08 office depot

Office Depot – 2011

Forest David

A. Case Abstract

Office Depot is a comprehensive strategic management case that includes the company’s year-end 2010 financial statements, organizational chart, competitor information and more. The case time setting is the year 2011. Sufficient internal and external data are provided to enable students to evaluate current strategies and recommend a three-year strategic plan for the company. Headquartered in Boca Raton, Florida, Office Depot’s common stock is publicly traded under the ticker symbol ODP.

The world's #2 office supply company behind Staples, Office Depot sells office supplies through about 1,145 company-owned and licensed locations throughout North America and at another 95 locations overseas. The big-box retail stores sell to both consumers and small- and medium-sized businesses. In addition to typical office supplies (66 percent of sales), Office Depot stores offer computer hardware and software, office furniture, art and school supplies, and printing and copying services. Office Depot also sells office products through catalogs and call centers, the Internet, and a contract sales force. Office Depot of late has been closing stores and exiting markets due to weak economies and stiff competition.

B. Vision Statement (proposed)

To become the number one office supply store in the world.

C. Mission Statement (proposed)

Our mission at Office Depot is to be a global (3), leading innovator (7) as a supplier of office products and services (2) for consumers (1) and businesses of all sizes while creating a positive impact on the environment (8). We continually strive to deliver our customers favorably-priced products, beneficial services, and the latest in digital imaging and printing technology (4). We will earn the trust of our stakeholders by being open, honest, and faithful in all that we d0 (6, 8). We will also be responsible for achieving and sustaining unprecedented results (5) that create value to our customers, employees (9), and stakeholders through personal commitment, sensible thrift, collaboration, and shared leadership.

1. Customers2. Products or services3. Markets4. Technology5. Concern for survival, growth, and profitability6. Philosophy7. Self-concept8. Concern for public image9. Concern for employees

Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall.

D. External Audit

Opportunities

1. Gift card popularity increase of 7.3% in specialty retail during 2009.2. Online sales increasing faster than traditional retail sales.3. World economy is slowly on a rebound.4. "Emerging economies" have accounted for nearly 70% of world growth in the last five years.5. Value of the USD decreasing by .07 in long-term over the last five years against the EUR.6. OfficeMax reported negative net income in 2008 and 2009 with marginally positive net income in

2010.7. Staples has Debt of $2.54 billion.8. CEA projects a 6.0% increase in electronics sales for 2010 and a 3.5% increase in 2011 (to $186.4

billion).9. 5 yr. average ROA for OfficeMax is -4.93 compared to -2.93 for Office Depot.10. 5 yr. average ROE for OfficeMax is -21.61 compared to -7.91 for Office Depot.

Threats

1. Staples' EasyTech support service offering.2. 86% of companies plan to spend more on social media in 2011 for marketing and customer service.3. Staples has, as of 2009, 954 more retail stores worldwide than Office Depot.4. 5 yr. average ROA for Staples is 8.89 compared to -2.93 for Office Depot.5. 5 yr. average ROE for Staples is 16.38 compared to -7.91 for Office Depot.6. Unemployment rate continues to be just below 10%.7. Consumer spending has been flat over the last 2 years.8. National customer satisfaction has been flat over last 2 years.9. Staples had sales growth of 5% in 2010.10. Staples has around 20 standalone Copy & Print stores.

Competitive Profile Matrix

Weight Rating Score Rating Score Rating Score0.18 2 0.36 3 0.54 1 0.180.12 2 0.24 3 0.36 1 0.120.08 2 0.16 3 0.24 1 0.080.09 2 0.18 3 0.27 1 0.090.16 3 0.48 4 0.64 2 0.320.09 3 0.27 4 0.36 2 0.180.07 2 0.14 3 0.21 1 0.070.06 2 0.12 4 0.24 1 0.060.05 3 0.15 4 0.20 2 0.100.10 2 0.20 3 0.30 1 0.101.00 2.30 3.36 1.30

Price Competitiveness

Financial StabilityE-Commerce Customer Service Product Quality Advertising

Totals

Global Expansion Sales Distribution Organizational Structure

Critical Success Factors

Office Depot Staples Office Max

Market share


EFE Matrix

Opportunities Weight Rating Weighted Score

1. Gift card popularity increase of 7.3% in specialty retail during 2009.

0.03 2 0.06

2. Online sales increasing faster than traditional retail sales. 0.07 4 0.283. World economy is slowly on a rebound. 0.02 2 0.044. "Emerging economies" have accounted for nearly 70% of world

growth in the last five years.0.07 3 0.21

5. Value of the USD decreasing by .07 in long-term over the last five years against the EUR.

0.06 2 0.12

6. OfficeMax reported negative net income in 2008 and 2009 with marginally positive net income in 2010.

0.07 2 0.14

7. Staples has Debt of $2.54 billion. 0.07 2 0.148. CEA projects a 6.0% increase in electronics sales for 2010 and a

3.5% increase in 2011 (to $186.4 billion).0.06 2 0.12

9. 5 yr. average ROA for OfficeMax is -4.93 compared to -2.93 for Office Depot.

