Office Depot E-Business (Abridged)

Abstract

This case is an excellent illustration of offline/online integration. Office Depot used its supply chain, systems integration, and existing offline channel strengths to overcome competitive online threats from pure Internet players and other office-products-category players. Students get to consider the critical strategic options for overall strategy, pricing, product line, promotion, and business integration.

Excerpt

UVA-BP-0524

Jan. 21, 2009

OFFICE DEPOT E-BUSINESS (ABRIDGED)

Office Depot faced a critical situation in January 1998. From just one store 10 years earlier, it had grown to number one in the office-products market with $ 7 billion in revenues (Exhibit 1). But now with competitors attacking it in every sales channel, same-store sales growth for the company had decreased from 17% in 1995 to 6% in 1997, and aggressive pricing by new Internet retailers threatened Office Depot's everyday low-price structure and profit margins. CEO David Fuente was concerned about responding to these competitive pressures.

The Golden Years: 1987–1994

Office Depot opened its first store in Ft. Lauderdale, Florida, in October 1986. In late 1987, Fuente became CEO, and the company went public in 1988. Fuente quickly recognized the growth potential of the business. The office-products business was highly fragmented with three sales channels—retail stores, catalog sales, and contract/direct sales. The retail channel consisted of more than 16,000 local merchants, who provided neighborhood convenience at premium prices. The catalog channel had a few major players, who offered a continuous stream of promotionally priced merchandise with most products costing consumers everyday premium prices. The contract or direct-sales channel serviced large companies with multiple locations, next-business-day delivery, and contract pricing well below that of the catalog and retail-store channels.

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Keywords: Business-to-business marketing, competitive dynamics, corporate strategy, distribution channels, growth strategy, market analysis, market planning, market segmentation, marketing strategy, new-market entry, operations strategy