Boca Raton, Fla. — On the first anniversary of its merger with OfficeMax, Office Depot chairman/CEO Roland Smith described the combination as “a huge success,” and outlined a series of initiatives that includes a new store concept.
As evidence of its success, the company pointed to higher-than-anticipated cost savings of more than $750 million a year, up $50 million from pre-merger estimates.
Store consolidation contributed about $100 million to the savings as the company moves forward with plans to shut at least 400 U.S. stores by the end of 2016.
Integration synergies and efficiencies are expected to more than offset the impact on sales of fewer stores, the company said, and the closures will extend to distribution centers as well, with five locations set to shutter by the end of the first quarter of next year.
On a third-quarter earnings call this week, Smith said the No. 2 office supply chain is looking to further reduce its real estate by relocating stores while retaining customers and increasing sales transfer rates through the use of new, unspecified customer service and marketing tactics that are currently being tested.
Square footage will also shrink if a new “store of the future” pilot proves successful. The format, set to debut by late summer, features a smaller footprint, a curated assortment of products and services, and the most successful elements of the marketing and customer service trials, Smith said.
At the same time, the retailer plans to “significantly grow” its online sales over the next few years, and it marked a milestone during the quarter by successfully launching a co-branded website six months ahead of schedule that phased out the OfficeMax.com platform and migrated the majority of its sales volume to OfficeDepot.com.
The company is also exploring profitable new business models outside the office-supply space that may require building, buying or partnering strategies, Smith said.
So far the plan seems to be working, based on financial results for the third fiscal-quarter, ended Sept. 27. Net sales slipped 3 percent to $4.1 billion compared to the combined year-ago tallies of both chains, but adjusted net income was up 92 percent from the prior year’s combined adjusted results, to $52 million.
In North America, retail sales fell 7 percent to $1.7 billion on a combined comparison basis due to 20 store closures during the quarter, and comp sales slipped 3 percent on fewer transactions. Operating income was $79 million, or 4.6 percent of sales, compared to combined operating income of $34 million, or 1.9 percent of sales, for the year-ago period.
The chain ended the quarter with 1,851 stores in North America.
Smith said the company is one-third of the way through its three-year integration plan and that the third-quarter results “confirm that we continue to execute exceptionally well.”