0.06 2 0.12

10. 5 yr. average ROE for OfficeMax is -21.61 compared to -7.91 for Office Depot.

0.06 2 0.12

Threats Weight Rating Weighted Score

1. Staples' EasyTech support service offering. 0.06 1 0.062. 86% of companies plan to spend more on social media in 2011 for

marketing and customer service.0.03 2 0.06

3. Staples has, as of 2009, 954 more retail stores worldwide than Office Depot.

0.04 2 0.08

4. 5 yr. average ROA for Staples is 8.89 compared to -2.93 for Office Depot.

0.03 2 0.06

5. 5 yr. average ROE for Staples is 16.38 compared to -7.91 for Office Depot.

0.03 1 0.03

6. Unemployment rate continues to be just below 10%. 0.04 2 0.08

7. Consumer spending has been flat over the last 2 years. 0.04 2 0.088. National customer satisfaction has been flat over last 2 years. 0.05 2 0.109. Staples had sales growth of 5% in 2010. 0.05 1 0.0510. Staples has around 20 standalone Copy & Print stores. 0.06 2 0.12

TOTALS 1.00 2.07

E. Internal Audit

Strengths

1. Acquired Swedish office supply company Svanströms Gruppen.2. Most North American retail stores contain a Copy & Print Depot.3. Total general and administrative expense decreased by 17% from 2008 to 2010.4. Recognized as America's Greenest Large Retailer in Newsweek Magazine's Annual Green Ranking.5. One of America's Top Corporations for Women's Business Enterprises by the Women's Business

Enterprise National Council (WBENC) for the ninth consecutive year.


6. Became an ENERGY STAR® Commercial Buildings Partner.7. Sells to customers directly or through affiliates in 53 countries.8. Operate global sourcing offices in Shenzhen and Hangzhou, China, which allows more direct control

of product sourcing, logistics and quality assurance..9. Produce a Green Book® catalog, which features products that are recyclable, energy efficient, or

otherwise have a reduced impact on the environment.10. Only 19 million in goodwill on the balance sheet.

Weaknesses

1. Being a seasonal business impacts operations and financial position.2. Total company sales were down 20% from 2008 to 2010.3. Cash flow from operating activities was $204 million in 2010, compared to $468 million in 2008.4. Closed 143 stores since 2009.5. EPS is -$0.22.6. Of the $253 million of 2009 Charges, approximately $194 million either have or are expected to

require cash settlement, including longer-term lease obligations that will require cash over multi-year lease terms.

7. North American Retail Division operates stores in only 46 U.S. states.8. North American Business Solutions Division sales decreased 16% in 2009 and another 6% in 2010.9. Recorded significant charges of $253 million and $199 million in 2009 and 2008, respectively from

reorganization efforts and asset impairments.10. ROE ratio of -9.5.

Financial Ratio Analysis

Growth Rate Percent Office Depot Industry S&P 500Sales (Qtr vs year ago qtr) -2.20 7.80 14.50Net Income (YTD vs YTD) NA NA NANet Income (Qtr vs year ago qtr) 148.90 26.50 48.60Sales (5-Year Annual Avg.) -4.02 8.45 8.30Net Income (5-Year Annual Avg.) NA 6.86 8.72Dividends (5-Year Annual Avg.) NA 8.80 5.61

Profit Margin PercentGross Margin 29.4 42.9 39.5Pre-Tax Margin -0.5 8.9 18.2Net Profit Margin -0.2 5.9 13.25Yr Gross Margin (5-Year Avg.) 28.9 41.6 39.7

Liquidity RatiosDebt/Equity Ratio 0.62 0.49 0.98Current Ratio 1.4 1.7 1.3Quick Ratio 0.8 0.9 0.9

Profitability RatiosReturn On Equity -9.5 14.4 26.0Return On Assets -0.6 7.7 8.8Return On Capital -1.1 10.6 11.8Return On Equity (5-Year Avg.) -13.5 12.4 23.8Return On Assets (5-Year Avg.) -4.2 6.4 8.0Return On Capital (5-Year Avg.) -7.7 8.9 10.8


