Summary
-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."
Analysis
Coming on the heels of a very soft earnings first half, it would appear that ODP is mustering a direct attack at Staples and Staples Rewards program in an effort to gain traction, momentum and share with just 2 quarters left to turnaround disappointing earnings results thus far. Whether or not the +1% bump in loyalty earnings to Depot's customers over Staples program will make a difference in their Q3 and Q4 periods is anyone's guess, but how they market and promote the enhanced program can remove some of the doubt. There are however, several things that can be said with some certainty IF ODP is to turn around its YTD and at minimum, meet earnings forecast for FY 2007 at year's end. Just to cite a few:
1)The revamped Worklife Rewards program won't be the ultimate solution, but can certainly be a catalyst to drive both incremental traffic(preferably new business customers) as well as to entice a larger market basket ring size from the existing customer base by promoting larger dollar purchases on the front end with the caveat for the customer of a larger rebate back on the sale closing end, a nice offset that works for them and their customers.
2)Leveraging down expense lines--ODP will need to scrutinize diligently, every controllable expense line such as payroll, store supplies, repairs/maintenance, travel, store remodel and new store build out expenses. Only those expenditures which produce instantaneous ROI can be approved. Although positioning for the future is normally a wise, long term strategy, ODP cannot look too far ahead for the return as the #1 goal for 2007 is EPS and building shareholder value.
3)Large capital expenditures associated with last years acquisitions of Best, Papirius, and Allied have already brought $225 million to the expense line. Continued investments in these acquisitions that will be "future business" and global positioning "down the road" must be looked at critically and perhaps, micro-managed. Although the plans and
actions for the continued integration of these B to B contract acquisitions have already been in motion for months and cannot be brought to a grinding halt just to cut expenses, close examination of what HAS to be done must take precedence over what would be NICE if it were done.
It won't be an easy task over the last 4 months of this year for ODP to turnaround the slow start. It will, however, be easier IF they come out of Q3 with strong Back to School results, IF they market the new Worklife Rewards program successfully and IF they make expense control an art form. I have confidence in the TEAM of Odland, Rubin and Brown that they can execute flawlessly over the next 100+ days until year end and pull out the year despite the economy. They can't control that, but they can take charge of their own environment.
