For struggling retailer Office Depot, Plan A was a merger with larger rival Staples.
Now that federal regulators have blocked that marriage, Office Depot has moved on to Plan B. The retailer on Monday signaled that it might pick up the pace of its cost-cutting initiatives, such as store closings and a sale of European operations. But Chief Executive Roland Smith also said Office Depot possesses sufficient cash to mount a bid for a smaller company.
“The long-term success of Office Depot will require bold new action,” Smith said during a call with Wall Street analysts.
Office Depot said it hired consulting firm Bain & Co. to conduct a “comprehensive strategic review.”
High-powered consultant or no, investors are skeptical that Office Depot (Nasdaq: ODP) can innovate its way out of a shrinking market for pens, pads and printer cartridges. Since the Staples deal died last week, Office Depot shares have plunged 43 percent.
Reflecting both a shrinking market for its products and fierce competition from Amazon and Wal-Mart, Office Depot’s sales fell 10 percent from 2014 to 2015.
Smith didn’t offer details about Office Depot’s next steps, but he did mention Office Depot’s “store of the future” several times. The first experimental location opened in February, and Smith said he hopes to open 20 such shops by the end of the year.
The 15,000-square-foot format is more compact than the big-box stores of Office Depot’s heyday.
Smith also said Office Depot will debut a “ship-from-store” feature later this year that will allow products ordered online to be delivered to customers from stores rather than warehouses. That’s hardly a bold new idea, however — many retailers already have adopted the practice.
In one bit of good news for Office Depot, the company said it expects to receive a $250 million breakup fee from Staples on Thursday. That will offset the $140 million in merger-related costs that Office Depot has incurred since the proposed merger was announced in early 2015.
A federal judge last week blocked the $6.3 billion combination, saying the Federal Trade Commission proved the deal would hurt competition in sales of office supplies to large buyers.
In the 1980s, Staples, Office Depot and OfficeMax created a new type of retailer on the idea that consumers would abandon mom-and-pop retailers to buy office supplies on nights and weekends at big stores with cheap prices.
“The innovation was in that first 10 years of the industry,” OfficeMax co-founder Michael Feuer said in an interview last year. “Then the innovation ended.”
Since then, the industry has pushed mainly small ideas. When star CEO Steve Odland took over at Office Depot, for instance, he focused on such incremental improvements as energy-efficient lights in stores, shorter cash-register receipts and new shopping-bag dispensers.