Office Depot Potter Analysis Essay

We strive to ensure that our customers’ needs are satisfied through various channel offerings. Our direct business is tailored to serve small- to medium-sized customers. * sales representatives contribute to customer loyalty by building relationships with customers and providing information, business tools and problem-solving solutions to them. * offering a broad selection of nationally branded office products, as well as private brand products and services. Our selection of private brand products has increased in breadth and level of sophistication over time. We currently offer general office supplies, computer supplies, business machines and related supplies, and office furniture under various labels, including Office Depot ®, Viking Office Products ®, Foray ®, Ativa ®, Break Escapesâ„ ¢, Nicedayâ„ ¢ and Worklifeâ„ ¢ * office supplies specialty stores faced heightened competition from discount department stores, warehouse clubs, supercenters and e-commerce websites, which have undercut demand and eroded the industry’s sales. Threat of new entrants: Most office supplies are commoditized products, which have little brand loyalty. This, along with low end user switching costs, little government regulation, and easy access to suppliers and distribution channels, is conducive to the entry of new players into the market. Larger players benefit from scale economies that allow them to compete with high-volume office supply providers that lead the market. Larger players with greater financial muscle would be able to negotiate better contracts with suppliers and therefore achieve better profit margins. Entry can be achieved on a smaller scale by focusing on a specific product range (e. g. n ink cartridge specialty store) or by developing an online retail shop. Poor growth in recent years, with stagnant growth forecast for the 2010-2015 period, decreases the threat of new entrants into the market somewhat. Overall, the threat of new entrants is strong. * Staples, Office Depot and Office Max make up nearly $41 Billion of that total and Staples claiming one third of the market share. Thus, barriers to entry are high as these few firms dominate market share. * along with low brand loyalty and easy access to suppliers and distribution, also contribute to the high likelihood of new entrants Power of Buyer: The office supply sector has customers including corporate, government, small business, and individual households. While individual households hold relatively little buying power, corporate and government business partners can have significant impact on the market environment. * abundance and diversity of buyers weakens buyer power. However, it is strengths due to low-cost switching, low product differentiation, and high price sensitivity strengthen it. Suppliers: * Suppliers to this industry hold less power. Since retailers offer similar costing products and services, few manufacturers can differentiate themselves. There are at least ten major competitors in the paper industry alone, for example, and on top of this the individual office suppliers themselves often carry their own line of generic product. * there are a number of substitutes available to consumers. Discount furniture outlets such as Ikea offer desks and chairs for the home office. For businesses, companies like Steelcase can furnish entire buildings all under one contract, whereas an office supply outlet cannot. Major corporations often enter into purchasing agreements with the computer manufacturers themselves to order in bulk. Retail outlets such as Best Buy offer the same technology as the office suppliers, often at a very competitive price. Finally, Wal-Mart is a major†¦ * Suppliers range from multinational high-office providers to local stationeries. * Suppliers are numerous, and low differentiation, along with some backwards integration by players who sell their own branded goods, weakens supplier power. Rivarly among firms: * Players range in size and product diversity; they include high-volume office supply providers (e. g. Staples), warehouse clubs (e. g. Costco), copy and print businesses (e. g. FedEx Office), online retailers (e. g. Amazon. com), ink cartridge specialty stores, discount retailers, as well as several local and regional contract stationers. The large number of players, along with low-cost switching for buyers, low product differentiation, easy expansion by utilizing the internet, and poor market growth in recent years, intensifies rivalry amongst incumbents. This is ameliorated somewhat by the diversity displayed in the product portfolio of some players, such as online retailers and discount retailers, who operate in other markets and are therefore not solely reliant on the revenues generated from the office services and supplies market. Relatively low storage costs and the non-specificity of players’ assets lowers barriers to exit and eases rivalry. Overall, rivalry is strong. * * The large number of players, along with low-cost switching for buyers, low product differentiation, easy expansion by utilizing the internet, and poor market growth in recent years, intensifies rivalry amongst incumbents. http://360. datamonitor. com. ezproxy. fau. edu/Product? pid=4CA55D31-18F9-44E1-BB86-D1E5E5306887 http://www. wikinvest. com/stock/Office_Depot_%28ODP%29/Filing/10-K/2010/F46736398#toc38397_1 