Inside Office Depot's Reinvention As a B2B Distributor

The company hasn't been shy about describing itself as a distributor lately, and its latest business results back that up.

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Office Depot has been pivoting to prioritize its business-to-business channels for more than 3 years now, transitioning away from its primary role as a consumer retailer since its 1986 founding. And despite significant impacts from COVID-19 that have curtailed B2B spending across nearly all markets, the company remains steadfast in its commitment to empowering its Business Solutions Division.

As it has evolved in recent years, continues to make moves and statements that make the Boca Raton, FL-based company sound more and more like a B2B distributor, and its performance reflects that.

Office Depot's Boca Raton, FL headquarters office.Office Depot's Boca Raton, FL headquarters office.Office DepotOffice Depot, now under the umbrella of newly-formed holding company The ODP Corporation as of June 30 of this year, first announced its “Taking Care of Business” brand platform and marketing campaign back in June 2017, following its failed takeover of Staples in 2016. The following October, it acquired business services provider CompuCom for $1 billion, significantly expanding Office Depot’s information technology capabilities and database of end clients.

In March 2019, Office Depot announced a partnership with e-commerce giant Alibaba, aimed to serve US small-and-midsized businesses. And on July 20, D. Anthony Scaglione became the company’s new CFO.

In reporting its 2020 second quarter financial results on Aug. 5, Office Depot said the holding company reorganization and initiated a “Maximize B2B” restructuring plan.

Office Depot’s ‘about the company’ statement attached to press releases went from describing the company as “a leading provider of business services and supplies, products and technology solutions through its fully integrated omni-channel platform” as of January 2019 to “a leading B2B integrated distribution company providing business services and supplies, products and technology solutions…” just a couple months later, to now reading “a leading provider of business services, products and digital workplace technology solutions through an integrated B2B distribution platform,” as of its Aug. 5 earnings release. That alone shows that Office Depot considers itself as a B2B distributor going forward.

Office Depot CEO Gerry SmithOffice Depot CEO Gerry Smith“We continued to make progress on our strategy to position our B2B platform to drive growth, strengthening our foundation and positioning ODP for future success,” CEO Gerry Smith said in the company’s Q2 earnings release. “We completed our holding company reorganization and initiated our ‘Maximize B2B’ restructuring plan — a multi-year plan designed to accelerate our B2B platform, reduce reliance on retail, generate new growth, and achieve cost savings. We significantly strengthened our senior management team, appointing a new chief financial officer and chief technology officer, with both individuals bringing strong B2B backgrounds and expertise to help drive our strategy.”

Office Depot ended 2019 with full year sales of $10.6 billion (down 3 percent from 2018), with 49.6 percent of sales coming from its Business Solutions Division (BSD) and 60 percent from B2B channels overall. That BSD percentage was up from 47.9 percent in 2018, while BSD’s income margin improved from 4.6 percent in 2018 to 5.1 percent in 2019. Nearly two-thirds (63 percent) of BSD’s 2019 sales came from office products — paper, ink & toner and office supplies, while 37 percent came from what Office Depot calls ‘adjacencies’ — copy & print, furniture, technology, cleaning & breakroom. The company said that its 2019 cleaning & breakroom sales were up 8 percent from 2018.

Since then, Office Depot’s BSD profit margin has been hammered by the COVID-19 pandemic, falling to 3.0 percent in Q1 of this year and just 1.3 percent in Q2. Meanwhile, those adjacency product categories jumped to 48 percent of BSD revenue in Q2, with cleaning & breakroom up 20 percent year-over-year.

Also in Q2, Office Depot launched a personal protective equipment product category

The company said it has approximately 29 million total customers, with 10 million of them as business customers. Office Depot has approximately 1,300 sales professionals, backed by over 6,000 in tech support/field support.

“While the business environment in North America is still recovering, our strong balance sheet and asset base provides an excellent foundation to navigate the challenges and pursue profitable growth,” Smith said Aug. 5. “Through our powerful ecosystem, which includes our global sourcing capabilities, expansive and unique supply chain and distribution network, sales force, and large customer base, we are well positioned to pursue and capture profitable growth in the future.”

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