Efficiency RatiosIncome/Employee -615 25,229 126,792Revenue/Employee 287,044 433,187 1 MilReceivable Turnover 12.1 30.3 15.2Inventory Turnover 7.0 6.1 12.4

Net Worth Analysis (in millions)

Stockholders' Equity 1,051$ Net Income x 5 (220)$ (Share Price/EPS) x Net Income 380$ Number of Shares Outstanding x Share Price 652$ Method Average 466$

IFE Matrix

Strengths Weight Rating Weighted Score

1. Acquired Swedish office supply company Svanströms Gruppen. 0.05 4 0.202. Most North American retail stores contain a Copy & Print

Depot.0.02 3 0.06

3. Total general and administrative expense decreased by 17% from 2008 to 2010.

0.08 4 0.32

4. Recognized as America's Greenest Large Retailer in Newsweek Magazine's Annual Green Ranking.

0.06 3 0.18

5. One of America's Top Corporations for Women's Business Enterprises by the Women's Business Enterprise National Council (WBENC) for the ninth consecutive year.

0.04 3 0.12

6. Became an ENERGY STAR® Commercial Buildings Partner. 0.04 3 0.127. Sells to customers directly or through affiliates in 53 countries. 0.05 3 0.158. Operate global sourcing offices in Shenzhen and Hangzhou,

China, which allows more direct control of product sourcing, logistics and quality assurance.

0.06 3 0.18

9. Produce a Green Book® catalog, which features products that are recyclable, energy efficient, or otherwise have a reduced impact on the environment.

0.04 3 0.12

10. Only 19 million in goodwill on the balance sheet. 0.10 3 0.30


Weaknesses Weight Rating Weighted Score

1. Being a seasonal business impacts operations and financial position.

0.02 2 0.04

2. Total company sales were down 20% from 2008 to 2010. 0.08 1 0.083. Cash flow from operating activities was $204 million in 2010,

compared to $468 million in 2008.0.05 1 0.05

4. Closed 143 stores since 2009. 0.03 2 0.065. EPS is -$0.22. 0.03 2 0.066. Of the $253 million of 2009 Charges, approximately $194 million

either have or are expected to require cash settlement, including longer-term lease obligations that will require cash over multi-year lease terms.

0.03 2 0.06

7. North American Retail Division operates stores in only 46 U.S. 0.02 2 0.048. North American Business Solutions Division sales decreased

16% in 2009 and another 6% in 2010.0.06 1 0.06

9. Recorded significant charges of $253 million and $199 million in 0.04 2 0.0810. ROE ratio of -9.5. 0.10 1 0.10

TOTALS 1.00 2.38

F. SWOT

SO Strategies

1. Increase advertising by 15% (S2, O1, O3).2. Build 50 new stores in China (S7, S8, O3, O4).

WO Strategies

1. Close the 100 worst performing US based stores (W3, W4, W9, O3, O4).2. Actively market gift cards for Office Depot in particularly the Copy and Print Depot (W8, O1).

ST Strategies

1. Build 20 stand alone copy and print stores in the US (S2, S3, T10).2. Include the environmentally green philosophy in advertising (S4, S5, S9, T2, T7).

WT Strategies

1. Close the 100 worst performing US based stores (W2, W3, W4, T2, T8).2. Develop a service to better compete with Staples EasyTech support (W2, T1).


G. SPACE Matrix

7

6

5

4

3

2

1

-7 -6 -5 -4 -3 -2 -1 1 2 3 4 5 6 7-1

-2

-3

-4

-5

-6

-7

IPCP

Defensive

AggressiveConservativeFP

CompetitiveSP

Internal Analysis: External Analysis:Financial Position (FP) Stability Position (SP)

1 -24 -24 -22 -56 -3

Financial Position (FP) Average 3.4 Stability Position (SP) Average -2.8

Rate of InflationTechnological ChangesPrice Elasticity of DemandCompetitive PressureBarriers to Entry into Market

Return on Equity (ROE)Current RatioDebt/Equity RatioGross MarginInventory Turnover

Internal Analysis: External Analysis:Competitive Position (CP) Industry Position (IP)

-4 5-3 4-3 4-3 4-4 5

Competitive Position (CP) Average -3.4 Industry Position (IP) Average 4.4

Growth PotentialFinancial StabilityEase of Entry into MarketResource UtilizationProfit Potential

Market ShareProduct QualityCustomer LoyaltyTechnological know-howControl over Suppliers and Distributors