COMPETITION: We operate in a highly competitive environment in all three of our segments. We believe that we compete favorably on the basis of price, service, relationships and selection. We compete with office supply stores, wholesale clubs, discount stores, mass merchandisers, food and drug stores, computer and electronics superstores, internet-based companies and direct marketing companies. These companies, in varying degrees, compete with us in substantially all of our current markets. Other office supply retail companies market similarly to us in terms of store format, pricing strategy, product selection and product availability in the markets where we operate, primarily those in the U. S. and Canada. We anticipate that in the future we will face increased competition from these chains. Internationally, we compete on a similar basis to North America. Outside of the U. S. and Canada, we sell through contract and catalog channels in 17 countries and operate retail stores in four countries through wholly-owned or majority-owned entities. Additionally, our International Division provides office products and services in 34 countries through joint ventures, licensing and franchise agreements, cross-border transactions, alliances and other arrangements. Competition — We compete with a variety of retailers, dealers, distributors, contract stationers, direct marketers and internet operators throughout our worldwide operations. This is a highly competitive marketplace that includes such retail competitors as office supply stores, warehouse clubs, computer and electronics stores, mass merchant retailers, local merchants, grocery and drug-store chains as well as other competitors including direct mail and internet merchants, contract stationers, and direct manufacturers. Our competitors may be local, regional, national or international. Further, competition may come from highly-specialized low-cost merchants, including ink refill stores and kiosks, original equipment manufacturers, concentrated direct marketing channels including well-funded and broad-based enterprises. There is a possibility that any or all of these competitors could become more aggressive in the future, thereby increasing the number and breadth of our competitors. In recent years, new and well-funded competitors have begun competing in certain aspects of our business. For example, two major common carriers of goods have retail outlets that allow them to compete directly for copy, printing, packaging and shipping business, and offer products and services similar to those we offer. While they do not yet have the breadth of products that we offer, they are extremely competitive in the areas of package shipping and copy and print centers. Recently, the so-called warehouse clubs have expanded upon their â€Å"in-store† offerings by adding catalog and internet sales channels, offering a broad assortment of office products for sale on a direct delivery basis. In order to achieve and maintain expected profitability levels in our three operating divisions, we must continue to grow by adding new customers and taking market share from competitors and using pricing necessary to retain existing customers. If we fail to adequately address and respond to these pressures in both North America and internationally, it could have a material adverse effect on our business, financial condition, results of operations and cash flows. HIGH EXIT COSTS: The company has been adversely affected by the downturn in the global economy in recent years and has taken actions to adapt to the changing and increasingly competitive conditions including closing stores and distribution centers (â€Å"DCs†), consolidating functional activities and disposing of businesses and assets. Exit costs related to these activities recognized during the year-to-date 2011 totaled approximately $25 million. Of this amount, approximately $17 million is included in Store and warehouse operating and selling expenses and approximately $8 million is included in General and administrative expenses on the Condensed Consolidated Statement of Operations. http://www. sec. gov/Archives/edgar/data/800240/000119312511279497/d241553d10q. htm BUYERS: Government Contracts — One of our largest U. S. ustomer groups consists of various state and local governments, government agencies and non-profit organizations. Our relationship with this customer group is subject to uncertain future funding levels and federal and state procurement laws and requires restrictive contract terms; any of these factors could curtail current or future business. Contracting with state and local governments is highly competitive and can be expensive and time-consuming, often requiring that we incur significant upfront time and expense without any assurance that we will win a contract. Our ability to compete successfully for and retain business with the federal and various state and local governments is highly dependent on cost-effective performance. Our government business is also sensitive to changes in national and international priorities and U. S. , state and local government budgets. SUPPLIERS: Product Availability; Potential Cost Increases — In addition to selling our private brand merchandise, we are a reseller of manufacturers’ branded items and are thereby dependent