Contributing Member of the Consumer Goods & Services Councils

All News Analyses by this Author

Taking Care of Business(earnings reporting) A Little Too Much?

November 26, 2007

Analysis of:Office Depot Announces Third Quarter Results | mediarelations.officedepot.com

1.Despite the quick turnaround in announcing the less severe than expected financial impact that the vendor allocation timing issues have had over the past 4 quarters, uncertainty still abounds regarding the Leadership, business model and ultimate turnaround strategy for Office Depot. 2.Within the text of the 3rd quarter earnings announcement are statements which are "eerily" similar to those announced at the beginning of FY 2006 at OfficeMax such as lowering payroll and advertising costs with a significant curtailment in new store growth. 3.Given the fact that the US economy continues to operate in an extremely soft office products environment with strong indicators that Europe and particularly the UK are also showing slowdown signs, ODP will continue to struggle when overhead expenses created by last years B to B acquisitions and related investments in integration and salaries are additionally factored into a highly leveraged company.

Q3 Earnings at OfficeMax Reflect a Continued Soft Economy

November 15, 2007

Analysis of:OfficeMax Reports Third Quarter 2007 Financial Results | officemax.mediaroom.com

1)Despite a very soft year overall in the Office Supply sector, OMX has achieved 3 consecutive quarters of positive retail store comps and could very well be taking share from struggling ODP in overlap markets. 2)Although overall contract sales grew by 2.4% against Q3 LY(reflecting mainly growth in International), sales in the US Contract Division of (1.9%) quarter over quarter reflect continued difficulty in retaining existing accounts and/or opening new business accounts with mid and large businesses. 3)With 7 consecutive fiscal quarters of cost-cutting activities on nearly every controllable expense line driving much of the bottom line successes, one has to wonder how much longer this strategy can last without the "silver bullet" of topline sales growth in retail store, Contract and E-commerce divisions.

Staples Innovates Again--This Time in China

November 12, 2007

Analysis of:Staples and UPS Announce Joint Venture in China for New Co-Branded Store | phx.corporate-ir.net

1)Within a very saturated marketplace of Office Supply superstores, could a smaller footprint store that features core office supplies, print and document services and shipping be the ultimate answer to retail store expansion in the sector? 2)Given escalating rent cost in large metropolitan areas, a smaller store with lower inventory investment but a solid assortment of top sellers and on demand services serves the needs of the time-compressed consumer and small business owner. 3)By containing rent, taxes, payroll overhead and cost of inventory in a store estimated to be roughly half the size of a prototypical Staples, the real estate pro forma and business model sales required to reach profitability would be proportionately less than that of the standard 20-22,000 sq.ft.prototype. 4)This compact model would also work well in towns with less population and significantally reduced business counts within a 5 mile ring of the location.  

Office Depot On the Ropes?

November 12, 2007

Analysis of:Office Depot Announces Delay of Third Quarter Earnings | mediarelations.officedepot.com

1)Given ODP's lackluster Q1 and Q2 Earnings announcements TY, will analyst and investor confidence again be shaken in the midst of an internal investigation that could destroy EPS this year and continue to erode share price? 2)ODP continues to struggle and appears to be mired in turnaround efforts while SPLS has continually grown share and profitability. 3)Analyst and investor focus has begun shifting towards Steve Odland's leadership, business acumen and inability to sustain company growth in two successive years. 4)Will the internal investigation regarding timing of recognition of vendor revenue funding ultimately lead to sanctions/fines from the FTC levied against ODP and if so, will this internal investigation ultimately affect all retailers who participate in these lucrative incentives with little or no current Federal regulation? 5)Could the "irregularities" border on violation of Sarbanes-Oxley?

Office Depot Likely to Join Lowe's and Target With Revised Year End Earnings Forecast

September 28, 2007

Analysis of:Consumer spending slows, retailers take hit | www.nydailynews.com

The fallout at retailers is not yet over and I expect that other retailers will also struggle in a very tough economic climate. Signs that this will occur are evidenced in the following over the past several months: 1)Staples 2nd Quarter earnings announcement included negative same store sales, a phenomenon that I cannot recall occuring anytime in the past 5 years. 2)Office Depot announced on September 11th, the release date of 3rd Quarter Earnings, unusual, given the fact that they normally make this statement about 1.5 weeks vs 6 weeks prior to the end of a fiscal quarter. 3)Within the text of this release, Office Depot also announced observing a "quiet" period during which time the company will not have discussion with any members of the investment community.

Like Elvis, Will Retailers Have A Blue Christmas?

