[Definitely Not] The Future of Retail

What does the future of retail look like? Well, it may be easier to define what it won’t look like than what it will. One glimpse into the future came today when we learned retailer Office Depot‘s parent company will split its B2B unit from its chain of 1,100 physical stores. Two publicly traded businesses will be the outcome of this commercial mitosis.

This news comes fresh on the heels of the 1,100 store chain reporting Q1 revenue declines for both its B2B and retail operations. Revenues fell to $2.1 billion for the quarter. For context, Amazon reported Q1 product sales of $57 billion. Walmart reported Q1 revenues of $135 billion.

So in this context, it makes sense for Office Depot to try to unlock as much value as possible from each operation. By splitting the two businesses, the retail chain can be valued differently from the B2B operation. 

CEO Gerry Smith said this about the move.“We believe creating two focused, pure-play companies will unlock significant opportunities by improving our ability to meet the needs of our customers, while better matching assets and investment profiles of both companies to generate greater value for our shareholders.”

Smith added this. “In addition, positioning their respective growth trajectories and shareholder-specific return profiles will achieve appropriate market valuations.” 

One entity will be the consumer-facing unit. this will include the 1,100-plus store retail operation and the company’s officedepot.com website. The B2B business will resemble a technology platform company. This unit will be spearheaded by recently acquired BuyerQuest. The B2B unit will also take on sourcing, supply chain, and logistics assets. 

Failed Effort in the MSP Market

Interestingly, the company is in the process of selling CompuCom, a provider of IT services to small and medium-sized businesses that Office Depot paid $1 billion for just 3.5 years ago. So OfficeDepot’s attempt at extending into the actual operations of a small business via a managed service provider of IT solutions appears to be a bust. According to reports, under Office Depot ownership, revenues of CompuCom declined from 2018 to 2019 by $140 million on a 2018 base of $994. This happened while MSPs and cloud service providers overall were showing strong growth. 

Our view is that few if any investment dollars will flow into Office Depot’s consumer and small business-facing entity. Amazon has pretty much taken up all the oxygen in that space. Meanwhile, Staples, its main direct competitor, is also reporting a down quarter in terms of top-line sales. 

We see the market further fracturing. Amazon will continue to get more and more business. And platforms like Shopify will help unique office supply stores and traditional retailers pick up the scraps. That is not a good position to be in at any point in history. It seems particularly bad in the face of the post-pandemic era. 

Can Office Depot via its acquisition of BuyerQuest make a go of it in SaaS? Time will tell but the future of being able to run down the street and pick up a six-pack of Bic Rollerball pens or a pack Ticonderoga pencils seems bleak to us. With planning though, Amazon will have those on your doorstep within hours. Or, worst-case scenario, by tomorrow morning. 

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