Rubric for Individual Case Analysis Items will be rated from 0 - 5. Please refer to your syllabus for understanding of each rating. Identify a major problem and provide justification Explain the industry attractiveness Ability to identify the organization's objective and strategies Identify and understand mission statement components; understand how to properly revise mission statement Develop a financial analysis for the organization Ability to explain the financial position Ability to conduct an internal analysis Ability to conduct an industry analysis Develop the IFE, EFE, and CPM, and identify the major concerns internally, externally, and competitively Develop matching matrixes and identify strategies Develop QSPM and explain recommendation with justification 496 STRATEGIC MAnAGEMEnT CASES Office Depot, inc. — 2011 Wayne E. Smith Argosy University – Dallas campus ODP www.officedepot.com Office Depot was chosen by readers of theStreet.com as the most likely retail takeover target in 2011. Office Depot’s ceO Steve Odland left the company in 2010 after a Sec investigation for inappropriately revealing confidential information. Office Depot lost $15 million in the first quarter of 2011, compared to a $20 million profit the first quarter the prior year. the company’s first quarter 2011 revenue fell 3 percent to $2.97 billion from $3.07 billion a year ago. revenue at the 1,115 Office Depot stores in the United States and canada that have been open more than a year fell 1 percent. new Office Depot ceO neil austrian desperately needs a clear strategic plan to reverse declining revenues and profits. as the whole world shifts to paperless transactions, Office Depot’s historical business model is questionable. Second Quarter of 2011 Office Depot’s second quarter 2011 sales totaled $2.7 billion, almost the same as the prior year. the company however reported a loss of $29 million for the second quarter, compared to a loss of $25 million in the same period a year ago. the company’s north america retail division reported sales the second quarter of $1.1 billion, down 2 percent versus one year ago, led by a sharp decline in computer sales. Furniture sales however increased as did sales for storage items, printers, writing instruments and cleaning and breakroom supplies. Office Depot’s tech Depot Services segment reported double-digit sales gains versus the prior year. copy & Print Depot sales grew positively for the sixth consecutive quarter. Office Depot’s north american store count at the end of the second quarter was 1,131 stores. During that quarter, the company opened 4 new stores and closed 14 stores, including closure of their remaining 10 stores in canada. During that quarter, Office Depot remodeled 5 stores and relocated 4, successfully reducing the square footage in those 9 locations by about 30 percent on average. the company’s north american retail segment reported operating profit of $15 million in the second quarter of 2011, compared to $9 million the prior year. Office Depot’s north american Business Solutions Division (BSD) reported second quarter 2011 sales of $803 million, down 2 percent versus the same period last year. Positive sales growth was reported though in seating and cleaning and breakroom supplies. However, paper sales declined as did ink and toner sales. Second quarter sales in texas and Florida were better than the overall BSD rate, but sales in california stores was worse. Second quarter operating profit for BSD was $45 million, up significantly from the $14 million reported in the same period one year ago. the company’s international division reported second quarter 2011 sales of $827 million, an increase of 6 percent compared to the prior year in U.S. dollars and a decrease of 5 percent in constant currency. these results include the negative impacts of the company divesting its stores in Japan, israel, and india in 2010 and the positive impact from acquiring Svanströms in Sweden during the first quarter of 2011. geographically, BSD sales in France were relatively flat compared to the prior year, while the U.K. and germany reported small declines in sales. company stores in asia reported high single-digit growth in the second quarter. the