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[23 comments]

Office Depot Goes Small

December 3, 2012

Office Depot has debuted a new smaller concept at four stores in Denver that encourages small business owners to "interact more with products, with Office Depot associates, and with each other with products."

The stores measure 5,000 square-feet versus an average of 24,000 at its big box format.

The changes start with storefront windows, which feature graphic overlays that enable people to easily look inside from the sidewalk. One of the four stores features two in-window 4' x 8' digital screens showcasing hot tech products. The windows point to a bigger opportunity for urban locations versus the suburban one its bigger boxes largely focus on.

In a unique twist, the new stores have PC bars that allow people to hook up their computers. There is also a computer rental station, free Wi-Fi throughout the store, a recharging station and free, self-serve coffee available between the hours of 8 a.m. - 10 a.m., and 3 p.m. - 5 p.m. on weekdays.

The store includes a tech support center for computer repair and networking help, as well as printing and photocopying services.

LeAndra White-Mendez, Wynkoop Street store manager for Office Depot, told The Denver Post that the smaller location is designed to create a friendly environment where customers can go and meet with a "trusted (store) adviser."

"We have been receiving great feedback from longtime customers in addition to those who have made their first visit to our store," she added in a statement. "They say it is more modern and open and the layout makes you want to stay and play."

The concept also features a store-within-a-store, dubbed 'bluwire' that offers high-tech accessories such as iPhone cases, headphones and speakers. Most of the products are new to Office Depot.

With the smaller size, several touch screen displays enable consumers to order any product from OfficeDepot.com if the items aren't in the store with free delivery.

Office Depot plans on rolling out similar stores throughout the country. The new concept comes as Staples, Best Buy and other big box stores are also experimenting with smaller locations with sales per square foot at big boxes eroding amid online competition.

FINANCIALS:     [NYSE:ODP]

Discussion Questions:

Should office supply stores focus on building urban concepts aimed at small business owners? What do you think of Office Depot's new concept?

While we value unfettered opinion, we urge you to show respect and courtesy for people or companies about whom you comment. Keep in mind that this is a public, professional business discussion. RetailWire reserves the right to edit or refuse the publication of remarks that we deem unsuitable. We may also correct for unintended spelling and grammatical errors.

Instant Poll:

What do you think of the growth potential of smaller, urban locations for office supply chains?

Comments:

So is the question really, "Should big-box office supply companies become like the very independent office supply companies they put out of business to dominate the market?"

What's next? Smaller versions of Walmart? Oh, right....

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Bob Phibbs, President/CEO, The Retail Doctor

Sounds like a great idea to me—I'd go, IF...

The key line in this piece is this one: "where customers can go and meet with a 'trusted (store) adviser.'" Now I suppose we could interpret "trust" in a huge universal way but "trust" is an end product not a presenting one. In other words you end up with trust, you don't start with it.

What is almost totally missing in Office Depot and the like are sales people who actually know their products and who know how to have a real conversation instead of just pointing to a shelf. Mostly they are kids who do stock and haven't a clue about how a "small business" operates. That is no fault of their own, let me be clear about that.

Not that it's a perfect example by a long shot, but at Home Depot it's reassuring to meet a floor staffer who used to own a plumbing or electrical business and gives you real-world advice. If Office Depot can do that with small business needs, they'll have a winner.

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Ian Percy, President, The Ian Percy Corporation

According to the US Small Business Administration Office of Advocacy which defines a small business as independent and employing less than 500 employees, small business employs over one half of all private sector employees, and 52% of these are home-based. Office Depot's new smaller store concept is exactly the direction they should be moving.

As a small business owner, the local coffee shop with free Wi-Fi has become the "office away from the office." Office Depot should explore a collaborative approach with local coffee shops where you merge the social aspect of a coffee shop and the logistics — technical, printing, shipping, etc. — of an Office Depot retail store. This concept is addressing the trend of acting local and thinking global. Their challenge will be to not become another stale version of what FedEx did with Kinko's.

