Office Depot – NOT Takin’ Care of Business

Office Depot (NYSE:ODP) announced quarterly results yesterday, and losses exceeded estimates by a considerable amount. The other major players in the sector, Staples (NASDAQ:SPLS), and OfficeMax (NYSE:OMX), while being hurt by the current low consumer confidence and recessionary spending patterns, aren’t imploding like Office Depot. Stock prices are down, but the core businesses at the two major competitors seem more stable.

To paraphrase the slogan they used for so long, the management at Office Depot is definitely NOT “Takin’ Care of Business”, at least not theirs. It’s hard to remember when ODP was a savvy, best in the category retailer, because they used to be. They aren’t acting or getting the results like one now.

The latest management trick of getting a capital injection by selling 20% of the company to a UK based firm, after closing 9% of their stores as “underperformers”, show that this is a sad story heading down the same road as Circuit City. Surrendering markets by closing stores, and then having an accelerating sales decline, shows Office Depot is still heading for the same sad end result as Circuit City.

This isn’t an inevitable result, but they HAVE do what they need to do: get back to concentrating on retailing, taking care of the customer they service, and improving in-store experience so that same-store sales aren’t in double-digit declines. Home Depot’s (NYSE:HD) re-emphasis on the customer and store-level service delivery might be a good blueprint for Office Depot to look at. The Microsoft (NASDAQ:MSFT) Windows 7 launch may give them a bump when it occurs, but computers are about to enter a brutal discounting phase as Wal-Mart (NYSE:WMT) ramps up its laptop sales effort.

Retailing is all about customer perception and how they feel when they walk both into, and more importantly, out of your store. Pricing, selection, cleanliness and knowledge are the pillars to increasing sales, or on Office Depot’s case, stopping the declines. Unless management launches a store-level initiative to make the sales experience better, Office Depot will have a tough time surviving the balance of the economic downturn.