today the company is still growing and is opening state of the art stores in new untapped markets.

In 2010, Neil Austrian reassumed the job of interim CEO and despite rumors of a possible buyout continues to guide the company’s expansion. Industry Analysis The office supplies industry is one dominated by three main players, Staples, Office Depot and Office Max. Their goal is to offer quality office supplies and services to a broad range of consumers. While they do offer school supplies for students and sell personal electronic equipment, the majority of their sales come from local businesses that buy supplies in bulk.

While in the past this industry has been extremely profitable, the current economic struggles have had their effect on these companies as well. Each of them has seen their sales growth slow or even fall. When businesses that purchase products from office supply chains suffer, so do the office supply companies that cater to them. Local businesses’ growth have slowed and no longer need as many supplies, and until the economy get back on its feet, this trend will continue. The economy is slowly getting back to where it was, and it is showing in the office supply industry.

Companies are recording small increases in revenue and for Office Depot, which has had a particularly tough time, quarterly losses are shrinking. Both are good signs for the industry. STEEP Analysis| Technology| Energy-efficiency| Recycling| Life-style| With the use of the STEEP Analysis four main environmental factors can be identified. Technology, energy-efficiency, recycling and life-style all play a part in determining the direction and success of the industry. Nearly all the factors that affect businesses will affect the office supply industry.

With the advances in technology over the past decade, this is an area that plays a huge role on the office supply retailers. The sales of computers, copiers, printers and all electronics make up a large percentage of total sales. When technology progresses at the speed it has been the industry profits. We live in a society where everyone wants the newest and best available product. It is important that office supply retailers keep up with the changes in technology so as to attract businesses that are always looking for the most innovative ways of doing business.

Energy-efficiency goes hand in hand with technology. As technology improves, so does energy efficiency. Every business is always looking for ways to save money. Energy efficient products are one way that they can continue to carry out their processes while cutting back on costs at the same time. Recycling is an issue that is always an issue for businesses. All businesses want to announce to potential customers that they are environmentally friendly. One way to do this is to purchase recycled products. The most prominent recycled product is paper.

The problem is, recycled products are often more expensive than normal ones and paper is no exception. Office supply retailers are constantly looking for ways to make these more enticing for customers. Finally, life-style plays a huge role in the industry. Not just anyone walks through the doors of an Office Depot, Staples or OfficeMax. Someone looking for one particular product will most likely visit another store that specifically provides that one kind of product. This industry caters strictly to business people looking for supplies for their company.

Therefore the industry markets their products purposely to accommodate this type of customer. Understanding that you cannot serve everyone is an important part of fine tuning marketing and advertising. Bargaining Power of Suppliers| Low| Bargaining Power of Buyers| High| Rivalry Among Competitors| High| Threat of New Entrants| Low| Threat of Substitute| Low| With the use of the Five Forces Model, an even better picture of the industry can be acquired. To begin, the bargaining power of suppliers is low. Manufacturers of office supplies need retailers like Office Depot to sell their products.

In addition, there is plenty of competition among suppliers. Not any one of them can charge higher prices for their product when there is other completion willing to offer lower prices. Also, some retailers such as Office Depot and Staples have established their own brand names and are able to sell their products at discounted prices by producing them themselves. Suppliers are then forced to keep their prices competitive with the retailer’s brands. All of these factors help keep supply costs low for the industry. Unfortunately the bargaining power of buyers is high.

The office supply industry is really only dominated by three main competitors, however, if consumers find their prices to be too high, companies such as Wal-Mart, Target and Costco are able to offer many of the same products for cheaper prices. Since office supplies constitute a large portion of many businesses’ costs, there is no hesitation to make a switch from one company to another if they are able to save substantial amounts of money. The lack of switching costs also keeps rivalry among these three companies at a high level. Office Depot, Staples and Office Max all offer the same basic products and services.

