Office Depot built by 1 innovation, brought down by another

Office Depot built an empire on one big idea — that people wanted to buy office supplies on nights and weekends at big stores with cheap prices.

And the retail giant is being torn down by another big idea — that consumers would rather buy pens and paper on than in a strip mall.

Office Depot’s two-decade rise illustrates the power of a consumer-friendly brainstorm, and its impending departure from Palm Beach County’s business scene underscores the danger of clinging to that idea without freshening it up. Boca Raton-based Office Depot last month agreed to sell itself for $6 billion to larger rival Staples Inc. of Framingham, Mass.

If federal trust-busters approve the deal, the combined company will be based in Massachusetts, pulling a prominent corporate headquarters out of Palm Beach County. And the Office Depot name will disappear from the nation’s strip malls.

Office Depot launched in 1986 with a single store in Lauderdale Lakes. Staples started the same year in Brighton, Mass. OfficeMax opened two years later, with a store in Mayfield Heights, Ohio.

At the time, buying typewriter ribbons or copy paper meant shopping at an independent retailer. The stores typically were open only between 9 a.m. and 5 p.m. They charged hefty mark-ups, and marketing was an afterthought.

“You’d go into a little ma-and-pa store,” said Michael Feuer, co-founder of OfficeMax. “The product would be in a plain brown box. The office supplies stores took things out of the brown box and put them on a shelf, so people could see them and touch them. We created a sense of drama and theater in the store.”

With that innovation — an insight that seems blindingly obvious in retrospect but was a breakthrough at the time — the big three office supplies retailers were off to the races. By 2007, Staples, Office Depot and OfficeMax ran a combined 4,000 stores and raked in more than $40 billion in sales.

“We took market share from the little guy,” Feuer said.

Howard Davidowitz, a retail consultant at Davidowitz & Associates Inc. in New York, says the big chains owed their growth more to pricing than presentation.

“There used to be an office supplies store on every block. These guys wiped them out,” Davidowitz said. “Staples, Office Depot and OfficeMax were able to show business owners that these little stores on the corner were ripping everybody off.”

As they built their brands, all three retailers elbowed their way onto the Fortune 500 and into consumers’ consciousness. Staples ponied up for naming rights to the Los Angeles Lakers’ arena. Office Depot used the classic rock song “Taking Care of Business” in ads, turned the Florida Marlins’ foul poles into giant pencils and put its logo on a car that competed in the Daytona 500.

The companies also took on the trappings of corporate success. Office Depot bought a jet to ferry its CEO around the country and built large headquarters, first in Delray Beach, then in Boca.

But as the retailers grew, their marketing breakthroughs fizzled.

“The innovation was in that first 10 years of the industry,” Feuer said. “Then the innovation ended.”

The office-supplies chains didn’t prove entirely inflexible. They embraced online selling, and thanks to large orders from corporate clients, Staples was the third-largest Internet retailer in 2013 after Amazon and Apple. Office Depot and OfficeMax also built large online operations.

But after years of dictating how pens and paper were sold, the chains now react to circumstances. The lack of innovation became apparent after Office Depot named Steve Odland its CEO in 2005. Odland’s success at AutoZone led investors to bet he could close the gap with Staples.

Instead of big ideas, Odland offered little ones. He boasted that he trimmed expenses by putting energy-efficient lights in Office Depot stores, shortening cash-register receipts and changing shopping-bag dispensers.

“All of those things are probably OK, but it’s not really going to move the needle,” Feuer said.

Odland left after a disappointing five-year tenure that saw the company turn from a reliable profit maker to a massive money loser. Office Depot lost $1.5 billion in 2008 and $627 million in 2009. Same-store sales continue to shrink.

A big culprit, Feuer said, was the industry’s building spree as the three big players tried to grab one another’s customers. The result: Hundreds of competing stores located near each other.

“We opened way too many stores, way, way too big,” Feuer said. “We thought, ‘If 20,000 square feet is good, 40,000 must be twice as good.’”

In recent years, Staples and Office Depot have rolled out smaller stores, but the concept hasn’t stemmed the exodus of customers. Office Depot reported last week that same-store sales have fallen for five years in a row.

Just as the big-box chains put the mom-and-pop retailers out of business two decades ago, the office supplies retailers find themselves losing sales to, Wal-Mart and Target.

“The reality of the retail business is that there are plenty of places to buy this stuff,” Feuer said. “People don’t want to wander around these huge stores to buy something they could buy online.”

Davidowitz sees two possible outcomes for the office-supplies industry: Either Staples and Office Depot tap the vein of creativity that launched their empires, or they slowly fade away.

“This company has to come up with a store that can drive business,” Davidowitz said. “What should the store of the future be like? I don’t see them working on that.”

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