Office Depot has announced that it will be closing 400 stores across the US as part of a strategy to maintain and improve profitability in a less than stellar retail market. The move was greeted with positivity from Wall Street, evident as shares jumped nearly 20% in Tuesday trading. As for “Main Street” however, the decision will equate to a significant number of jobs lost. Office Depot is somewhat late to the “cutback party,” as other retailers like Staples have already made plans to cut hundreds of stores in reaction to a contracting domestic retail market.
In the case of Office Depot however, the store closures can be attributed at least in part to a degree of overlapping created by the merger with OfficeMax last year. Business overlap is also the story that the company is sticking with. Although there was some hint, at least in the financials, that drying sales numbers and lost profits were at the core of the decision, the message from the company was that overlap was responsible. Wall street apparently agrees to some extent, as the huge jump in Tuesday trading indicated. At present, Office Depot dons just under 2,000 domestic stores.
It has not yet been released which stores will first be closed, and at what rate the 400 planned closures will take place. While Staples has shown a plan to drop more than 200 stores by the close of 2015, Office Depot has gone as far as saying that it plans to close 150 stores in 2014. The process of store closures will prove to be an arduous one, as the company will try to maintain a slow enough pace as to not risk losing customers.
Roland Smith, the new Office Depot CEO, was brought in November to turn the chain around after it continued to rack up disappointing financial results. Prior to Smith’s hiring, sales were continuing to decline, and losses had grown exponentially from just $7 million to a whopping $109 million in just one year. Smith, in classic turnaround strategy, has been shuffling things around in the leadership and executive arena in an attempt to put Office Depot back on track. If Wall Street reactions are any indication, the decision to close hundreds of stores is one that will serve the company well in the future.
The one area receiving quite little attention as the closures have been announced seems to be “Main Street.” The effect of the decision to close 400 locations will be seen through the implementation phase of the plan. Main Street appears to have suffered yet another setback after Staples’ decision, and retail industry jobs look to be taking another big hit. Shareholders though are clearly pleased with the decision by Smith and Office Depot to proactively attempt to turn things around, even in a less than stellar economic situation.
The company expects to have a more detailed plan available, sometime during the middle of the year, which will detail how the closures will take place. As for now the news is that Office Depot, following Staples’ example, has decided to close 400 US stores to the delight of Wall Street. Whether this is the turnaround point for the company or not has yet to be seen. What can be clearly seen however is that Main Street will have to deal with another blow to the retail jobs market as hundreds more stores are slated to close. Tough economic times call for tough business decisions, and Office Depot’s Roland Smith looks to have made a big one with the decision to close 400 stores across the country.
By Daniel Worku