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Adrian Weidmann, Principal, StoreStream Metrics, LLC

Our local Office Depot has been running a moving sale. When I asked them where they were moving to, they said, to a 6,000 square foot space in the same strip mall. The person I spoke with said they didn't need the space they were renting at 25,000 square feet. They indicated that they were spreading merchandise out to fill space, carrying items that they could get in from the local warehouse in a day, etc., as a rationale for why they didn't need all their current space.

While I am sure some of that is true, I wonder if they will still be displaying space eating items such as various office set ups and the wide variety of office chairs they carry now in their new location. These are items people like to see, touch and try out. If not, there is always Office Max in the next strip center.

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Steve Montgomery, President, b2b Solutions, LLC

As office supply stores proliferate, attacking each other's market share, it is practical to test urban concepts aimed at small business owners. So proceed Office Depot. But caution: don't stay in love with the concept if sufficient business doesn't materialize.

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Gene Hoffman, President/CEO, Corporate Strategies International

This seems like a good idea to me. They will need to test and learn their way through it and work out how to meet the needs that can't be satisfied well in a small store.

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Matthew Keylock, Senior Vice President, New Business Development and Partnerships, dunnhumbyUSA

Lots of stores have tried reducing overhead by employing the "if we don't have it, we can order it and ship it to you free" business model. The problem is, that is not why folks go to brick and mortar. When a customer goes to a store they expect to interact with the product—not be directed to a computer. Thanks, could have done that at home.

That said, if they can get customers to interact with sales associates and if the sales associates are sufficiently knowledgeable, customer focused, etc. to gain customer trust, then they could gain loyalty and become a valuable resource. It's the personnel that will pull this off.

Kurt Seemar, President, Analytic Marketing Innovations

I like this test concept, but as to whether Office Depot should focus on rolling out the concept will depend on how it tests.

It is a unique blend of the old "copy and print" retail philosophy of small stores in densely populated centers that made them convenient to both individuals and small business. The determining factor will be whether this melding of convenience, multi-service and product offerings has a niche to fill.

Competition for the products that Office Depot offers has never been more intense. I don't really believe that a free coffee bar, PC bar and charging stations will draw customers, however, I do like the assortment of product and services that are highlighted in their offering.

To paraphrase Austrailian Rugby great Jackie Gibson "In retail, if you are standing still you are moving backwards"

Charles P. Walsh, President, OmniQuest Resources, Inc

Given the continued bite that e-commerce is taking out of 4-wall, downsizing is both inevitable and just getting started. This trend will affect almost all of the big boxes.

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Bill Emerson, President, Emerson Advisors

I laughed when I read Bob's comment because that was the EXACT thought I had while reading. Depot has been playing with this concept for many years: when I was a manufacturer working with them a decade ago this was a concept we kept discussing. The fact is office products stores have always had too much square footage, too few SKUs of any interest and too little traffic to justify the space. The combination of smaller space and more reasons to come in/dwell makes a great deal of sense: but Bob is right that it feels oddly familiar.

Lisa Bradner, Chief Strategy Officer, Geomentum/Shopper Sciences

How and where people work has changed dramatically over the last few years thanks to technology, big organizations saving money on office space and a resurgence in entrepreneurship. Office Depot and other office supply stores have a huge opportunity to leverage this trend. Case and point, I am working in NYC today at http://grindspaces.com/. As a member of the Grind I can pay a monthly fee or a daily fee to use this open work space (coffee included).

Imagine if Office Depot provided open work spaces within their smaller footprint stores and charged a daily or monthly fee. Free Wi-Fi, a conference room that people could reserve and office services like scanning, faxing, printing (already in stores today). The new work force is mobile and to know they have an office in any major city would be a huge benefit. Plus the social and networking benefits of an open work space are enormous.

Embracing this new work force is a huge opportunity. This is just one example of what they could do.