international division reported operating profit of $13 million for the second quarter compared to $19 million the prior year. Office Depot de Mexico reported sales of $272 million and net income of just over $14 million in the second quarter of 2011. CASE 9 • OFFICE dEPOT, InC. — 2011 if you are interested in purchasing a tablet computer, Office Depot stores currently offer 8 tablets with complete accessories: the HP touchPad, the aSUS transformer, the BlackBerry Playbook, the toshiba thrive, the acer iconia, the Lenovo ideaPad, the ViewSonic g-tablet and the Velocity Micro cruz. History the first three Office Depot stores opened in 1986 in Florida with company sales of $2 million. By its 10th anniversary, Office Depot had 570 stores in north america, $6 billion in sales, and 31,000 employees. When it reached its 20th year, Office Depot had 50,000 employees, sales of $15 billion, and accolades as “Humanitarian of the Year” and one of america’s top corporations for women’s business enterprises for the fifth year. Office Depot’s corporate social responsibility continued to grow and in april 2011, Office Depot partnered with Local governments for Sustainability USa (icLei) to launch the 2011 green Business challenge. Office Depot is a very “green” company, as indicated in exhibit 1. all that is the good news. the bad news is that Office Depot is an unprofitable company competing in an unprofitable industry. Vision/Values/Ethics/Mission as provided in exhibit 2, Office Depot has a five-point vision statement. to fulfill this vision, Office Depot has a values statement as given in exhibit 3. the company has a one-sentence code of business ethics, as follows: “We earn the trust and confidence of associates, customers, suppliers and shareholders by being open, honest and truthful in all that we do.” Office Depot does not have a written mission statement, but two analysts recently suggested the mission statement provided in exhibit 4. EXHIBIT 1 Office Depot’s 2010 “Green” Accolades and Accomplishments • • • • • • • • • • • • • • • • • • Launched “recycling rules” program to reward schools recognized as america’s greenest large retailer in Newsweek magazine’s annual green ranking named “Best new Product” award winner with Lil’ Drug Store Products by Convenience Store News Showcased 40 new “green” initiatives in honor of the 40th anniversary of earth Day awarded LeeD gold certification for existing Buildings for corporate headquarters announced nationwide rollout of United States Postal Service offerings Opened first LeeD for commercial interiors registered retail store announced Forest Stewardship council (FSc) certification of Office Depot® green™ 30% recycled envirocopy™ Paper Selected as one of america’s top corporations for Women’s Business enterprises by the Women’s Business enterprise national council (WBenc) for the ninth consecutive year recognized as a top company Dedicated to the advancement of Women by national association for Female executives (naFe) appointed one of the top Organizations for Multicultural Business Opportunities for 10th consecutive year celebrated successful second season as sponsor of tony Stewart, driver of the no. 14 Office Depot chevrolet in the naScar Sprint cup Series™ Launched greener Shipping solution for business customers teamed up with Lexmark and Operation Homefront to provide military families with free printers released second annual Historically Underutilized Businesses (HUB) catalog announced new partnership with national intergovernmental Purchasing alliance Launched “Document Shredding While You Wait,” an in-store shredding service Became an energY Star® commercial Buildings Partner Source: www.officedepot.com. 497 498 STRATEGIC MAnAGEMEnT CASES EXHIBIT 2 Office Depot’s Vision Statement Delivering Winning Solutions that inspire Worklife™ • Delivering—Our actions speak louder than words. We are accountable: doing what we say we’re going to do—efficiently and on time. • Winning—We act with confidence. We’re proud to win. We push ourselves to greater heights. and we don’t settle for less than being the best. • Solutions—We listen to our customers and understand their needs. We offer products, services and innovative thinking that