September 28, 2007

Analysis of:Goods Orders Off Sharply for August | www.nytimes.com

Given the fact that unless you've spent the last year in a cave in Afghanistan and have not as yet heard anything about the cascading effect the housing and subprime mortgage markets have had on the economy, this article points to the fact that it just might be getting worse vs better. Validation includes: 1)New orders for high priced manufactured goods dropped at the sharpest rate in 7 months in August. 2)Orders for durable goods fell by 4.9% against analyst forecast of 3.1%. 3)Orders outside the military sector for capital goods fell 0.7% in August after gaining 0.9% in July, a sign that growth is slowing in Q3.

Office Depot Looks to Loyalty Program to Bolster Weak First Half

September 13, 2007

Analysis of:Office Depot Launches Industry-Leading Customer Rewards Program | mediarelations.officedepot.com

-On the positive side, loyalty programs can definitely build Brand awareness, market share growth, frequency of visits and average ticket size: however, the risk of offering a higher % of total sale back in the form of gift cards can outweigh the positive benefits if only current customer base takes advantage of the "sweeter deal". -Programs such as Worklife Rewards at ODP must be coupled with shrewd, innovative and differentiated elements from those of competition if the true goal of attracting new customers(away from competition) is to be met. -Given the current state of a very soft US economy, particularly in the small and midsize business sector, the launch of this newly enhanced loyalty program must have teeth, pizazz, repetitiveness of message, support from retail store, contract, and e-commerce segments and the ultimate ability to sell the customer that "ours is better than theirs."

Office Supply Sector Principals Will Face Stiffer Competition in 2007 and 2008 From FedEx Kinko's

September 5, 2007

Analysis of:FedEx Kinko's Escalates Expansion Efforts | www.retailnet.com

1.)With a very tough front half of FY 2007 behind them regarding retail store comps, the Office Supply sector players will be continually pressed to find ways to drive topline revenues the balance of this year and next as a "new" core supplies player drops over 700 new and strategically placed stores onto the retail landscape. 2.)FedEx Kinko's profitability model will succeed by adding core office supply sku's carrying gross margins ranging from 35-40% to existing print and shipping services which already carry GM as high as 70%. Coupled with lower rent costs from small stores averaging less than 2,000 sq.ft., this new format should prove to be highly competitive and profitable against the 20,000+sq.ft.megastores of ODP,SPLS and OMX. 3.)The focus customer in these FDX mini-stores is small and midsize businesses that currently accounts for over 50% of all revenue in the print division at FedEx Kinko's. The key consideration for Real Estate and site selection will be business counts.

Negative Store Comps at Staples?? Surely, I Must Be Dreaming!

August 23, 2007

Analysis of:Staples Meets Expectations | www.thestreet.com

1)Staples unprecedented quarterly earnings run of positive store comps has ended abruptly, further evidencing the continued and potentially growing weakness of the US small and midsize business economy. 2)Citing a "tough retail environment" which translated into much lower sales of high ticket/durables such as furniture, business machines as well as basic core supplies, it appears that Staples same store declines in Q2 could well be a harbinger for a very tough back half and holiday season for many chain retailers. 3)The importance of topline revenues in the Back To School season become even more magnified with the uncharacteristic retail store decline in Q2. 4)By all indications, the consumer and business with cash to spend in the back half may find themselves in a paradise of promotions and perhaps, even price wars in the traditional retail sectors. 5)Key suppliers to the OSS such as ACCO, Avery, Mead and others could face cancelled or at minimum, reduced orders in Q's 3 and 4.

HP Flexes its Market Value Muscle Again

August 21, 2007

Analysis of:Sales of Ink and Laptops Push HP Past Forecast | www.nytimes.com

Despite concerns that remanufactured(third party) ink and toner cartridges continually push HP for share in the lucrative ink consumable market, HP has delivered a potent punch combination of brand image, marketing, promotional activity within the CE and Office supply sector and first-to-market technology which has and will continue to distance them from chief rivals, Dell and LexMark in the PC, print-on-demand and ink/consumable arena. It would appear that concern for Kodak's entry into the printer and ink business with its bold and innovative marketing strategy reversing the razor and blade philosophy of HP is totally unfounded based on the last 2 quarters of earnings at HP. Despite the slowdown in the US economy in the first half of FY 2007 and lackluster earnings announcements from key CE and Office Supply sector players, HP has proven that laptop PC growth and market basket sales of ink, photo paper and printers is surely a huge and ever growing opportunity.

