Overstock.com opens Kentucky warehouse
Salt Lake City — Overstock.com said Wednesday it has opened a distribution and returns facility in Hebron, Ky., outside Cincinnati.
The facility, the company’s second, will receive product returns and handle outbound shipments. Overstock.com officials say this additional distribution facility will reduce the time for resolution and refunds for customer returns.
The company’s primary warehouse will remain in Salt Lake City.
Men’s Wearhouse names CFO
Houston — Men’s Wearhouse announced Wednesday it has named Jon W. Kimmins as EVP and CFO, effective April 4.
Kimmins most recently was EVP – finance and operations at LF-USA, a division of Li & Fung Limited, a multi-billion dollar wholesaler of apparel, footwear and fashion accessories. Prior to that, he was EVP of Toys “R” Us, where he was responsible for worldwide corporate finance, raising billions in debt and equity financing transactions.
Retail Rap: Office Surprise
I have to admit, the recent announcement of the merger between Office Depot and OfficeMax took me by surprise. It’s not as though it doesn’t make sense — it’s logical both logistically and financially — but, while there had been a few rumblings and rumors, this is a dramatic move that took place with relatively little forewarning.
It forces us to ask some basic questions: What does a merger mean for Office Depot and OfficeMax? What does it mean for the office supply category in general? And what does this move say about big box retail and retail real estate going forward?
First, the good news: with both brands struggling for some time now, a consolidation not only makes sense, it may be the best and only way forward. Decision-makers at both retailers concluded (correctly, from my perspective) that they had two problems: 1) too many stores, and 2) store format problems — most of both chains’ stores are simply too large. Clearly they felt that this move gives them the best shot to address both of those core issues.
However, the bad news is that a number of significant challenges remain. Despite the similarity in brand name and format, a merger of this size poses a number of thorny questions. While some shouldn’t be too hard to resolve, such as naming the newly consolidated brand, and passing government anti-trust scrutiny, other issues will not likely be so straightforward.
One of the toughest questions to answer is which stores should be closed. With both brands overextended, a dramatic portfolio trimming is in order. OfficeMax has about 850 U.S. stores currently, and Office Depot maintains about 1,100 stores. Both brands have made modest cuts in recent years, but much more is obviously on tap post-merger. The size of the rollback is up for debate, however. Depending on which analysts and industry observers you talk to, the number of Office Depot and OfficeMax stores that will be closed in the coming years ranges from around 200 closings (or approximately 10% of their combined portfolio) up to 1,000 (which would represent a much more dramatic 50% closure rate). My suspicion is that it is probably the latter, which is one of the reasons that I think rough seas are ahead for this newly unified office supply giant.
The really interesting question, of course, is how to decide which places to close. With both chains launching smaller store concepts and layouts in recent months, size is a major consideration. OfficeMax has had several prototype sizes over the years; after starting out big, the brand has shrunk its standard footprint for many stores. Office Depot has a smaller average store size, but many larger locations are still under lease.
Size isn’t the only thing that matters: Locations that are in close proximity or direct competition with one another will also be obvious targets for closure. Retail context is also a big factor: if a larger store is in a much better performing center, for example, it may make sense to keep that location and perhaps consider downsizing it or reworking the layout. In addition to size, layout and strength of co-tenancy, other economic factors will likely play a role: everything from overall local market strength to the terms and expiration dates of existing leases will factor in.
The fundamental question is this: In a market niche where Staples is the market share leader (and is already farther along the path to reinventing itself with smaller “right sized” store formats), will the cost savings and competitive and operational synergies that result from this merger be enough to keep this new office supply brand competitive? The biggest sticking point as I see it is that neither chain has the optimal concept. It’s not just a matter of sorting through their new combined portfolio and picking out the deadwood. That would be the case if we were discussing a healthy chain and healthy format — but these are neither. This is more than just a large national merger between two prominent brands and a challenging logistical transition; there is a reinvention taking place at the same time. And that is a tough row to hoe.
How do you see the long-term prospects for the merged company? What impact will it have on the office supply segment? On the broader retail real estate market? Comment below to join the conversation, or email me directly at [email protected].
Click here for past columns by Jeff Green.