enable our customers to achieve success. • Inspire—Our inspiration is contagious and enables us to unleash creativity to help people achieve their goals. Our motivation and enthusiasm inspire others to succeed. • Worklife™—We combine our energy for work with our passion for life — creating a fuller, more enriched lifestyle. We share the desire to maximize human potential to achieve personal dreams. Source: www.officedepot.com. EXHIBIT 3 Office Depot’s Values Statement • • • • • Integrity—We earn the trust and confidence of associates, customers, suppliers and shareholders by being open, honest and truthful in all that we do. Innovation—With a culture of creativity and a thirst for intelligent risk-taking, we aspire to do what has never been done. Inclusion—We approach all opportunities and challenges by respecting the diverse thoughts, beliefs, backgrounds, cultures and energies of all associates, customers and suppliers. Customer Focus—We fuel our customers’ dreams by anticipating and listening to their needs and passionately delivering on our promises. Failure is not an option, as we promise to “wow” on recovery. Accountability—We are responsible for achieving and sustaining unprecedented results that create extraordinary value to our shareholders, customers, and employees. Source: www.officedepot.com. EXHIBIT 4 A “Proposed” Mission Statement for Office Depot Our mission at Office Depot is to be a global, leading innovator as a supplier of office products and services for consumers and businesses of all sizes while creating a positive impact on the environment. We continually strive to deliver our customers favorably-priced products, beneficial services, and the latest in digital imaging and printing technology. We will earn the trust of our stakeholders by being open, honest, and faithful in all that we do. We will also be responsible for achieving and sustaining unprecedented results that create value to our customers, employees, and stakeholders through personal commitment, sensible thrift, collaboration, and shared leadership. Source: Used by permission of ryan Sealey and terrence Jones. Office Depot even goes on to explain that they not only follow the letter of the law, but the spirit of the law as well. they clearly state that they are responsible for knowing the law, rules, and regulations in each venue in which they conduct business and that all employees should strive to not only uphold same, but avoid even the appearance of questionable conduct. Internal Issues Business Segments Office Depot operates in three divisions or segments. the first, the company’s north american retail division, sells an assortment of merchandise, such as general office supplies, computer supplies, business machines and related supplies, and office furniture under various labels, including Office Depot, Viking Office Products, Foray, ativa, Break escapes, niceday, and Worklife through its chain of office supply stores. it also provides printing, reproduction, mailing, shipping, and other services, as well as personal computer support and network installation service. this division operates 1,147 office supply stores in the United States and canada. CASE 9 • OFFICE dEPOT, InC. — 2011 The company’s second division, North American Business Solutions, Division (BSD) sells nationally branded and private-brand office supplies, technology products, furniture, and services to small- to medium-sized customers through a dedicated sales force, catalogs, and the Internet. The company’s third division, International, sells office products and services through directmail catalogs, contract sales forces, Internet sites, and retail stores using a mix of company-owned operations, joint ventures, licensing and franchise agreements, alliances, and other arrangements. Office Depot sold office products to customers in 53 countries in North America, Europe, Asia, and Latin America. This division operated, through wholly-owned or majority-owned entities, 97 retail stores in France, Hungary, South Korea, and Sweden and participates under licensing and merchandise arrangements in South Korea, thailand, india, israel, Japan, and the Middle east. Financial performance data for Office Depot’s three