There are very few differences in these companies at all in terms of what they can provide to their customers. Any advantage that one may gain would be quickly duplicated by the other two and incorporated into their strategy or processes. It is very difficult for any of them to gain an obvious upper hand. The most important tactic for these companies is to be aware of new markets and respond quickly when one is located. Being the first to tap into a new sector is huge and makes it tough for competitors to compete in that particular area. With such a strong rivalry among these competitors, there is a relatively low threat of new entrants.

These three companies have a strong grip on the market and in some cases have oversaturated areas with stores. Yes, the industry has the potential to continue to grow when the economy regains its strength. However, a new business would have trouble getting started with such an established group already in place. The three powers of the office supply industry are quick to attack new markets and leave little room for any upstart company. While the office supply industry is not necessarily one that caters to new entrants, there are partial substitutes for the office supply retailers.

Wal-Mart and Costco are two examples of companies that are unable to offer the same quality or selection, yet offer some of the same products and often for lower prices. What makes Office Depot and the other office supply retailers unique is that you can visit one of their stores and can find everything you may need for your business. The prices may not be as low as they can find elsewhere, but the quality is higher and driving to a furniture store for a desk, an electronic store for a computer and then Wal-Mart for some staplers is not necessary. So, there is no real complete substitute for what these three can offer.

All in all, this is a profitable industry, if you are already established in it. Gaining access is a difficult task due to the strong hold the current competitors have on it. Industry SWOT The one real strength for the office supply industry is growth. There is usually some sort of growth in the United States and when businesses are growing, so is this industry. Historically the office supply industry grows 6-10% annually. This has slowed as of late, but it is only a matter of time till companies start to expand and develop again. The past consistency in this industry is what has kept Office Depot from panicking over their recent losses.

All of the companies have seen better times but they are confident that in time things will straighten out and the industry growth will resume. Right now they are just trying to maintain what they have and stay afloat long enough to see the economy get back on its feet. One weakness for this industry is the high bargaining power of buyers. Since many U. S. markets have become saturated with stores, buyers have many options and therefore companies are forced to lower prices to compete and lower prices equals less profit. In addition, office supply retailers cater to a very specific type of customer.

Small to medium sized businesses are what these chains focus on. When these businesses are struggling, office supply retailers have no other real customer to fall back on. Very few people shopping for their personal needs will visit one of these stores. Usually all they need is one or two items and prefer to just visit a Wal-Mart or other larger general retailer to get what they need for a lower price. The office supply industry just cannot compete with those prices and fails to draw in many customers outside the business sector. Opportunities for the industry occur when the economy is strong, and businesses are growing and expanding.

As previously mentioned, the success of this industry is directly correlated to the success of small and medium sized business throughout the nation. A good sign for the industry is that the future should hold many opportunities. Cities in the U. S. are growing and new markets are always being created. There is no sign of this expansion slowing anytime soon. There will always be businesses that need supplies and therefore there will always be companies like the ones in this industry to supply them with what they need. One example of a threat to the industry is what we are going through right now with the economy.

When economic growth slows, the industry struggles. There is no way around it. Another threat is the possible growth of retailers like Costco and Sam’s Club. These two only offer a small percentage of office products compared to the three that dominate the industry. However, there is always a threat of them deciding to offer more of the same products. If this were to happen, this would put more pressure on the office supply industry to find ways to convince customers that what they can offer in their stores makes up for the drastic price differences. Competitor Analysis Staples is Office Depot’s biggest competitor.

It was founded in 1985 by Thomas Stemberg and Leo Kahn. The two companies were started at nearly the same time and have been battling each other for market share for 25 years now. Staples currently holds the largest market share in the U. S. of the office supply retailers and in 2009 it saw $24. 3 billion in sales, a 5. 2% increase from the previous year. It was the only company that experienced any growth in sales during this period. In the U. S. , Staples operates 1,555 stores along with 316 in Canada. Internationally they operate a catalog and delivery business in 23 countries and have 328 stores in seven countries.