H. Grand Strategy Matrix

Office Depot

Rapid Market Growth

Quadrant II Quadrant I

Strong Competitive

Position

Slow Market Growth

Weak Competitive

Position

Quadrant III Quadrant IV


I. The Internal-External (IE) Matrix

4.0 I II III

High

3.0 IV V VI

TheEFE Office Depot

Total Medium

WeightedScores

2.0 VII VIII IX

Low

1.0

Strong Average Weak4.0 to 3.0 2.99 to 2.0 1.99 to 1.0

The Total IFE Weighted Scores

Division 2010 Revenues (in millions)North American Retail $4,962.8North American Business Solutions $3,290.4International $3,379.8


J. QSPM

Opportunities Weight AS TAS AS TAS1. Gift card popularity increase of 7.3% in specialty retail during

2009.0.03 1 0.03 3 0.09

2. Online sales increasing faster than traditional retail sales. 0.07 1 0.07 3 0.213. World economy is slowly on a rebound. 0.02 4 0.08 2 0.044. "Emerging economies" have accounted for nearly 70% of world

growth in the last five years.0.07 4 0.28 2 0.14

5. Value of the USD decreasing by .07 in long-term over the last five years against the EUR.

0.06 0 0.00 0 0.00

6. OfficeMax reported negative net income in 2008 and 2009 with marginally positive net income in 2010. 0.07 0 0.00 0 0.00

7. Staples has Debt of $2.54 billion. 0.07 0 0.00 0 0.008. CEA projects a 6.0% increase in electronics sales for 2010 and a

3.5% increase in 2011 (to $186.4 billion). 0.06 1 0.06 3 0.18

9. 5 yr. average ROA for OfficeMax is -4.93 compared to -2.93 for Office Depot.

0.06 1 0.06 2 0.12

10. 5 yr. average ROE for OfficeMax is -21.61 compared to -7.91 for Office Depot.

0.06 1 0.06 2 0.12

Increase Advertising

Build 50 new stores in China

Threats Weight AS TAS AS TAS1. Staples' EasyTech support service offering. 0.06 0 0.00 0 0.002. 86% of companies plan to spend more on social media in 2011 for

marketing and customer service.0.03 1 0.03 3 0.09

3. Staples has, as of 2009, 954 more retail stores worldwide than Office Depot.

0.04 4 0.16 1 0.04

4. 5 yr. average ROA for Staples is 8.89 compared to -2.93 for Office Depot.

0.03 2 0.06 3 0.09

5. 5 yr. average ROE for Staples is 16.38 compared to -7.91 for Office Depot.

0.03 2 0.06 3 0.09

6. Unemployment rate continues to be just below 10%. 0.04 0 0.00 0 0.007. Consumer spending has been flat over the last 2 years. 0.04 1 0.04 2 0.088. National customer satisfaction has been flat over last 2 years. 0.05 1 0.05 3 0.159. Staples had sales growth of 5% in 2010. 0.05 0 0.00 0 0.0010. Staples has around 20 standalone Copy & Print stores. 0.06 0 0.00 0 0.00


Strengths Weight AS TAS AS TAS

1. Acquired Swedish office supply company Svanströms Gruppen. 0.05 0 0.00 0 0.002. Most North American retail stores contain a Copy & Print

Depot.0.02 1 0.02 2 0.04

3. Total general and administrative expense decreased by 17% from 2008 to 2010.

0.08 0 0.00 0 0.00

4. Recognized as America's Greenest Large Retailer in Newsweek Magazine's Annual Green Ranking.

0.06 1 0.06 3 0.18

5. One of America's Top Corporations for Women's Business Enterprises by the Women's Business Enterprise National Council (WBENC) for the ninth consecutive year.

0.04 0 0.00 0 0.00

6. Became an ENERGY STAR® Commercial Buildings Partner. 0.04 1 0.04 2 0.087. Sells to customers directly or through affiliates in 53 countries. 0.05 4 0.20 2 0.108. Operate global sourcing offices in Shenzhen and Hangzhou,

China, which allows more direct control of product sourcing, logistics and quality assurance.

0.06 4 0.24 2 0.12

9. Produce a Green Book® catalog, which features products that are recyclable, energy efficient, or otherwise have a reduced impact on the environment.

