April 1, 2016 Comments (1) Views: 583 Connect Classroom

CONNECT RETAIL: Staples’ $6.3B Purchase of Office Depot Faces FTC Opposition

Connect Retail is our weekly column on the sector, authored by veteran CRE writer Ian Ritter.

It looks like Staples could win its bid to snap up competitor Office Depot, despite objections from the Federal Trade Commission (FTC). The $6.3-billion deal will have Staples absorb Office Depot, creating a company of nearly 6,000 stores. This comes after Office Depot merged with OfficeMax in 2013.

A judge is apparently considering throwing out the FTC’s case, especially upon supposed information that the commission tried to get Amazon to lie in the case, saying that the mega retail merger would impact the e-tail giant’s upcoming business venture into the office-supplies space, even though Amazon is already selling such products.

But, the problem with the FTC’s consternation about a proposed Staples acquisition of Office Depot is that one can purchase office supplies virtually anywhere right now. Walmart and Target sell them, and so do dollar stores, drug stores and even major-market grocers.

It’s not as if the “new” Staples would really have a monopoly on office supplies. There are other major chains out there that have just as much buying clout selling this line of products.

The downside, unfortunately, is going to be for the commercial real estate owners of shopping centers. Office Depot already has a slew of store closings planned.

Do you think the merger should go through, and how will the store closings impact CRE?

 

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One Response to CONNECT RETAIL: Staples’ $6.3B Purchase of Office Depot Faces FTC Opposition

  1. From day one, some 25 years ago (I remember more recently attending the 20th anniversary of one of the major OSS concepts a little more than three years ago – to say that it was a shocker to me, that the majority of these original concepts whom helped to create and shape the category for some 20 to 25 years had in fact, really been in existence that long.

    Noting the over-used cliché, that “Hindsight is 20-20”. Regardless of the number of competitors within this particular retail space, my opinion, which clearly swayed by the winds of change which began blowing at gale force in 2008, for sure, and which continue until present day, predominantly at present in the form of market fragmentation and the ongoing forces of consolidation. Simply, it was this turbulence which had forced me to feel compelled to revise my opinions of the sector frequently. The narrative today was driven primarily by the fact that a fundamental defect in strategy had existed from the very beginning for those that helped originally shape the category which also applied to the newcomers to the category, who had opportunistically entered the fray for reasons obvious.
    To summarize, the original cause as well as today’s highly visible symptoms were eerily similar, and in large part were caused by a footprint size significantly too large, along with a massive number of SKUs which made it almost impossible to protect the flank in any defensive strategy (reaching north of 50,000 SKU’s in quantity, (rivaling that of a mid-sized grocer). And yet it was this massive assortment of SKUs along with a grossly oversized floor plate, that made this category almost unmanageable from a strategic and defensive perspective, The category thus was destined from early on to face problems especially as scalable growth began to fill out, particularly as it related to protecting and maneuvering against aggressive competition. With the sectors original concepts all publicly traded, a fairly sizable amount of operating data was available for the taking. Specifically as it related to formulating entry strategies to hit the original concept’s where it hurt.

    This position the original players as sitting ducks, thus the most profitable departments were cloned first, such as by way of example, the copy center and services. As mass merchants as well as other outsiders , chose to cannibalize where it hurt most, again within those highest margin departments.

    When the dust settles, it will be curious to see how this once lucrative category ultimately shakes out. With the massive amounts of consolidation which we’ve seen with every category.

    I do hope for some success by downsizing by 50% or more, and carefully picking those elements of the larger model to create a greater profit margin along with a manageable defensive underbelly. With the correct braintrust at the helm, this resurrection could provide a sustainable and profitable category that can provide another 25 years of excitement.