In many ways, Staples is nearly the same as the other companies in the industry. They offer the same basic products and services, have the same general layout in their stores and even have their own private brands. However, one difference is found in advertising. With their successes even in these tough economic times, they have been able to focus more attention and money on their advertising campaigns. The company’s slogan “That was easy” is familiar to anyone who owns a television. While the company continues to grow within the U. S. , expect to see more expansion overseas as they attempt to develop more sales in other countries. Wikinvest. om Figure 1 The previous graphs represent the revenue and net income for Staples for the past few years. OfficeMax is the third largest office supply retailer and has fewer than half the employees of Office Depot. The company was founded in 1988 by Michael Feuer in Cleveland, Ohio. It currently has two major divisions: one that operates the actual Office Depot stores and the other that distributes products directly to medium and large businesses through contracts. The retail division operates 1,010 stores, with 77 of those located outside the U. S. In addition they have 44 distribution centers worldwide with 13 located in other countries.

Both divisions have struggled in the tough economy and in 2009 retail saw a decrease in sales of 10. 2% and contracts fell 15. 2%. Overall the company recorded a net loss of $2 million in 2009. The company’s lack of significant presence outside the U. S. has not helped to offset the losses it has incurred in this economy. This coupled with the fact that OfficeMax does not use its own branding to the extent that Staples and Office Depot do, makes it tough for them to compete with their larger competitors. Wikinvest. com Figure 2 These graphs represent the revenue and net income for OfficeMax over the past years.

Internal Analysis Office Depot has managed to bounce back from the economic recession and start making profits, but analyzing this company internally speaks more to how it was able to do so. Part of the self proclaimed “Big 3” of office supplies, Office Depot (Office Max and Staples being the others) is struggling to maintain its success it saw pre-2009, mainly due to an influx of low-cost competitors and a growing competitive market. We are starting to see consumers spend their money at Target and Wal-Mart, the larger retail stores, because of ease of access.

To analyze Office Depot efficiently, we will conduct a SWOT analysis. Office Depot strengths are numerous, but first to understand the company we need analyze one very important strength, its ability to supply consumers and businesses with multiple outlets to conduct operations. Office Depot operates under North American Retail, North American Business Solutions, and an International Division. There are multiple brands that also are a part of Office Depot, namely Viking Office Products, Viking Direct, Niceday, Foray, Ativa, Bank Escapes, Worklife, and Christopher Lowell.

These allow multiple retail outlets, and expand their consumer base, appealing to people of every geographical region and their specific tastes. This is directly related to another strength, a diversified product portfolio. Office Depot carries a large amount of products related to the office supply industry at competitive prices. Other strengths of Office Depot are an innovative product design, market share leadership, and a strong management team. They are considered a juggernaut in the field of office supplies, and this brand equity is known throughout the world.

With large businesses, you find much strength, but also a considerable amount of weakness. Office Depot has run into financial trouble in the past, and is finding this a recurrent theme. They currently have to re-state their earnings for the last 3 quarters of 2010. This will cost shareholders a considerable amount of money (around 40 million aggregate), and was the result of multiple tax forms being denied by the IRS. We can sum this up by saying Office Depot has an over leveraged financial position Office Depot also has a low return on equity, which will be touched on later with the analysis of financial statements.

Another weakness is a limited operating margin, which is a result of not reaching their consumer base. Office Depot is also not diversified, which goes hand in hand with the limited operating margin. They are not creating new ways to reach their consumers, nor are they reaching them with new and different products. All weaknesses considered, there are plentiful opportunities for growth in this industry, and specifically for Office Depot. By tapping into emerging markets and expanding abroad (mainly in growing East Asia sectors) Office Depot can sustain long term growth.

They also have an opportunity to diversify products with their expansion, and potentially scoop up a larger market share. This can be done through acquisition of brands already established in different regions, which would lead to even more growth. Other opportunities lie in Asset leverage and energy efficiency. Finally, Office Depot will find that they can reach their consumers in new ways by embracing e-commerce, and expanding the traffic through their website. This will also lower costs of storage for products at their brick-and-mortar stores. The threats to Office Depot are plentiful, and start with the growing competitive market.

