Expansion bound! Megastores clash in key markets - office supply warehouse stores

Discount Store News, Sept 3, 1990

Expansion Bound!

Megastores Clash In Key Markets

Office supply superstores appear uniquely poised to benefit from the weakening economy; so, the major chains in the $2.5 billion business are pressing ahead with their expansion plans.

Superstore executives cited a litany of reasons why the weakening economy would likely help, rather than harm, their businesses:

* The economy will make businesses more cost-conscious and will increase their purchase of goods and services from discount office product stores as the most effective way to control the costs of stationary and office supplies. * Megastores will be favored over membership warehouses because they carry a much broader office supply selection. Businesses therefore can fill all their needs on one shopping trip, rather than going to a wholesale club for some merchandise and then stopping at another store for other goods. * The number of home offices continue to grow and the weakening economy should boost this trend as many laid off workers turn to setting up their own businesses, from consulting to cooking and crafts, at home. And all these ventures need office supplies, from answering machines and computers to folders and xerographic labels.

Anchored by the belief that superstores are recession-resistant, the leading players are actively pursuing expansion in arenas ranging from the Northeast, which is now pictured as being in the early stages of a downturn, to Ohio, already home to more megastore chains, seven, than any other state, to California, Florida and Texas, the nation's hottest markets.

The expansion is driven by an interrelated goal: to be the "firstest with the mostest" to discourage or overwhelm competition and to reach the critical mass that transforms a start-up venture into a profitable retailer. That pivotal point seems to be 24 to 30 stores producing $130 million to $150 million in total sales, enough to support the high pre-opening, advertising and store operating expenses of a rapidly growing chain, fund further expansion and still let some revenues fall to the bottom line.

The status of the key arenas and major players:

The Northeast: Megastore interest in the region remains high despite its weakening economy. The reason: the New England/Middle Atlantic states market stretching from Maine to Maryland is home to four of the nation's top office product markets--Boston, New York, Philadelphia and Baltimore/Washington--along with a host of other major cities such as Pittsburgh, Portland, Me., Providence, R.I., Hartford, Conn., as well as Albany, Buffalo, Rochester and Syracuse, N.Y.

Staples, the discount office supply store pioneer, once was the only chain in this region; today it's the dominant player with 43 of its current 51 stores sited in the Northeast, including 18 in the metro New York area, eight in Philadelphia, seven in Washington and five in Boston. It is due to unveil 13 more in the region this year.

But other chains are now trying to duplicate Staples' presence.

OW Office Warehouse, expanding from its Virginia base, already has four in Philadelphia, seven all told in the region. Its expansion this year calls for three more Philadelphia stores plus units in five other Northeast markets.

Office Max moved out of the Midwest into the Northeast with eight stores, including three in Buffalo and two in Rochester. Two more will open this fall.

Florida-based Office Depot, meanwhile, is set to go into Baltimore and Pittsburgh this year as part of its national expansion.

Office Stop was launched this year with two initial units in metro New York and one in Baltimore. Due later this year are two more Baltimore stores and five units in other regional markets.

California: The Golden State is home to more office supply stores--almost six dozen--than any state, drawn by Los Angeles and San Francisco, two of the nation's top 15 markets, along with other major cities like Fresno, San Diego, Sacramento and Stockton.

Office Club and HQ Office Supply Warehouse dominate the state while facing challenges from Staples and OP Club, each of which is undertaking rapid growth there.

Office Club has 15 stores in Southern California and 11 in the rest of the state, with a half dozen more set to open. HQ Office Supply Warehouse, meanwhile, has 13 stores in Southern California, with six more due this year.

As for the major challengers, OP Club, with three units in San Diego, plans to add about a dozen more in California this year, while Staples, jumping cross-country from the Northeast, opened a trio in Los Angeles this year, with five more due there in 1990.

Ohio: Seven cities, Cleveland, a top 15 market, Akron, Cincinnati, Columbus, Dayton, Toledo and Youngstown, are the main attractions for the five major chains now in Ohio.

OfficeMax is the leader with seven stores, five in Cleveland, and two more on the way. As the chain pursues growth in other Midwest areas, competitors are expanding in Ohio.

Staples has five stores in the Buckeye State and will add another, while Office America has four with more due. Office Depot and Office Square each entered Ohio with one store and plan additional units.