divisions is provided in exhibit 5. notice all the negative numbers that indicate falling revenue and profit totals. Management neil r. austrian is Office Depot’s chairman and ceO. Mr. austrian’s top management team, which oversees more than 50,000 employees, is illustrated in exhibit 6. exhibit 7 reveals yearend 2010 information about the 1,147 Office Depot stores in the United States and canada and the 97 company stores outside north america. Finance Office Depot lost less money in 2010 than in the prior two years but continues to lose money every quarter in 2011. the company’s income statements and balance sheets are provided in exhibits 8 and 9 respectively. as indicated in exhibit 10, Office Depot has an extensive information system EXHIBIT 5 Office Depot—Performance by Division ($ in millions) OFFice DePOt’S DiViSiOn inFOrMatiOn North American Retail Division 0 Sales % change Division operating profit % of sales Fourth Quarter 2010 2009 $1,234.3 $1,262.8 −2.0% −9.0% $16.2 $2.2 1.3% 0.2% North American Business Solutions Division (BSD) Fourth Quarter 0 2010 2009 Sales $797.8 $821.1 % change −3.0% −11.0% Division operating profit $37.1 $21.3 % of sales 4.7% 2.6% year-to-date 2010 2009 $4,962.8 $5,113.6 −3.0% −16.0% $127.5 $105.5 2.6% 2.1% year-to-date 2010 2009 $3,290.4 $3,483.7 −6.0% −16.0% $96.5 $98.2 2.9% 2.8% International Division 0 Sales % change % change in local currency sales Division operating profit % of sales Fourth Quarter 2010 2009 $929.9 $982.0 −5.0% 2.0% 0.0% −6.0% $20.6 $63.8 2.2% 6.5% year-to-date 2010 2009 $3,379.8 $3,547.2 −5.0% −16.0% −2.0% −9.0% $110.8 $119.6 3.3% 3.4% Division operating profit excludes charges from the division performance, as those charges are evaluated at a corporate level. Source: Office Depot, Inc. Form 10K, 2010. 499 500 STRATEGIC MAnAGEMEnT CASES EXHIBIT 6 Office Depot—Top Executives and Organizational Chart Chairman and Chief Executive Officer Neil R. Austrian President, North American Retail Division Kevin Peters Executive Vice President & Chief Financial Officer Mike Newman President, North American Business Solutions Division Steven M. Schmidt Executive Vice President, Human Resources Daisy Vanderlinde ExecutiveVicePresident, Global E-Commerce Monica Luechtefeld President, International Division Charles E. Brown Executive Vice President, General Counsel Elisha D. Garcia Source: www.officedepot.com EXHIBIT 7 Office Depot Store Data 13 weeks Ended dec. 25, 2010 Store Statistics United States and canada: Store count: Stores opened Stores closed Stores relocated total U.S. and canada stores 52 weeks Ended dec. 26, 2009 3 6 4 1,147 2 8 1 1,152 north american retail Division square footage average square footage per store 27,559,184 24,027 28,109,844 24,401 international Division company-owned: Store count: Stores opened Stores closed/deconsolidated Stores acquired Total International company-owned stores 1 45 – 97 1 2 – 137 dec. 25, 2010 dec. 26, 2009 17 22 6 1,147 6 121 6 1,152 7 47 – 97 4 29 – 137 Source: company documents. EXHIBIT 8 Office Depot’s Income Statements (in thousands) Period Ending dec. 26, 2010 dec. 26, 2009 dec. 27, 2008 Total Revenue cost of revenue $11,633,094 $8,275,957 12,144,467 $8,752,283 14,495,544 $10,489,785 3,357,137 3,392,184 4,005,759 – 3,343,133 – 3,631,014 – 4,065,836 gross Profit Operating expenses research Development Selling general and administrative CASE 9 • OFFICE dEPOT, InC. — 2011 Period Ending nonrecurring Others total Operating expenses Operating income or Loss income from continuing Operations total Other income/expenses net earnings Before interest and taxes interest expense income Before tax income tax expense Minority interest net income from continuing Ops nonrecurring events Discontinued Operations extraordinary items effect of accounting changes Other items Net Income Preferred Stock and Other adjustments net income applicable to common Shares dec. 26, 2010 51,295 – 3,394,428 dec. 26, 2009 26,175 – 3,657,189 dec. 27, 2008 1,484,964 – 5,550,800 (37,291) (265,005) (1,545,041) 39,114 1,823 58,498 (56,675) (10,470) 1,582 (44,623) 19,481 (245,524) 65,628 (311,152) 287,572 2,259 (596,465) 35,744 (1,509,297) 68,286 (1,577,583) (98,645) – (1,478,938) – – – – (44,623) (37,113) $(81,736) – – – – (596,465) (30,506) $(626,971) – – – – (1,478,938) – $(1,478,938) Source: company documents. EXHIBIT 9 Office Depot’s Balance Sheets (in thousands) Period Ending dec. 26, 2010 dec. 26, 2009 dec. 27, 2008 Assets current assets cash and cash equivalents Short-term investments net receivables inventory Other current assets $627,478 – 963,787 1,233,657 203,020 $659,898 – 1,121,160 1,252,929 172,342 $155,745 – 1,451,927 1,331,593 183,122 total current assets Long-term investments Property Plant and equipment goodwill intangible assets accumulated amortization Other assets Deferred Long-term asset charges 3,027,942 – 1,157,013 19,431 21,840 – 309,892 33,319 3,206,329 – 1,277,655 19,431 25,333 – 279,892 81,706 3,122,387 – 1,557,301 19,431 28,311 – 540,796 – Total Assets 4,569,437 4,890,346 5,268,226 $2,271,077 72,368 – 2,343,445 $2,368,360 59,845 – 2,428,205 $2,433,812 191,932 – 2,625,744 Liabilities current Liabilities accounts Payable Short/current Long-term Debt Other current Liabilities total current Liabilities (continued) 501 502 STRATEGIC MAnAGEMEnT CASES EXHIBIT 9 continued Period Ending Long-term Debt Other Liabilities Deferred Long-term Liability charges Minority interest negative goodwill Total Liabilities Stockholders’ Equity Misc. Stocks Options Warrants redeemable Preferred Stock Preferred Stock common Stock retained earnings treasury Stock capital Surplus Other Stockholders’ equity Total Stockholders’ Equity Total Liabilities and SEquity dec. 26, 2010 dec. 26, 2009 dec. 27, 2008 659,820 – 514,218 479 – 662,740 – 654,851 2,827 – 688,788 – 585,861 4,883 – $3,517,962 $3,748,623 $3,905,276 – 355,979 – 2,831 (634,818) (57,733) 1,161,409 223,807 – 355,308 – 2,807 (590,195) (57,733) 1,193,157 238,379 – – – 2,808 6,270 (57,947) 1,194,622 217,197 695,496 786,415 1,362,950 $4,569,437 $4,890,346 $5,268,226 Source: company documents. EXHIBIT 10 Office Depot’s Public Websites Outside of North America • • • • • • • • • • • • • • • • • • • • • • austria: Belgium: canada: china: costa rica: czech republic: el Salvador: europe: France: germany: guatemala: Hungary: ireland: israel: italy: Japan: Luxembourg: Mexico: the netherlands: Poland: Slovakia: South Korea: www.officedepot.at and www.vikingdirekt.at www.officedepot.be (Dutch), www.office-depot.be (French); www.vikingdirect.be (Dutch) and www.viking-direct.be (French) http://www.officedepot.ca www.officedepot.com.cn and www.officedepot.cn www.officedepot.co.cr www.officedepot.cz www.officedepot.com.sv www.officedepot.eu www.officedepot.fr, www.office-depot.fr, and www.vikingdirect.fr www.officedepot.de, www.viking.de, and www.techdepot.de www.officedepot.com.gt www.officedepot.hu www.officedepot.ie and www.vikingdirect.ie www.officedepot.co.il www.office-depot.it and www.vikingop.it www.officedepot.co.jp www.officedepot.lu (French) and www.viking-direct.lu www.officedepot.com.mx www.officedepot.nl, www.techdepot.nl, and www.vikingdirect.nl www.officedepot.pl www.officedepot.sk www.bestoffice.co.kr CASE 9 • OFFICE dEPOT, InC. — 2011 • Spain: Switzerland: • United Kingdom: • www.officedepot.es and www.vikingdirect.es www.officedepot.ch (german), www.office-depot.ch (French), www.vikingdirekt.ch (French), and www.viking-direkt.ch (germany) www.officedepot.co.uk, www.viking-direct.co.uk, and www.techdepot.co.uk Source: www.officedepot.com. that links each store in the global network. the company utilizes websites in 40+ countries outside of north america. each website provides extensive service offering all products and many payment methods. Competition Staples Headquartered in Farmingham, Massachusetts, Staples is the largest office products supply company in the world with about 2,240 stores in the United States, canada, Belgium, Denmark, germany, ireland, the netherlands, norway, and other countries. the company also operates 125 distribution centers and sells products through a catalog, its website, and a sales force. Staples’ sales for 2010 increased 1.1 percent to $24.5 billion. cost controls helped push operating income up 13.8 percent to $1.6 billion, and net income jumped 19.4 percent to $881.9 million. However, the company’s operating cash flow fell nearly 31 percent due to 1) the need to spend to