The simple fact that other companies like Wal-Mart and Target can offer the same products for cheaper with greater access to consumers is troubling to the office supply industry as a whole, but is damaging for office Depot’s sales. Cheaper technology also threatens Office Depot’s position as part of the “Big 3” with more and more sales being made over the internet with no regard for brand name. Another threat is price wars between office supply companies, which also leads me to believe other companies will not only lower price, but offer more products for cheaper.

Other threats are the rising cost of manpower, which threatens the large amount of stores Office Depot has compared to others who don’t pay for manpower but simply make sales using e-commerce. Other threats include economic slowdown and threat of imports. Financial Figures Figure B-1 (Yahoo Finance) Office Depot’s financial position is relatively good considering the hit it took in 2009. The advantage over its competitors is Office Depot’s print shop located in most of their retail stores across North America. For 2009, the North American segment of Office Depot’s retail sector posted total sales of $5. billion and an operating profit of $105. 5 million. In contrast, the business solutions sector did quite well posting sales of $3. 48 billion with an operating income of $98 million. “In the international retail segment, Office Depot operates a mix of company owned stores, joint ventures, franchised stores and other retailing arrangements” (NetraShetty). These branches of retail posted sales of $3. 5 billion and operating income of $120 million. Figure B-1 shows the relative value of ODP stock compared to other competitors in te specialty retail market. ODP is currently trading at $4. 4 with a 52 week range of $3. 36-9. 19. More importantly, for the trailing twelve months, ODP is experiencing a . 45% return on assets and a 2. 92% return on equity. The previous numbers are good for investors, but in relation to our overall thesis need to be compared to competitors in the industry. The current problem with Office Depot’s financial position is their lack of integrity, with SEC filings becoming a common occurrence and decreasing investor confidence. Figure B-2 (Yahoo Finance) Figure B-2 is a summary of most of the important financial figures of Office Depot and their main competitors.

As you see, Office Depot is second only to Staples in the office supplies industry, but in specialty retailing Wal-Mart is a price leader. The market share of $1. 52 billion is greater than Office Max, but less than Staples massive $15. 13 billion market share. I would argue that Wal-Mart is not a direct competitor because they compete directly with HEB and Target, but there is evidence to support that larger stores naturally can edge out specialty retailers. Unfortunately, “[Office Max and Staples (Industry leaders)] account for about only 10% of the estimated $300 billion market.

The rest of the market is divided widely between supermarkets, wholesale retailers, discount stores (including Wal-Mart) and smaller independent companies. ”(Yahoo Finance) While Wal-Mart offers some office supply products, it is deceiving to think all of their $188. 89 billion in market cap is from office supplies. A troubling fact, if looked at by investors, is the revenue growth, which is the lowest in the industry at 4. 3%. This is due to Office Depot’s low asset turnover ratio, which leaves products on the shelves for an extended period of time. Business-level strategy

Office Depot appeals to a wide variety of customers, and markets itself through the three distinct business forms talked about previously (Retail, Business Solutions, and International). The needs of these three segments of customers vary greatly, and need to be satisfied through different processes. Retail customers want ease of access to a store, as well as low prices and a relatively quick and easy shopping experience. Business Solutions customers want a significant relationship with their contact at Office Depot, which will provide the best outcome for any target company.

Business Solutions customers also need availability of representatives and low price of services. International customers are the last of Office Depot’s market segmentation, and desire products beneficial to that specific region at a favorable price. Like retail, International customers want a more simplistic shopping experience and helpful associates who can direct their queries. Before we analyze the business level strategy of Office Depot, we first need to find their core competencies. In a way, your business level strategy is defined by what that specific company can do well.

Core competencies provide a business with an advantage over competitors, and add a special value to the customer. These core competencies support the businesses efficiency, so taking a look in to Office Depot, we need to find what makes it successful. Office Depot finds its niche in the market through its various modes of business, as mentioned previously. There is most obviously a high ceiling on the International market, and much profit to be made abroad. What Office Depot does best though is its small-medium size business sales (b2b transactions).