Retail Store Comps Remain Healthy/Contract Continues to Struggle at OfficeMax

August 2, 2007

Analysis of:OfficeMax Reports Second Quarter 2007 Financial Results | officemax.mediaroom.com

-With little or no viable indicators that the US economy will rebound in the back half of FY 2007, OfficeMax faces tremendous pressure to quickly "right the ship" in its contract segment which is currently negating gains being made in its retail same store comps. -Weakness in contract further highlights the disparity in Brand image between OMX and chief rivals, Staples and Office Depot and the difficulty they are experiencing in luring new small and midsize business customers into their fold. -Topline company revenues are almost evenly split between retail store and contract which further necessitates the need for a nearly instantaneous turnaround in the contract segment and facing the risk of share declines to its competition which is growing share in this segment each quarter. -Business model in contract relies too heavily on large business which produces significantly lower margin levels. Ongoing challenge/opportunity remains as increasing penetration of this particular base. 

Housing Meltdown, Slow Economy and New Store Growth(Cannibalization) Sink ODP Net Earnings in First Half

August 2, 2007

Analysis of:Office Depot Names Yalmaz Siddiqui Environmental Strategy Advisor | mediarelations.officedepot.com

1)After a record setting year in 2006, Office Depot finds itself in a most precarious earnings position for full year 2007. 2)Continued pressure will fall on expense reduction if the all important Back To School season does not play out well for ODP. 3)Competitive growth in new store planned openings has already fallen victim to the soft first half with revised guidance for 125 new stores TY vs 150 previously planned and 150 in 2008 vs 200 originally planned. 4)No viable indications that the soft economy will turnaround in the back half. 5)Potential loss of market share to competition as OfficeMax has announced positive retail store comps in each of the first 2 quarters while Office Depot has posted (3%) and (5%) comps respectively in Q1 and Q2. Staples had positive store comps in Q1 and will most likely post positively again in Q2 despite the soft economy. 6)Anticipated slowdown in old format store remodels to the new Millenium 2 prototype which produce higher sales/sq.ft.

Short "Circuiting" Staffing in stores is a Catch 22

July 10, 2007

Analysis of:Circuit City Cuts Deeper; 800 Let go at HQ, Stores | www.newsobserver.com

At a time when technology in TV's, home theatre, CPU's, printers, cell phones and personal electronics as at optimum levels and consumer demand for having well-trained, savvy associates is an absolute prerequisite for assisting the buying decision, Circuit City has gone in the opposite direction through mass layoffs of experienced staff with replacement by lower paid, less tech-savvy staff. Implications of such a move include: 1)Risk of further sales declines since inexperienced staff will struggle with closing sales and suggesting high margin add-ons. 2)Customer alienation-with fewer sales people on the salesfloor coupled with a diminished technology knowledge base, customers who are time-compressed and non-technical are more prone to moving their decision to buy at a store with comparable prices, favorable selection, and superior service--you guessed it--Best Buy! 3)The 110 million in expense line savings will ultimately pale by comparison when topline sales shrink proportionately

Best Buy "Versions" Stores to Further Enhance the Customer Experience

July 10, 2007

Analysis of:Cleaner, Greener Power | www.chainstoreage.com

As the best of the multi-channel retailers continue to define customer base through assortments and niche marketing venues, Best Buy's strategy to allow customers within market to "pull" the local assortment based on needs and preferences vs a "push" methodology based on what a retailer thinks its customer base wants is a very strategic business model for the following reasons: 1)Assortments can be narrowed and thus, inventory cost/turns/ROI can all be positively impacted by carrying must have vs "cookie cut" assortment. 2)Greater focus can be placed on high demand, never out products which maximizes sales exposure and minimizes markdown risk. 3)Customer loyalty is continually enhanced through perpetual confidence of instock. 4)Best Buy continues to grow its brand and be viewed as a solution provider/consumer partner vs a goods and services destination as is the case with rival, Circuit City.

Recovery Woes in the US Continue at Corporate Express

July 9, 2007

Analysis of:Troubled Corporate Express Faces Activist Agitation | theaustralian.news.com.au

Facing the negative impact of cuts in spending by large US businesses, Corporate Express continues to produce disfavor amongst shareholders and analysts who feel that CEO Frans Koffrie has not kept promise of an imminent recovery. Most recently, the threat from Centaurus, coupled with declining share price and continued pressure from the key Office Supply players in the US has created the perception that a takeover bid could soon be forthcoming. Organic pressures in the US have come from the following: 1)General weakness of the economy in terms of mid and large size business spending. 2)Pressure from the Office Supply sector as they continue to push for share on the Contract side. 3)CE's lack of brand image in the US due to non-existence of retail store presence. 4)Limited resources and brand appeal that make media marketing, print, direct mail and e-commerce campaigns work well for the multi-channel players. 5)A business model built primarily on dependence of large business.