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John Boccuzzi, Jr., Managing Partner, Boccuzzi, LLC

Ian's observation that personnel will be key to success is spot on—IF this concept is really about creating a small-business "community" with a "trusted advisor." If it is just about reducing square footage and inventory however, that's a different matter.

The concept of the congregational retailer is not new of course. The local hardware store, sporting goods store or wine merchant have long been places people of like interest gathered to share experiences and seek expertise. With the rise of small businesses—many of them displaced professional single employee enterprises with less that great tech skills and a need to network—this concept could be a real winner.

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Ben Ball, Senior Vice President, Dechert-Hampe

In short, yes, office supply stores should look at this type of concept. Much will depend on customer satisfaction and use of the services/products. Hopefully there are metrics in place to assess success/failure, and would presume the retail organizations are gauging this along the way and making appropriate adjustments to the concept. May or may not work out, but these stores definitely have to try new things!

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Brian Numainville, Principal, The Retail Feedback Group

Certain larger stores can benefit by creating smaller urban concepts. It benefits the customer. Location may be more convenient. The customer can get in and get out. Office depot takes it to a higher level by promising to deliver a better service experience by allowing for more interaction with employees, also known as "trusted store advisers."

The caution with the smaller stores is inventory—or lack of it. When a customer is told, "Sorry, we don't have that here, but you can get it at our other (larger) store," this may create a confidence problem. Office Depot eliminates that with their free delivery program.

Isn't it interesting that the big box stores are scaling down the size of their stores? They are realizing that smaller (usually independent) retailers have figured out how to compete with the big boxes. They stock different inventory and in some cases, provide a higher level of service.

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Shep Hyken, Chief Amazement Officer, Shepard Presentations, LLC

The rapid growth of "co-working" spaces is evidence that small business owners and freelancers are craving connection with their peers and Office Depot is smart to try to ride this wave. The concept store sounds well designed and I like the integration with the .com channel to provide an "endless aisle." One little detail they should be sure to nail; the coffee should be really good coffee.

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Martin Mehalchin, Partner, Lenati, LLC

I think this is a great concept since so many office supplies are staple goods and can easily be ordered online. This concept allows for loyalty building in a big way that doesn't involve promotions, points, and giveaways. Who'd a' thunk it?!

I would also suggest that they use these smaller spaces to actually showcase an office with all the widgets, gadgets and gizmos possible. Show the customers things they may not have thought of. Sell them something they didn't know they needed. Hmmmm...who does that sound like? (teehee)

Lee Kent, Brings Retail Executives Together to Meet.Learn.Profit, RetailConnections

I checked Office Depot's recent 10Q; I think the Denver Story is just the beginning of their exodus (same with Staples).

The future of retail just got smaller. I wonder what that means for real estate divisions and the enterprise systems that support the stores—no doubt there will be an enterprising retail systems company that will be selling a suite tailored to the downsized store or perhaps a suite for reconfiguring your big box stores (with long leases) to include a CSWIS (coffee shop within a store).

From Office Depot's 10-Q, November 6, 2012:

"During the real estate strategy analysis, each location in the current portfolio was reviewed for a decision to retain as currently configured and located, downsize to either small or mid-size format, relocate, remodel, or close at the end of the base lease term. Sales trends, profitability, location, market density, and available real estate were all considered.

The result of this analysis is a plan to downsize approximately 245 locations to small-format stores at the end of their current lease term over the next three years and an additional 150 locations over the following two years. Approximately 70 locations will be down-sized or relocated to the mid-sized format over three years and another 20 over the following two years. We anticipate closing approximately 60 stores as their base lease period ends. The remaining stores in the portfolio are anticipated to remain as configured, be remodeled or have base lease periods more than five years in the future."

Vahe Katros, Consultant, Plan B

This is an excellent idea, but I'd carry it to another level as a test: a showroom store. Shop and Ship same day. Since a large chunk of office sales are online now, the 'experience' is the best way to get footfall and thus cross selling back into play. More than anything, you want people to touch your brand—that rule still applies.