This is a mix of having a good mix of products (Differentiation) and making it available at a lower price than its direct competitors (Cost leadership). This is an integration of two business level strategies, but works so well because Office Depot has brand power, and creates solid relationships with small business clients. In reference to the value chain, Office Depot’s strong suits lie in Sales, Service, and Technology. Previously, Office Depot has strayed from this and suffered financially. There were heavy losses recorded in the early 2000’s, as well as a slowdown in consumer spending.

Merchandising problems have plagued Office Depot, but now seem to be one of their strong suits. There was a point when the majority of an 1800 product installment was wiped out, mainly because office Depot’s executives knew they were stocking products that didn’t matter, and made Office Depot stray away from their core selling points. Office Depot’s merchandising strategy can be summed up by the words of executive Bruce Nelson, “Barbie software is not a core business item. We need to be the destination place for small and medium-sized business, not the destination for weekend shoppers. Products like children’s software crowd the shelves, and make stocking the essential office items more expensive. Additionally, Office Depot closed over 70 stores based on underperformance and costliness of operation. A new outlook shows that Office Depot is more focused on core business supplies, as well as improving performance of their stores. There was a new store platform unveiled in mid-2005 called the Millenium2 (M2). This was supposed to be a new format of store, more efficient to operate and easier for consumers to shop.

This is one of the newer business strategies to affect the company on a corporate-wide basis. M2 was successful in helping customers make purchasing decisions by placing products in “highly visible, strategically located pods, with core supplies at the outer perimeters of the store and furniture and technology at the center. ” This goes back to Office Depot’s core competencies, and wanting to make every store efficient and profit inducing. Office Depot’s top objective while carrying out this new M2 format was realigning the North American real estate portfolio.

There was a lack of drive in the executives and account representatives around the country for Office Depot, and thus over 30% of representatives were laid off. Locally, our Office Depot branch exhibits many qualities that plagued the corporate scene, as I’ve seen products in disarray, confusion among associates, and a large quantity of unrelated products (unrelated to ODP core competency) upon my visits. Local competition is also an issue here, but there are not many things that separate Office Depot from its main competitor, Staples.

Through further research, it became more apparent that the stores held the same basic items, but the stratification between the two stores started when I went online. Office Depot has a monumental selection of every office product, including office furniture. Staples, on the other hand, offers a limited selection of products, some at less expensive prices. Below, figures C-1 and C-2 denote some popular items, and their pricing points. Figure C-1 These similar Acer monitors are offered by Office Depot (left) and Staples (right). Even though the Office Max monitor is larger, it costs more ($143. 95) than the Staples monitor ($129. 8). This was a theme I found comparing the websites, while the Office Max store had a greater variety, and in many cases cheaper options, they did not offer the same comparable product for cheaper. Figure C-2 This is, again, a comparison between like products. Office paper sales make up a majority of b2b transactions for Office Depot, and this is a glimpse at the same popular brand sold at Office Max (left) and Staples (right). Here we see the same quantity of HammerMill Tidal paper offered for the same price, another reference to how hard it is to differentiate yourself in the office supply industry.

The price of $46. 99 is standard across the board for all suppliers, and the only way to break this is to use cost leadership and undersell the competitors. Corporate Governance Office Depot has three different Presidents which head their different divisions, with a CEO over all three presidents. Neil R. Austrian is the Interim Chairman and the Chief Executive Officer. Below him are the Presidents of the different divisions; Kevin Peters of the North American Retail Division, Steven M.

Schmidt of North American Business Solutions, and Charles E. Brown of the International Division. Mike Newman is the Chief Financial Officer and Executive Vice President. Elisa D. Garcia C. is also Executive Vice President, and the General Counsel &Corporate Secretary. Monica Luechtefeld is the Vice President of E-Comerce, and Daisy Vanderlinde is the Vice President of Human Resources. Next, the Board of Directors at Office Depot contributes regularly to the corporate culture and adds direction to their respected departments.