on the availability and pricing of key products, including ink, toner, paper and technology products, to name a few. As a reseller, we cannot control the supply, design, function or cost of many of the products we offer for sale. Disruptions in the availability of raw materials used in production of these products may adversely affect our sales and result in customer dissatisfaction. Further, we cannot control the cost of manufacturers’ products and cost increases must either be passed along to our customers or result in an erosion of our earnings. Failure to identify desirable products and make them available to our customers when desired and at attractive prices could have a material adverse effect on our business, financial condition, results of operations and cash flows. PRODUCT IDENTITY: THREat of NEW ENTRANTS Global Sourcing of Products/Private Brand — In recent years, we have substantially increased the number and types of products that we sell under our private brands including Office Depot ® and other proprietary brands. Sources of supply may prove to be unreliable, or the quality of the globally sourced products may vary from our expectations. Economic and civil unrest in areas of the world where we source such products, as well as shipping and dockage issues could adversely impact the availability or cost of such products, or both. Moreover, as we seek indemnities from the manufacturers of these products, the uncertainty of realization of any such indemnity and the lack of understanding of U. S. roduct liability laws in certain parts of Asia make it more likely that we may have to respond to claims or complaints from our customers. Most of our imported goods to the United States arrive from Asia, and the ports through which these goods are imported are located primarily on the U. S. West Coast. Therefore, we are subject to potential disruption of our supplies of goods for resale due to labor unrest, security issues or natural disasters affecting any or all of these ports. Finally, as a significant importer of manufactured goods from foreign countries, we are vulnerable to security concerns, labor unrest and other factors that may affect the availability and reliability of ports of entry for the products that we source. Any of these circumstances could have a material adverse effect on our business, financial condition, results of operations and cash flows. STAKEHOLDERS: Unionization — While our management believes that our employee relations are good, we cannot be assured that we will not experience pressure from labor unions or become the target of campaigns similar to those faced by our competitors. The potential for unionization could increase if the United States Congress passes federal legislation that would facilitate labor organization. The unionization of a significant portion of our workforce could increase our overall costs at the affected locations and adversely affect our flexibility to run our business in the most efficient manner to remain competitive or acquire new business. In addition, significant union representation would require us to negotiate wages, salaries, benefits and ther terms with many of our employees collectively and could adversely affect our results of operations by increasing our labor costs or otherwise restricting our ability to maximize the efficiency of our operations. Regulatory Environment — While businesses are subject to regulatory matters relating to the conduct of their businesses, including consumer protection laws, advertising regulations, wage and hour regulations and the like, certain jurisdictions have taken a particularly ag gressive stance with respect to such matters and have stepped up enforcement, including fines and other sanctions. We transact substantial amounts of business in certain such jurisdictions, and to the extent that our business locations are exposed to what might be termed a challenging enforcement environment or legal or regulatory systems that authorize or encourage private parties to pursue relief under so-called private attorney general laws and similar authorizations for private parties to pursue enforcement of governmental laws and regulations, the resulting fines and exposure to third party liability (such as monetary recoveries and recoveries of attorneys fees) could have a material adverse effect on our business and results of operations, including the added cost of increased preventative measures that we may determine to be necessary to conduct business in such locales. Product differentiation: Office Depot has made efforts to increase its profitability by offering copy and print services, company has integrated copy and print services into retail and commercial businesses. Staples provid es those services as well= intense competition among rivals. Threats: Low confidence among the small and medium scale businesses and high office vacancy rates indicates sluggish spending The economic trends in the US indicate sluggish spending on office products and supplies. The optimism index (the index determining the spending inclination of the businesses) of a nonprofit, nonpartisan organization, representing small and independent businesses in the US, dropped to 89. 9 in July 2011 from 97. 