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Lee Peterson, EVP Creative Services, WD Partners

"The changes start with storefront windows, which feature graphic overlays that enable people to easily look inside from the sidewalk." Windows that actually allow you to see inside the store—and easily at that!—who says innovation in America is dead?

Back to the question. I guess my thought is "Are these stores supposed to replace exisitng spaces or supplement them?" If the latter, then OK; if the former, then I'll third Bob's comments.

'notcom'

The last words of this story are in fact the message for all retailers to prepare for "sales per square foot at big boxes eroding amid online competition." I am of the opinion that this is true for most brick & mortar stores as well as e-commerce retailers, regardless of size. Information technology is what is changing the retail world regardless of the merchants chosen sales platform.

Now we are informed that the big box stores are shrinking in response to competition from e-commerce sales. The hordes of unsold inventory in warehouses all over the world along with unprecedented price slashing tell those willing to read a different story. The world economic depression has created a new consumer outlook with a completely revamped market threshold pricing approach and perspective. This new pricing perspective expects all prices for any intended purchase by the consumer must be studied and compared with the use of technology and when the best price is known only that amount should be spent.

Next day shipping at reasonable prices strongly support the ability to make this decision because the consumer now realizes that shipping and self retrieval are same "additional and separate" costs due to the current high costs of fuel and time. Time is an important factor in the now consumer purchasing decisions because more and more individuals are working two or more part time jobs instead of a single full time job this just to make ends meet.

It is now a fact that to have economic success in this economy it is a matter of how much money is collected over a seven day week period and not how much time it takes to get it. This makes free time for the individual a premium commodity to be used sparingly for buying decisions. Hence it is cheaper in time and dollars to surf the net and have it shipped which supports shipping costs being regarded as a means to free up time and thus a separate issue apart from the sale.

Office Depot's new concept is a good first step in the new consumer market. While it is important to get the consumer's input for this evolution in retail, studying the consumer's habits and decision criteria is of at least equal value. I am not so sure the consumer studies were put into this build decision, making the plan a little risky for the economy we now live in.

'gjarnoldjr'

Small is beautiful—definitely the right move for Office depot...but creating customer loyalty is a long term and necessary investment. The combination of the right products plus services, and small business associates who know their stuff would be a step ahead. Competition is smart in this market; execution, as always, key.

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Anne Bieler, Sr. Associate, Packaging and Technology Integrated Solutions

Clint Eastwood used the quote, "Improvise, adapt, overcome." While it was adapted from an unofficial motto of the Marines, it works here.

The entire concept of the "Office" has changed and continues to change.

Though some are way behind, some are far ahead in transforming the office. As I cling to my Franklin Planner sheets, I realize I am the prior. Nevertheless, it is hard to be critical of their attempt to overcome the position they are in to one that is entirely transformed to meet the new concepts of the overwhelming majority.

It need not be an "urban concept," it could very well be an overall concept. It also matters not whether it be small business or not. For many even in major corporations, they are on their own for office needs. Most have left the administrative positions that used to provide these needs and it is each person for themselves.

It simply makes sense to rapidly move to this concept with the mindset to remain consistently flexible to the new and ever changing need that will arrive tomorrow.

'Scanner'

They need to drive traffic and try to drive more profitable sales. This is a good idea. The current format has all of the problems everyone has noted and it sounds like they are trying to turn it "upside down" and at the same time cut dead space out that they no longer need.

I don't think we talk about it much here, but think about the auto parts business. Look at those stores. Out west we used to have much larger auto parts stores but they have downsized. They have the core base items in the store and order various special items for people and get them to the store the (sometimes same...) next day, often by using a local warehouse somewhere (maybe in a downsized store or in some old auto service bays). I see this happening with other big box categories. It just makes sense.

'storewanderer'

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