0.04 1 0.04 2 0.08

10. Only 19 million in goodwill on the balance sheet. 0.10 0 0.00 0 0.00

Build 50 new stores in China

Increase Advertising

Weaknesses Weight AS TAS AS TAS1. Being a seasonal business impacts operations and financial

position.0.02 0 0.00 0 0.00

2. Total company sales were down 20% from 2008 to 2010. 0.08 2 0.16 3 0.243. Cash flow from operating activities was $204 million in 2010,

compared to $468 million in 2008.0.05 1 0.05 2 0.10

4. Closed 143 stores since 2009. 0.03 4 0.12 2 0.065. EPS is -$0.22. 0.03 2 0.06 3 0.096. Of the $253 million of 2009 Charges, approximately $194 million

either have or are expected to require cash settlement, including longer-term lease obligations that will require cash over multi-year lease terms.

0.03 0 0.00 0 0.00

7. North American Retail Division operates stores in only 46 U.S. 0.02 0 0.00 0 0.008. North American Business Solutions Division sales decreased

16% in 2009 and another 6% in 2010.0.06 0 0.00 0 0.00

9. Recorded significant charges of $253 million and $199 million in 0.04 0 0.00 0 0.0010. ROE ratio of -9.5. 0.10 0 0.00 0 0.00

TOTALS 2.03 2.53

K. Recommendations

1. Build 50 new stores in China at $1.5M each.


2. Build 20 stand alone copy and print stores in the US at $250K each.3. Close the 100 worst performing stores in the US at $10M.4. Increase total advertising by $20M.

L. EPS/EBIT Analysis (in millions)

Amount Needed: $110Stock Price: $2.19Shares Outstanding: 280Interest Rate: 5%Tax Rate: 30%

Recession Normal Boom Recession Normal Boom

EBIT $0 $2 $5 $0 $2 $5Interest 0 0 0 6 6 6EBT 0 2 5 -$6 -$4 -$1Taxes 0 1 2 -$2 -$1 $0EAT 0 1 4 -$4 -$2 $0# Shares 282 282 282 $280 $280 $280EPS 0.00 0.00 0.01 -$0.01 -$0.01 $0.00

Common Stock Financing Debt Financing

20 Percent Stock 80 Percent StockRecession Normal Boom Recession Normal Boom

EBIT $0 $2 $5 $0 $2 $5Interest 4 4 4 1 1 1EBT -4 -2 1 -1 1 4Taxes -1 -1 0 0 0 1EAT -3 -2 0 -1 1 3# Shares 280 280 280 281 281 281EPS -0.01 -0.01 0.00 0.00 0.00 0.01

M. Epilogue

In October 2011, Office Depot was recognized in Newsweek magazine’s annual Green Rankings, as the greenest large retailer in America for the second year in a row. Office Depot not only achieved the highest aggregate green score in the U.S. retail industry, but also led in Environmental Management, and disclosure of performance data. Across all industry sectors, Office Depot was ranked as America’s 8th greenest large company, a move up from 10 place the prior year. Office Depot was the only retailer in the U.S. top 10 list in 2011. “We’re immensely proud to be named the top U.S. retailer in Newsweek’s Green Rankings for the second consecutive year,” said Kevin Peters, President, North America for Office Depot. “We know there is a large and growing set of customers who choose Office Depot in part because of our unique ability to support their environmental goals – and Newsweek’s recognition provides further evidence that Office


Depot is the supplier-of-choice for organizations seeking a greener way to get their office products.” Two specific environmental programs at Office Depot is their GreenerOffice Delivery Service which is on track to save over 3,000 tons of wood and approximately $1.5 million a year by delivering goods in paper bags rather than cardboard boxes. Also Office Depot provides its largest customers, including cities, states, and large corporations with effective reporting tools which help explain their greener purchasing and the “environmental and financial tradeoffs” of their greener purchasing decisions.

Office Depot recently formed a partnership with Microsoft Corp. to provide digital print solutions through the Bing Business Portal. This new service is available at www.bing.com/businessportal and provides small business customers with the ability to create advertisements, sales collateral, and presentations online through the Bing Business Portal. Materials are then sent to Office Depot retail stores for order completion and customer pickup.

“Office Depot is all about helping small business customers succeed, and this new collaboration with Microsoft and the Bing Business Portal is a testament to our dedication,” said Kristin Micalizio, Vice President of Office Depot’s Copy & Print Depot. “Through this unique service, small business customers will have access to professional quality printing at a price that won’t impact their bottom line.” “Bing Business Portal provides great tools and services for a business to market itself — both on and offline,” said Ginny Sandhu, Group Product Marketing Manager, Microsoft. “With the launch of Digital Print Solutions, users will now be able to get high-quality marketing collateral printed at the touch of a button, saving time and money.”


08 office depot

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