Service(and Sales) Slide at Home Improvement Retailers

July 6, 2007

Analysis of:Self-Serve Retail: the trouble with Lowes and Home Depot | retailstore.blogspot.com

Although the author of the source article cites a valid complaint relating to his particular experience, I do not agree that this is the type of service levels exhibited at each and every Home Depot or Lowe's location. In today's time-compressed shopping world, service and the expectation of world-class service is no longer considered a differentiator amongst retailers in a particular channel; that said, there is no doubt that when topline sales sag, the first and easiest expense line to cut is payroll, always the largest controllable expense in any company. What retailers don't always consider is the fact that saving money will quickly impact the bottom line, but, at what expense in terms of branding, market share, topline sales, etc? Going backwards to stop the bleeding is at best, a short term strategy--it is also a self-fulfilling prophecy of doom once you've cycled against yourself over the course of a full year and there is nowhere else to cut when a new year begins.

Expansion of Private Label Brands a High Profile Strategy in the Eckerd's Conversions

July 6, 2007

Analysis of:Rite Aid Begins Transformation | www.drugstorenews.com

As Rite Aid embarks on its journey of converting the recently acquired Eckerd's stores to its own format, it comes as no surprise that taking the Eckerd brand off the market over the next 16 months will be its first priority. Although brand identity stands for a myriad of store experience synergies created for the consumer(cleanliness, instock, selection, quality of staff, price, et al) that differentiate one player from another within the sector, focus on private label products must be the cornerstone of an overall company brand strategy that garners loyalty through repeat visits. This is key for several reasons: 1)A quick ramp-up of stores in markets like Detroit, DC, LA and Atlanta where competition in store counts and front store sales penetration is heavy. 2)Eckerd stores produced 7% of topline in private label--the prototype Rite Aid, 12.6%. 3)Rite Aid's new brand campaign "With Us It's Personal" will boost the Eckerd stores in markets that had little or no Rite Aid presence.

Multi-Channel Retailers Can Profit From On-line Slowdown

June 18, 2007

Analysis of:Online Sales Lose Steam as Buyers Grow Web-weary | www.nytimes.com

1)Jupiter Research, a market research firm specializing in e-commerce feels that the growth rate for online sales has peaked(LY close to 26% overall in all channels combined) and projects overall growth rate at 9% by 2010. 2)Pressure from smaller or niche retailers has increased dramatically over the past several years. Online e-tailers such as Blue Nile, Williams-Sonoma, Zappos, Redcats USA and scores of others who have "category killed" as well as targeted specific demographics like income, education and event planning have fared better, percentage-wise than traditional multi-channel or established e-tailer competitors. 3)Brick and mortar retailers like Best Buy, Sears, Borders, Circuit City and others have leveraged website usage and loyalty by offering in-store pick up and returns as differentiators of convenience and choice as well as to offset the negative aspects of spiraling delivery costs of products purchased online.

Is There a "Perfect" E-tailing Website?

June 18, 2007

Analysis of:Bad practice is more common practice than good practice with websites | www.theretailbulletin.com

1)As the fastest growing sales channel in retail, the stakes are high but the rewards of increased revenue generation are even higher for retailers who continue to develop customer friendly websites. 2)Although the Top10 e-tailers consist of some of the largest multi-channel retailers in the US(Staples, Office Depot, Sears, OfficeMax, et al), the fastest growing segment are smaller niche retailers who specialize and know what truly makes their customers tick. The internet can truly "level the playing field" between smaller, start-up companies against the giant chain retailers. 3)There are many factors of differentiation that separate the best of the e-tailers from the rest; perhaps the most compelling differentiator today is serving a "niche" customer(ex.Costco focus on high income, college educated consumer and Blue Nile who focuses on men who shop for high priced jewelry for occasions such as engagement).

Who Will Be the First Player in the Office Supply sector to Successfully Launch In-Store Pickup?

June 17, 2007

Analysis of:Pick-up Artist | www.internetretailer.com

1)Being first to market this concept could well be part of the solution of turning around relatively soft Q1 financials for ODP(NYS:ODP), SPLS(NMS:SPLS) and OMX(NYS:OMX). 2)Playing off the fact that consumers and businesses alike are often time-compressed, in-store pick up of web orders appears to be "low hanging fruit" for the first player to launch. 3)The concept would play exceptionally well during the high traffic Holiday season when time is at a premium and last minute shoppers can't be assured that an item ordered on-line will be shipped on time. 4)Finally, in-store pickup offers almost instant fulfillment and "prevents" the avid web surfer/competitive shopper from browsing lowest price sites that offer delivery only, giving the edge back to the brick and mortar retailer by having it available in-store even if the price is higher than the virtual sites.

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