- Office Depot on Thursday announced a restructuring plan that includes "closing and/or consolidating distribution facilities and retail stores and the reduction of approximately 13,100 employee positions by the end of 2023." The company said in a Securities and Exchange Commission filing that it expects the effort to yield up to about $860 million in net savings by the end of 2023 when the work is complete.
- The company aims "to realign its operational focus to support its 'business-to-business' solutions and IT services business units and improve costs," according to the filing.
- The office supplies retailer is still mulling when, which and how many retail stores and distribution facilities it will close. As of March 28, the retailer operated 1,295 retail stores in the U.S., Puerto Rico and the U.S. Virgin Islands, down from 1,359 in the year-ago period, according to its separate first-quarter filing.
With office supplies in recent years morphed into a commodity category easily found elsewhere online, Office Depot has attempted to shift its focus from retail sales of office supplies to becoming a more well-rounded purveyor of office services. The new plans also continue what has now been a longtime effort to cut costs.
Nearly three years ago, the shift in focus led to the company's acquisition of CompuCom. It's paid off somewhat, with business services making up for plummeting retail sales to some extent. During the pandemic, Office Depot has been considered an essential retailer, free to keep stores open. Sales of cleaning and break room supplies, tech products, furniture and other work- and learn-from-home items helped keep first-quarter retail sales flat year over year, mitigating a decrease in sales of other items.
But the pandemic has nevertheless interfered with whatever momentum Office Depot may have had. The company expects the outbreak-related demand to fall off in the near term, due to a "weaker U.S. economy and higher unemployment that materially impact consumer spending, the demand for our products and services and the availability of supply." In-store pickup of online orders rose 26% from last year and, along with higher average order values, helped push store comps up 2%. But the company also noted supply constraints in its cleaning and break room category that hampered its ability to fulfill some orders.
"We believe sales in our Retail Division may be adversely impacted due to the COVID-19 outbreak in future quarters in 2020," the company said in its first-quarter report, saying that the extent of that impact remains unclear.
While Office Depot stores were able to stay open, nonessential businesses weren't, and that sent sales in its retail division's services down 11%, the company said. Its CompuCom services also declined late in the first quarter "due to the impacts of COVID-19 on its customers," as they delayed projects, the company said.
The company is probably right to plan for weakened consumer sentiment, which was clear in last week's government report on retail sales. In all the segments tracked by Retail Dive, retail sales plummeted 16% year over year.
"Maybe the most important aspect of the retail sales drop isn’t how far they fell, which set more records, but that forecasters so badly underestimated the numbers," Robert Frick, corporate economist with Navy Federal Credit Union, said in emailed comments last week. "It shows we still don’t have a handle on the depth of the recession and how Americans are reacting to the pandemic and lockdowns."