Office chains merge, open international markets in '92 - Discount Store News Annual Discount Industry Report; Part 1: Chain Analysis - Industry Overview

Discount Store News, July 5, 1993

The long expected shakeout in the office supply industry ended this spring when OfficeMax acquired Biz-Mart, eliminating another competitor from the business.

OfficeMax, a Kmart subsidiary, created for itself a $1.2 billion company with the Biz-Mart acquisition and set its sights on being a $1.5 billion operator in 1993. Considering the phenomenal growth of the entire industry since its inception in 1986, such a goal seems entirely attainable. With $1.5 billion in sales, OfficeMax positions itself to rival No. 1 Office Depot, which posted 1992 sales of $1.7 billion. [TABULAR DATA OMITTED]

While the 105-store BizMart acquisition was certainly the largest of the period, it was not the only one. OfficeMax also acquired 46-unit OW Office Warehouse last year.

In addition, 10-store WORKplace was acquired by Staples and Office Depot eliminated the last vestiges of its 65-unit Office Club acquisition of 1991 by wiping out the club aspects of the units and transforming them to Office Depots in look and operation.

The office supply industry is now largely an arena for three players: Office Depot, OfficeMax and Staples. Together, these chains accounted for 89% of the industry's sales in 1992.

The entire industry produced sales of $4.3 billion, 31.4% more than in 1991, making it one of the best performing retail categories tracked by DSN.

Although sales gains were impressive for these office chains, their operating income gains were noteworthy, too. Office Depot recorded a 63.3% gain in its operating income for the year. Staples' gain was 97% and OfficeMax (without the BizMart acquisition) posted a $1 million operating profit after a $2 million loss in 1991.

Consolidation was a major theme in 1992, but not the only highlight of the year.

Last year was the time when the office retailers went international. Staples took a giant leap across the ocean in 1992 to partner with Kingfisher PLC in the United Kingdom and with MAXIpapier in Germany.

In the United Kingdom, Staples just opened its first unit with three more expected this year. In Germany, Staples acquired a 48% interest in MAXIpapier, a five-store chain.

OfficeMax, not yet an international retailer, although it has registered its name in a number of foreign countries, scaled the boundaries of the continental United States by opening units in Puerto Rico. Stores in Hawaii and Alaska are planned for this year.

Competing with the big office retailers has posed some challenges and opportunities for the smaller players.

Reliable Office Supply, based in Chicago, a long successful catalog operator, used 1992 to expand its test of office superstores. Reliable opened 10 stores in 1992 and just announced that it would open another unit as a continuation of that test. Sales for Reliable's retail and catalog operations remained steady at $160 million in 1992.

Arvey Paper & Supplies, a 40-unit chain headquartered in Chicago, has been re-evaluating its position in the market for some time. As a result, company president Dave Gruenwald said Arvey closed two stores early this year and merged the business of those stores with a sister division. Arvey's roots are in serving the professional printer customer. Part of its store base still serves that customer. The merchandise selection at its superstores offers a wide assortment of products for those clients.

Office America, a private chain based in Richmond, Va., is holding its own against the large players, and has recently sharpened its pricing structure and buying programs.

And late last year, a group of 105 independent office products dealers formed a buying group in the western United States. Calling themselves TOPP, The Office Products People, the group said they have a combined purchasing power of over $200 million.

The group was originally formed by dealers in California and Nevada but expanded to include members in Oregon, Washington, Idaho, Arizona and Montana, and is actively seeking new members. Their goal is to improve their buying power to levels they could not achieve individually.