rebuild inventories and 2) higher receivables, meaning the company was less able to collect payment from customers. exhibit 11 compares Staples to Office Depot. OfficeMax Headquartered in naperville, illinois, OfficeMax operates 44 distribution centers and just over 1,000 office products stores in the United States, Mexico, canada, australia, new Zealand, and Puerto rico. OfficeMax’s first-quarter 2011 net income fell to $11.4 million, or 13 cents a share, from $24.8 million, or 29 cents a share, a year earlier. Sales that quarter fell 2.8 percent to $1.86 billion. Sales at OfficeMax’s contract segment, which caters to business customers, fell 3.9 percent. Same-store sales fell 1.2 percent. OfficeMax has begun to sell additional goods to business customers, such as furniture and cleaning products, as well as print services to offset declines in the traditional office product category. the company plans to close 15 stores in the United States in 2011 and has seen its stock price drop continuously to below $10 per share. Mexico is a bright spot for OfficeMax as the company plans to open nine stores in that country in 2011 compared to closing nine stores in the United States. EXHIBIT 11 Office Depot’s Competitors Office Products Companies Office depot $Market cap: 1.18B #employees: 40,000 %Qtrly rev growth: −3.40% $Revenue: 11.63B %Gross Margin: 28.86% $EBITDA: 247.32M %Operating Margin: 0.34% $Net Income: −81.74M $EPS: −0.30 Source: Company documents. Office Max 1.10B 19,000 −2.40% 7.15B 25.87% 266.45M 2.32% 68.63M 0.79 Staples 14.86B 52,919 0.10% 24.55B 30.15% 2.13B 6.65% 881.95M 1.21 wal-Mart 187.06B 2,100,000 2.40% 421.85B 25.26% 33.18B 6.06% 15.36B 4.46 Industry 259.52M 2.85K 4.30% 442.08M 35.82% 29.49M 6.24% N/A 0.17 503 504 STRATEGIC MAnAGEMEnT CASES The Future the big three office supply firms, including Office Depot, operate very similar business models, which means the firm with the best strategic plan and operational efficiencies will ultimately survive. there exists very intense price competition among the big three firms, and secondary firms such as Wal-Mart, Kmart, and target are always vying for additional market share. Online competitors are also taking market share from the big three. Maybe the big three should diversify away from selling traditional office products or move more aggressively toward becoming a mostly online business, or focus more on South america or africa. Maybe the big three office supply firms should focus more on emerging economies and global expansion. For example, Staples just formed a new strategic alliance with one of the leading Swiss office products companies, Büro Schoch Direct ag. Within Switzerland, Staples and Büro Schoch Direct will work together exclusively on international accounts and collaborate to exchange best practices. Maybe Office Depot could emulate OfficeMax’s success in Mexico. celebrating 25 years as a leading global provider of office supplies and services, Office Depot received the corporate Business achievement award from the U.S. Postal Service (USPS) at the national Postal Forum held May 1–4, 2011, in San Diego, california. Office Depot was honored for its commitment to a successful business partnership with the USPS, offering postal services and products within the company’s retail store locations nationwide. through this partnership, Office Depot became the first national retailer to offer USPS shipping products and services at the same prices as the post office. Services offered in every Office Depot include: Priority Mail Flat rate Service; Priority Mail Service; express Mail Service; First-class Mail Service; and stamp purchases in books or large coils. Office Depot recently teamed up with 3M and naScar stars tony Stewart, driver of the no. 14 Office Depot/Mobil 1 chevrolet, and greg Biffle, driver of the no. 16 3M Ford, to offer the exciting possibility of a $1 million payday for one small business owner through the “Official Small Business of naScar, courtesy of Office Depot” sweepstakes. Do you think this marketing expense will be worth the money Office Depot is spending? Prepare a three-year strategic plan for Office Depot’s CEO Neil Austrian.
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