Office Depot continues to suffer under harsh evaluations, criticism and negative prognostications by investment analysts, shareholders and industry insiders.“The investment community knows this company (ODP) hasn't been cutting it and has been falling out of favor," said Morningstar analyst Joscelyn MacKay, who covers Office Depot said in December ’10, "You don't get removed from the S&P 500 because people are interested in your name. Let's put it that way." "This is a company that has really fallen out of favor," MacKay said in December of 2010, "The industry has one clear leader, and that's Staples. Both Office Max and Office Depot, well their profit margins just look poor compared to Staples."

 
While most of the talk concerning 2012 centers on the Mayan calendar’s prediction of the end of the world, within the office products industry 2012 looks to be the year that the three main office supply retailers (Staples, Office Max and Office Depot) are reduced to just on survivor and the universal consensus is that Staples will watch as both Office Depot and Office Max disappear from the competitive landscape. Some investments analysts still hold out some hope that a merger between Office Depot and Office Max might produce a survivable company.

 

What will the industry look like? Staples will still dominate the industry space but some of their brick and mortar competitors face the prospect of becoming irrelevant and failing to sustain their business model unless some drastic changes are made.

Contract sales can be expected to be split evenly between Staples and the $6 billion independent office supply contract sales community, while retail sales competition will be fractionalized between Wal-Mart, Target, drug stores, grocery stores and thousands of online distributors of office supplies. Staples greatest challenge will be where they plan to position themselves in electronics.

Some of the retail companies have been suffering due to their ever increasing reliance on low margin high dollar electronics in their stores. They could not match Best Buy, Freys and Hhgregg for selection nor could they match the robust online sales selections that have superior selection and lower pricing.
In fact, it is surmised that such retail office supply companies would be showing low single digits or negative margin numbers on their electronic sales if they are unable to sell their high priced product protection plans (PPPs), which are quickly falling out of favor with the public.

2012 will not see the end of the world, but you can bet it will see the end of a few office supply retail chains, and the Mayans did not predict that!

Source: Report by David Sherwin, Fort Myers, FL