New Format, NE Expansion Set For Office Depot

BOCA RATON, FLA.— Office Depot unveiled a new retail format called Millennium2 (M2) that is designed to be less expensive to open, more efficient to operate and easier to shop, and is part of a plan to open 80 to 100 stores this year, many in the Northeast.

M2 was unveiled during a press conference at a prototype store, here, a former Levitz Furniture location. In keeping with the secrecy of M2, which was in development for two years, the windows of this prototype location, which will not be a working store but a test vehicle for new merchandising concepts, were covered in brown paper.

Office Depot chairman/CEO Bruce Nelson explained at the unveiling, "We kept this secret to keep a competitive advantage. We wanted a format that is easy to shop and enjoyable for consumers. Now, at this point, we have one. M2 is intuitive, logical and designed specifically for the way people make purchase decisions." (For more details on M2's focus on female customers, and electronics, see p. 22.)

Nelson noted that products are grouped in highly visible, strategically located "pods," with core supplies at the outer perimeter of the store (signed for optimal visibility and easy purchase) and furniture and technology at the center (to better support consultative sales and the area in which the majority of staff will be located during peak buying hours).

According to Nelson, M2 plays a central role in the implementation of Office Depot's top corporate strategies, most notably addressing the company's No. 1 objective, which is realigning the North American real-estate portfolio.

"In 2004, Office Depot is embarking upon one of the most ambitious expansion plans in company history," Nelson said.

"We will leverage the M2 format along with our recent purchase of Kids 'R' Us locations to enhance Office Depot's presence in existing core markets and provide immediate access to large areas of the country in which we do not currently have a strong retail concentration, such as Massachusetts, New York, New Jersey and Pennsylvania," Nelson added.

"As we roll out these new stores, customers in the Northeast — for the first time — will have a choice, an alternative to the only place they've been able to purchase office supplies," Nelson continued. "And what they will find is an Office Depot store that represents a true 'destination experience'— one that is warm, colorful and exciting and reflects the latest thinking in everything from product layout and adjacencies to graphics, replenishment and service."

The first M2 store opened in Venice, Fla., the same day as the press conference, June 30.

Many of the first M2 stores will open in the Northeast by the end of the year, according to Rick Lepley, executive VP of North American Retail for Office Depot, who was responsible for putting together the original M2 project team.

Lepley said that the chain originally thought that it would have closed the sale of all the Kids 'R' Us locations in the Northeast by now, but have just closed 30 so far. "We plan to open 80 to 100 [former Kids 'R' Us] locations by the end of the year. Whatever locations are left will be opened in the first quarter."

He said that the chain expects to open "around ten" M2 stores in the next four weeks" and in a "best-case" scenario all North American Office Depots will be M2 stores "in the next three to four years." Office Depot currently has 900 stores in North America.

About Office Depot's entry into the Northeast, Nelson commented, "The area has about one-third of the nation's gross national product, and we have far fewer stores there than Staples or OfficeMax." Lepley told TWICE, "It is fair to say that part of M2's planning was that we needed to be more efficient to enter the Northeast. To justify the launch, we needed to address the financial aspects that govern retail, including costs associated with opening, maintaining and staffing a store," he said.

The remodel costs are expected to be $250,000 to $300,000 as opposed to the $350,000 to $400,000 typically associated with Office Depot remodels. New store build-out costs are expected to be less expensive, Lepley noted.

He said that the Boca Raton prototype is "a 17,500-square-foot store. With this format we can take a typical 25,000-square-foot location, and [replace it] with a 20,000-square-foot store and get better sales with smaller stores."