The Board of Directors is made up of independent directors who have no material relationship with Office Depot. The Board of Directors met nine times during the 2010 fiscal year, at which there was 75% attendance of directors in the committees in which they serve. Committee structure is noted in Figure D-1. Figure D-1 To provide a better understanding of the functions that these committees perform, there is a direct quote from each committee’s charter. Audit Committee: “The Audit Committee is appointed by the Board of Directors (the “Board”) of Office Depot, Inc. the “Company”) to appoint, replace and oversee the Company’s independent registered public accounting firm (“Independent Accountant”) and to assist the Board in monitoring the systems of internal controls, the integrity of the financial reporting process, and the financial statements and reports of the Company; the performance of the Company’s internal audit function (“Global Corporate Audit Services” or “GCAS”); assessing and mitigating business and financial risks to the Company; and the compliance by the Company with legal and regulatory requirements.

The Audit Committee shall provide an open avenue for communication among the internal auditors, the Independent Accountant, Management and the Board of Directors. ” Compensation Committee: “1. Review and recommend to the Board the overall compensation policies and philosophy for the Company. 2. Evaluate and approve the individual elements of total compensation on an annual basis, including special benefit and perquisite practices. 3. Review and make recommendations to the Board with respect to the form and amount of compensation and benefits provided to non-employee directors. . Periodically review composition and selection criteria for the peer group companies recommended to the Board. 5. Develop, approve, and oversee the Company’s stock ownership guidelines for the Company’s executives and non-employee directors. 6. Determine whether (and to what extent) incentive plan performance metrics were attained, and approve payouts for the executives under the Company’s variable pay plans. 7. Make recommendations to the Board with respect to incentive-compensation plans and equity-based plans that are subject to Board approval. . Serve as the Committee required under Section 162(m) of the Internal Revenue Code. 9. Grant all cash and equity awards under the Company’s long-term incentive compensation plans, including, but not limited to, grants of stock options and restricted stock awards under Section 16(b). 10. Review, recommend and implement clawback/recoupment policy for incentive compensation in accordance with applicable law. Corporate Governance and Nominating Committee: “1. Recommend to the Board the number of Directors to comprise the Board of he Company, and the appropriate Committees of the Board. 2. Oversee periodic self-evaluations by the Board, its Committees and individual Directors of their respective performance. 3. Consider the fitness of incumbent Directors to serve as a Director, including appropriate attention to the Company, the roles of Directors, conflicts of interest and attendance at meetings. 4. Monitor the employment or occupational status of Board members, which will be considered by the Committee in evaluating whether to nominate Board members for re-election at the next Annual Meeting. 5.

Oversee the annual evaluation by the Board of the performance of the Chief Executive Officer. ” Finance Committee: “The Finance Committee shall review with management all material matters relating to theCompany’s capital structure, financial policies, capital investments, business and financial plansand related matters and make recommendations to the Board relating to such matters as mayrequire action by the Board. ” Strategic Issues/Recommendations 1) Office Depot operates many of its stores out of large warehouse style buildings. The location we visited in San Antonio was massive.

When we walked in the front doors, we found ourselves in the corner of the store. It felt as though we had just walked in the back door. It lacked a significant amount of decoration and appeared rather bland. All in all, it felt more like we were in a distribution center rather than a retail outlet. Office Depot is able to cut many of their costs by operating out of these buildings and by not spending much money on decor. However, there is a fine line between cutting costs and cutting back so much that the experience is not pleasant for the customer.

This particular store has taken it too far. Other pictures of Office Depot stores online appear much more inviting than this one. The atmosphere is not one that would make a customer want to come back on another occasion. The solution to this issue is not one that would require much effort or funding. By simply adding a little more color to the store, they would begin to pull away from the warehouse look. The white walls made the whole store seem very plain and by adding some color in the form of paint or posters the entire store would feel more alive and engaging.

In addition to the walls, the entrance to the store is extremely lacking and at no point does a customer feel they are walking into an office supply store capable of meeting all their needs. By providing advertisements for specific sales near the entrance or adding large televisions throughout the stores highlighting new products, the customer might even be inclined to check out items they had not originally visited the store for. Many Office Depot’s have store layouts that appear modern and have a way of exciting the customer.

