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WIKI ANALYSIS
OfficeMax Inc. (NYSE: OMX) is the third largest office supply retailer in the United States. The company operates two main divisions: one that sells office supplies in retail stores and another that deals directly with mid-size and large businesses via contract sales. OfficeMax's $7.2 billion in total sales in 2009, a 12.8% decrease from 2008, was about equally split between the two divisions.
OfficeMax substantially trails market leaders Staples (SPLS) and Office Depot (ODP) in terms of sales, with each earning $24.3 billion[1] and $12.1 billion[2] respectively. Although OfficeMax has put an emphasis on improving its profit margins, the company still trails the much larger Staples considerably because Staples has greater economies of scale.
The sluggish economy has hurt OfficeMax's bottom line as individual consumers and businesses cut back on spending on non-essential items like office supplies. As a result, the demand for OfficeMax's products and services decreased. In 2008 and 2009, net sales fell by 9% and 12.8% respectively and the company had net losses of $1.7 billion and $2 million respectively as well.[3]
Company Overview
Services[4]
OfficeMax opened its first retail store in 1988 in Cleveland, Ohio. OfficeMax has two primary divisions of business -- Contract and Retail -- that provide similar services to different customers. Each segment represents about half of the company's total revenues.
- OfficeMax Contract: OfficeMax Contract sells products and services directly to small, mid-sized and large businesses, as well as government offices. OfficeMax provides these businesses with office supplies and paper, technology products and solutions, office furniture and print and document services. The company operates 44 distribution centers worldwide.[5]
- Office Max Retail: OfficeMax operates 1,010 retail stores in the United States and Mexico.[5] These stores sell the same products as the Contract division but are directed at consumers and small businesses. hello
Business Growth
FY 2009 (ended December 26, 2009)[3]
- Net sales fell 12.8% to $7.2 billion due to decreased demand from the sluggish economy which negatively impacted all product categories and geographic areas in both the Contract and Retail segments -- Contract growth was -15.2% and Retail growth was -10.2%.
- The company improved to a net loss of $2 million for the year compared to a net loss of $1.7 billion in 2008.
Trends and Forces
General Economic Forces
Domestically, the demand for office products is correlated with many different measures--white collar employment, small business spending, and national GDP--which are all indicators of the overall health of the macro-economy. In a sluggish economy, consumers and businesses cut back on spending to save money and tend to purchase fewer supplies, hurting the demand for OfficeMax's products. A high white-collar unemployment rate also decreases the demand for office supplies. As a result of the economic pressure, OfficeMax's bottom line has felt the effects. In 2008 and 2009, net sales fell by 9% and 12.8% respectively and the company had net losses of $1.7 billion and $2 million respectively as well.[3]
Unlike some of its other competitors, like Staples (SPLS), OfficeMax doesn't have a particularly strong international presence to hedge the domestic economic pressures. The company only has 13 out of its 44 Contract distribution centers outside of North America and only 77 of the company's 1,010 retail stores are located outside of the United States (the rest are located in Mexico).
Competition
OfficeMax has struggled to keep up with its two main competitors, Staples (SPLS) and Office Depot (ODP).
Staples is currently the faraway industry leader with sales and profits substantially above both OfficeMax and Office Depot. Their higher operating margin can be attributed to Staples' higher productivity, efficiency and use of private label products. Also Staples is a much larger company than both Office Depot and OfficeMax -- in terms of stores and total revenue -- and thus has greater economies of scale in terms of purchasing power.
References
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