Office Depot on Wednesday reported a fourth quarter revenue rise based more on services than on retail: Total reported sales (combining the business and retail divisions) in the quarter rose 3% to $2.7 billion. Product sales fell 1%, while service revenues grew 34%, according to a company press release.
Even in the retail division, services drove growth, with product sales falling 8% year over year, primarily due to lower sales volume, while service revenue rose 18%. Retail reported sales fell 6% to $1.1 billion in the quarter, as comparable store sales fell 5%.
Net loss from continuing operations in the quarter narrowed to $14 million from the year-ago quarter's $48 million net loss, according to the release. Retail division operating income fell to $28 million from $40 million in the year-ago quarter, due to store closures, lower sales volume and investments in service delivery capabilities. In the period, Office Depot opened one new location, replaced one and closed 13, ending with 1,361 retail stores.
Office Depot and rival Staples are moving away from sales of office supplies, a category that has morphed from a specialty to a commodity.
The retailer's full year similarly reflected the shift. Total reported sales for 2018 rose 8% to $11 billion, "largely driven by the addition of CompuCom, growth in the B2B distribution platform, and growth in service revenues," the company said. Product sales were flat with the prior year, while services sales grew 84% again driven largely by the inclusion of IT unit CompuCom, which the retailer acquired in 2017. Net income from continuing operations in 2018 fell to $99 million from $146 million in 2017, according to the company's release.
Although the company is scaling back its footprint, its pivot hardly means that stores are now useless. In fact, operating physical locations provides Office Depot with touchpoints for both services and product sales and represents an edge over Amazon, which runs Amazon Go stores, bookstores and Whole Foods grocery stores, but no physical locations convenient for businesses.
That's significant in light of the e-commerce giant's assertive move into the space. Last fall Amazon revamped its Business Prime program, adding a credit card with perks designed to be useful to business owners, along with new benefits like upgraded shipping options, extended payment terms, and data services and insights for businesses of all sizes in the United States, Germany and Japan.
But Office Depot is leveraging its locations for a variety of programs, including through its "Workonomy" business platform aimed at small and medium businesses. A co-working "Workonomy Hub" is being tested in its Los Gatos, California, store, and Workonomy Tech Services Kiosks have arrived at 141 stores in Florida, Georgia and Texas. Those feature on-demand access to the company's technology experts, who offer installation and consultation support. And Workonomy Self-Service Print & Copy Kiosks have expanded to more than 1,000 stores nationwide. In his statement on Wednesday, Office Depot CEO Gerry Smith said retail operations in the quarter benefited from a 24% increase in buy online, pick up in-store sales — another advantage of physical stores.
The changes have helped the company recapture top-line growth, generate free cash flow and strengthen its balance sheet, Smith also said, adding that it's now poised for profitable growth. "We increased our reach to the nearly 29 million customers we serve today, including approximately 10 million small and medium businesses," he said. "We invested in and expanded our distribution network, upgraded the technology in our stores and improved our on-line and mobile experience." Smith went on to say that the company made progress with integrating CompuCom into the company's service offerings.