Office Depot to transform into IT service giant after $1B deal

Discussion
Oct 09, 2017
Tom Ryan

Office Depot last week agreed to acquire CompuCom Systems for $1 billion, thereby incorporating a sizable tech-assistance platform into its traditional office products retail operation.  

Founded in 1987, CompuCom procures, installs and manages the lifecycle of hardware and software for businesses, and offers IT support services including remote help desk, data centers and on-site IT professionals. It has over 5.1 million unique end users and approximately 6,000 licensed technicians, the largest in the country.  

CompuCom is expected to bring IT support services to all of Office Depot’s customers, particularly underserved small- and medium-sized businesses (SMBs), near its approximately 1,400 retail stores.  

“Technology is the office supply of the future,” said Gerry Smith, CEO of Office Depot, in a statement. “The combination of CompuCom’s enterprise IT services with our millions of customers and approximately 1,400 distribution points gives us the credibility and scale to build a sustainable platform and stand apart from the competition.” 

CompuCom’s Tech-Zones will be placed inside Office Depot’s locations to also help drive traffic into stores. Added services revenue and increased foot traffic is expected to improve per-store profitability. 

Office Depot sees minimal customer overlap and expects to quickly begin cross-selling a full suite of products and services, with an incentive structure focused on driving services revenue. Office Depot also hopes to be valued by Wall Street as more of a services provider than a retailer. 

Said Dan Stone, CEO of CompuCom, “The workplace has truly moved to a digital environment with the average worker having over four connected devices. Office Depot’s established brand and large national footprint will help to drive the expansion of our offerings to more markets and build on our client-focused success to welcome new customers seeking high-quality technology services and solutions.” 

Office Depot announced the acquisition while lowering its earnings guidance for the year due to the impact the recent hurricanes, poor back-to-school sales and higher short-term supply chain costs. Shares of Office Depot fell 18 percent last Wednesday on the news.  

DISCUSSION QUESTIONS: What do you think of Office Depot’s CompuCom acquisition and shift to a business services platform model? Do you see IT services and Office Depot’s retail business complementing one another?

Braintrust
"There is an opportunity here to carve out a profitable niche. But this acquisition is only a good deal if the execution is spot on."
"Winner. It’s a service-oriented world and this gives Office Depot a completely synergistic way to support the customer."
"If the retail side of the business gets too pressured, Office Depot can pivot to being an IT service company and spin off the retail ops."

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15 Comments on "Office Depot to transform into IT service giant after $1B deal"

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Max Goldberg
BrainTrust

On the surface, the combination of an office supply store and a business services company makes sense. I just wonder if the deal comes too late to save Office Depot.

Anne Howe
BrainTrust

Services have been a large part of the retail growth story for many years now. This is a marriage made in heaven!

Ken Lonyai
BrainTrust

Given that its prime competitors are Amazon and Staples and that Best Buy is strong on the tech support side, there is an opportunity here to carve out a profitable niche. But this acquisition is only a good deal if the execution is spot on, else, it will be another failed attempt by Office Depot to morph itself.

Sterling Hawkins
BrainTrust

It is all about execution and how Office Depot brings the offerings together to add value. There is undoubtably an opportunity in the market and, at a high-level, this seems like a smart move. Done right, the acquisition is used to jumpstart the business and culture.

Cathy Hotka
BrainTrust

A proactive technology support platform for small business is long overdue. Re: the photograph, though, let’s hope that Office Depot gets out of the “fax supplies” business — it’s 2017.

Cynthia Holcomb
BrainTrust

There are never enough employees, the employees who are there don’t want to help, the vibe is unfriendly. Prices are high and product offerings have been scaled back to basic commodity items. Ordering copies online to pick up is a dismissal experience. Either the store has no record of your order or the one person at the photo/copy counter is working with someone planning a wedding, as the reigning drill sergeant. Now add the layer of IT services? In a word, no.

Mohamed Amer
BrainTrust

The SMB space is ideally suited for a focused IT services company that’s already well established in that segment. Combining traditional office supplies with digital office environment solutions takes care of the nuts and bolts of operating an office as well as the newfangled bells and whistles in a one stop shop. Good move by Office Depot.

Steve Montgomery
BrainTrust

The need for the services is there as evidenced by the number of unique customer and the 6,000 techs CompuCon currently employs. As Ken mentioned the key is the ability to execute to existing and new customers.

During any acquisition where the acquired is asked to play a new role in the acquiring company there is a danger that they will fail to deliver their historic service levels to their existing customer base. The same is true for the new customers as they have an expectation level that the acquired company may not be able to produce initially.

Lee Kent
BrainTrust

The concept sounds like a go. I can see service guys driving to service calls in trucks loaded with supplies, too, just in case there are cross-sell and upsell opportunities. The big IF is whether they can pull it off. Services take smiles, enthusiasm and a passion for the brand. Do they have that? For my 2 cents.

Peter Charness
BrainTrust

Winner. It’s a service-oriented world and this gives Office Depot a completely synergistic way to support the customer.

Kenneth Leung
BrainTrust

I think this is a good way for Office Depot to diversify out of being just a retailer that is getting squeezed by Amazon. If executed correctly there is nice synergy. If the retail side of the business gets too pressured, Office Depot can pivot to being an IT service company and spin off the retail ops in the future.

Larry Negrich
BrainTrust

Good step that should lead to better overall operating margins. Better utilization of their store space and some mechanisms to draw customers in should be priorities.

Ricardo Belmar
BrainTrust

Although this does nothing to improve the in-store experience at Office Depot (and it looks like they have no interest in changing this going forward anyway), it should be a winning combination. This has the potential to become the Best Buy/Geek Squad of the enterprise business world and that should bring some needed relief to the Office Depot bottom line.

I agree with many others here that success is fully dependent on the execution and we’ll have to wait and see how that turns out. Overall, there should be an opportunity for Office Depot to grow their corporate accounts significantly by providing an even bigger one-stop shop for businesses in areas of both IT services and supplies.

Yoav Vilner
Guest
11 days 6 hours ago

Seems like a promising step forward. Office Depot’s competitors are well-known brands, and their hope to be considered a services provider rather than a retailer speaks for itself. Overall customer satisfaction with Office Depot hasn’t been so great lately, so hopefully, this new path will bring more value to the brand.

Paul Donovan
BrainTrust

It’s most likely the fastest way to gain the resources necessary to try to preserve the business. Digitization efforts between trading partners can only help Office Depot. However, as other people mentioned, it’s about execution. In my opinion, it’s better money spent than on things like stock repurchases which in this era seem like wasted allocations of capital.

wpDiscuz
Braintrust
"There is an opportunity here to carve out a profitable niche. But this acquisition is only a good deal if the execution is spot on."
"Winner. It’s a service-oriented world and this gives Office Depot a completely synergistic way to support the customer."
"If the retail side of the business gets too pressured, Office Depot can pivot to being an IT service company and spin off the retail ops."

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