Kmart's OfficeMax likely bidder for struggling BizMart chain

Discount Store News, Oct 5, 1992

ARLINGTON, Texas BizMart, the No. 3 office superstore chain with 1991 sales of $493 million, may be sold before the end of the year by Intelligent Electronics.

Although a buyer's name has not been disclosed, industry sources speculate the interested party is OfficeMax, the fourth largest in the industry with sales of $245 million last year and is owned by Kmart.

Michael Feuer, president and ceo of OfficeMax, said he was aware of the speculation about his chain's interest in BizMart but declined to comment on the validity of that information. Bizmart operates 99 stores in 51 markets across states. It plans on having 105 stores in operation by the end of its fiscal year, Jan. 30, 1993.

OfficeMax operates 150 stores across a broad swath of the U.S. Corporate plans project the chain to total 180 stores by January. OfficeMax is now expanding on Long Island as well as other key markets.

Should OfficeMax acquire BizMart it would become the second largest in sales in the office superstore industry - $738 million combined in 1991 - behind hind Office Depot, which posted $1.3 billion in sales last year. The enlarged OfficeMax would have more stores than Office Depot, 330 at current count, vs. 275 for Office Depot.

In June, Officemax acquired the 46-store OW Office Supplies Warehouse of Virginia Beach, Va. In 1990, OfficeMax acquired Office World, Great Neck, N.Y., and merged with Office Square of San Antonio, Texas, Kmart's start-up operation, when the discounter bought a 21.6% share of OfficeMax In November 1991, Kmart increased its stake in the office supply store to 93%.

With Kmart as the chain's parent company, an acquisition the size of BizMart is quite possible.

Although Intelligent Electronics, which acquired BizMart a year ago, formally announced on Sept. 15 that it "is in discussions for the possible sale of its BizMart Inc. subsidiary," no suitors were named, no specific reasons given for the sale nor an asking price released.

"We wouldn't sell BizMart unless it's at a good price. It's not a fire sale," said Patrice Johnson, vice president, corporate communications and marketing for Intelligent Electronics, Exton, Pa.

Profits, or lack of them, is not the issue, she added.

Johnson noted that when the stock price of Intelligent Electronics dipped a few months ago "the phones started ringing, and other companies started coming to us with offers and other alternatives." She said the company's board of directors then decided to consider all alternatives as well as shareholder value.

Looking to sell BizMart is "a result of exploring strategic alternatives," she said, adding, "Intelligent is not necessary committed to selling BizMart. The chain is perfectly positioned for long-term growth."

That growth is now linked to a complete overhaul of BizMart's computer department, the second such maneuver in the one year Intelligent Electronics has owned the chain.

Aside from this recent and dramatic change in BizMart's merchandising program, president Jim Berk said BizMart "at the operating level is a pretty viable company. If the sale doesn't meet [our] criteria, there are other alternatives."

Some industry leaders would debate BizMart's long-term viability, citing its recently expanded computer department as flawed and costly. Since computers are sold at razor thin margins, most office supply retailers try to keep themselves adequately represented and stocked, but not overly so.

BizMart did 31% of its sales in August in computers and related products, a red flag in the industry.

Although BizMart recently reported a substantial sales gain for the second quarter, the chain posted a large operating loss, $8.1 million, compared to a $400,000 loss last year.

BizMart attributed the losses to the immaturity of 34 units opened less than one year, $1.1 million in costs associated with terminating 30 BizMart franchise contracts, and $1.9 million in pre-opening costs associated with BizMart's expansion.

These losses affected Intelligent's quarterly performance. Intelligent said it had a net loss of $4.3 million for the quarter, or 11 cents per share.