February 20, 2013

Office Depot / OfficeMax Merger

By now, you've heard that Office Depot and OfficeMax are merging (click here).

This raises so many interesting questions about the future of retail.

On one end of the spectrum, we have experts who tell us how retail and e-commerce and mobile all fit together in a wonderful blend called "omnichannel".  These folks paint a bright future, one where modern technology helps retailers (click here for one example).

On the other end of the spectrum are the digital elite.  They tell us that retail is dead (click here).

In-between are the Web 1.0 companies who are branching out into retail ... Google, for instance (click here) ... Microsoft ... and Apple, too.

Who is right?  Everybody!

The omnichannel camp is right to integrate all aspects of retailing.  The omnichannel camp cannot prove that their thesis leads to an increase in sales and profit.  Saying that omnichannel customers spend more is ridiculous ... any customer that does more of anything is more valuable than a customer only buying one time in one channel.

The digital elite are right to suggest that a small decline in retail sales is fatal for most retailers, given the debt load most retailers are saddled with.  But the digital elite fail to account for the reality that retail still drives 90%ish of total commerce ... if e-commerce was so amazing, wouldn't e-commerce represent half of total commerce?  Exactly.

These viewpoints represent "small battles".  Folks love to focus on small battles, because small battles don't have a right or wrong answer.  There's no downside to being on the losing end of a small battle.

Here's the difference between a small battle and a real question.
  • Small Battle Argument:  "Can the combined Office Depot / OfficeMax can beat Staples and Amazon with a comprehensive omnichannel strategy?"
  • Real Question:  "What customer problem does the combined Office Depot / OfficeMax solve better than any other company?"
If you cannot provide a valid answer to the real question, the small battle argument is pointless.

Since it is really hard to answer the real question, we focus on small battles.

In the comments section, try to answer the real question.

2 comments:

  1. The merger solves the problem that both CEO's and boards had - their financials stink. The merger buys them more time to try and figure out a new strategy and keep the shareholders and analysts focused on M&A nonsense.

    It really does nothing for the customer. I have an Office Max and Office Depot about 5 miles from my house. The Office Depot is 4X the size and much more modern and in a better location. I assume the Office Max location will close and merge in the Depot.

    Why would I care? This merger has almost no value to me as a customer. Its all status quo from my standpoint. Same product selection, same location, same value.

    ReplyDelete
  2. I don't know enough about their backend operations. In theory (and theory...and wishful thinking...drives almost every merger, right, with consistently zero-to-negative real value realized), they'll be able to marginally improve "physical proximity" to every potential customer (but, as Timothy notes -- how many cases are there where one doesn't already exist near the other, anyway?).

    Potentially -- more price leverage with suppliers (which is where Amazon has been killing it in one category after another)...so cost competitiveness ("Sure, you can get it with free shipping in 2 days from Amazon, but you can get it at the same price NOW in the store down the street." But...they'll still have brick-and-mortar cost overhead, so they probably won't truly get to "price match.").

    *Something* with small businesses that their physical locations can provide just-in-time office supplies cost effectively ("You don't have to stock 20 cases of paper. Use our network-enabled paper box and we'll deliver a new case of paper when we detect you've just pulled out your last ream.")

    In short. Errrr... the only "real problems" I can come up with are theoretical and peripheral.

    ReplyDelete

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