The first image closely resembles the style of store we visited in San Antonio. The second image is of an Office Depot that has focused on impacting the customer’s first impression in a positive way. This is what you would see the moment you walked in the front doors. Customers get the immediate sense that the store is organized and clean and they don’t feel as though they are walking through a warehouse. Completely remodeling the store in San Antonio to look like that one would be an extreme response. However, these simple suggestions can go a long way to brining customers back to the store.

Figure 3 The previous pictures display the vast differences there are between office depots in different cities. The first resembles the one we visited in San Antonio while the second provides an image of a much more modern and engaging layout at another location 2) Upon entering the Office Depot closest to the Incarnate Word campus, one thing was apparent, this store was not trying to appeal to the upper echelon Alamo Heights market. Already noting the “warehouse” experience, there was a lack of professionalism one would associate with an office or workplace.

Previously, we had never known that Office Depot had sold anything other than office supplies and computers, but were surprised to find phone accessories, a large selection of tablets, and cameras. A strategic issue in dealing with Office Depot is their marketing strategy, and store layout that is not centered on selling their high end/visible items. Technology such as Data pads/Tablets (IPad and Blackberry PlayBook) are tucked to the side, and there is no focal point or distinction between theendless amount of office supplies.

There is no order among the varying products, and I found myself walking through the store unable to find specific items, especially the high-end technology and office furniture. First we must establish the importance of the Retail segment of Office Depot’s business plan. Figure E-1 shows the relationship between Retail and Office Depot’s other segments. Figure E-1 Retail accounts for the majority of sales for Office Depot (42. 7%), so a strategy that maximizes performance of the Retail sector would be beneficial to all Office Depot stores, especially our local store.

Previously we spoke about store appearance, but store layout is another important aspect. By minimizing the importance of technology and other non-office supply products, Office Depot neglects a large part of their customer base. By changing the store layout to one that reflects the importance of all products, Office Depot would have a chance to implement a differentiation approach and capitalize on some of Staples market share. Figure E-2 shows the current market share in the office supply industry. Figure E-2

By using a differentiation approach and taking their technology products more seriously, they can increase their sales from technology, which are currently a small percentage of Office Depot’s total sales percentages. (Shown in Figure E-3). Figure E-3 This idea of differentiation is profitable for Office Depot, as they could even cut down the size of their huge “warehouse” stores, in favor of a smaller more concentrated approach. Our proposal is a brand new store layout, where all technology is focused in the middle of the store (Much like the M2 model).

From the center you have tablets, computers, cameras/camcorders, digital media, printers and accessories. Surrounding the technology, further to the back is the office furniture, and towards the front lie all the office supplies you would usually find scattered aisles. Even though selling a large quantity of office supplies at a cheap price is a core competency of Office Depot, they have a chance to vary their customer base while attracting new customers by expanding their technology products.

They also can satisfy their existing customers by altering their store layout to something more accessible and giving them a more personalized experience, while minimizing the factory/warehouse feel. An option for Office Depot is to partner with a smaller electronics retailer, specifically RadioShack. RadioShack is an established brand name with a wide base of customers, and could increase its customer base marketing products inside a large store such as Office Depot.

Value for RadioShack stock is provided in Figure E-4. Figure E-4 (Yahoo Finance) Having a large assortment of electronics from RadioShack would bring more foot traffic into the Office Depot store, which by our recommendation is smaller so more office supply products are exposed to those customers shopping for technology and vice versa. Thus, there is a spillover of customers who come in for one item and end up purchasing others, all because of a variety of product presented in a smaller, more efficient store.

A partnership would also increase the brand power of Office Depot, as electronics consumers would know that Office Depot carries a reputable brand in RadioShack, and can back up its products with equally important service. This would make Office Depot the destination to buy electronics and office supplies, rather than making two stops for either product. RadioShack is a good company to partner with because it is acquirable, would mutually benefit both stores (As RadioShack sells in small store fronts to a target group of customers), and would offer quality electronics to Office Depot