6 in July 2007. The drop in July 2011 was the fifth monthly decrease in a row. With low levels of optimism, the small businesses are expected to cut costs. Additionally, in the Office Depot Small Business Index released in August 2011, 66% of the small and medium scale businesses (SMBs) said that the economic downturn has affected their business. Nearly 79% of businesses surveyed indicated no plans to hire or add to their staff in the near future. Another negative trend is witnessed in the office vacancy rates in the US. According to industry estimates, the office vacancy rate was 17. 6% in the last quarter of 2010, and decreased slightly to 17. 5% in the first quarter of 2011. Office Depot has high correlation to macro economic trends which was reflected in the sales decline of its business segments, North American retail, and North American business solutions during FY2008–10. During this period, the revenues from North American retail segment decreased by 18. 8%, and revenues from the North American business solutions segment decreased by 20. 6%. With the declining optimism and spending by the SMBs, the demand for Office Depot’s merchandise Opportunities: Portfolio of environment friendly products In the recent times, sustainability and energy efficiency have gained in popularity owing to the increase in energy costs. More and more organizations have been adopting sustainable ways of doing business to reduce costs and remain competitive. In order to cater to the growing demand for sustainable and energy efficient products, Office Depot offers a range of environment friendly products. The company offers a Green catalog, which features products that are recyclable, energy efficient, or have a reduced impact on the environment. The company also operates a separate section on its website, officedepot. com, to sell its green products online. In 2010, Office Depot, in partnership with EarthEra, introduced Greener Shipping solution. The solution allows business customers to earn rewards and product discounts for reducing the carbon footprint associated with their office supply orders. In February 2011, Office Depot launched new assortment of energy efficient lamps under the Realspace brand. Furthermore, in August 2011, Office Depot started offering its customers the option to receive their supplies in a paper bag instead of a cardboard box. Office Depot’s increased focus on providing environment friendly products amidst growing demand for eco-friendly and energy efficient products would increase the company’s revenues from the product line. Broadening computer assortment by offering tablets Tablets are similar to PC’s and were previously used in only niche professional areas as they were bulky and had poor processing power and suffered from battery life problems. However, with technological advancements, tablets have increasingly become more sophisticated and are finding applications in many industries. According to the industry estimates, the global market of tablet computers such as Apple iPad, Galaxy Tab Samsung and BlackBerry Playbook is expected to increase from $16 billion in 2010 to $46 billion in 2014, registering a CAGR of 30%. In 2010, North America was the leading market for tablet computers. To tap the growing market for tablets, Office Depot too has been taking various initiatives to increase the assortment of tablets offered at its stores. In April 2011, the company started offering BlackBerry PlayBook tablets at its stores. In the following month, Office Depot started offering the Acer Iconia Office Depot, Inc. Page 25  © Datamonitor Office Depot, Inc. SWOT Analysis Tab A500 at its stores. Further in June 2011, Office Depot announced the pre-sale availability of the Toshiba Thrive tablets on its website. The latest tablet to be added to the company’s assortment of tablets was the Lenovo IdeaPad in August 2011. Besides these, the company also offers tablets from various brands such as HP TouchPad, ASUS Transformer, ViewSonic G-Tablet, and Velocity Micro Cruz. Office Depot also offers various accessories needed for these tablets. By increasing its assortment in the tablets category, Office Depot can drive incremental comparative store sales and facilitate top line growth. Improving store efficiency The company has taken up several initiatives to improve its store efficiency in the recent times. Office Depot plans to remodel nearly 50 of its traditional stores with the M2 format in 2011. There are two versions of this format, M2M and M2S. A typical M2M store is spread across an area of approximately 20,000 square feet, and a M2S store across an area of 15,000 square feet. These two formats will help the company to improve product display with updated signage and lighting. It will also lower overall operating costs for the company. Additionally, Office Depot has been testing a new smaller concept store. These stores are spread across an area of 5,000 square feet. These smaller stores would offer only half the items found at a regular Office Depot store, but that would encompass more than 90% of the product categories regularly sold. Smaller stores would not only reduce Office Depot’s operating costs but also facilitate its quick penetration in urban areas where it is difficult to find appropriate space. http://360. datamonitor. com. ezproxy. fau. edu/Product? pid=DBCM6748;amp;view=d0e340 http://www. sec. gov/Archives/edgar/data/800240/000119312511041599/d10k. htm