OfficeMax acquires BizMart; 3 major superstores remain

Discount Store News, Jan 4, 1993

CLEVELAND - The long, protracted acquisition of Arlington, Texas-based office supply chain BizMart by Kmart's OfficeMax division is expected to be finalized early next month.

Once completed, OfficeMax will become a national chain with more than 260 stores across the United States. In addition to the BizMart units, the chain plans to add at least 55 more new stores to its mix, including units in Puerto Rico and Hawaii. Sales are expected to reach more than $1.5 billion this year.

OfficeMax's acquisition of BizMart essentially finalizes the contraction in the office supply business. At its peak, retail office superstores, grew to 14 chains in the late 1980s. Now, just three major players are left: OfficeMax, Office Depot, still the industry's leader in sales volume, and Staples, the pioneer of the office supply superstore concept.

Before the acquisition of BizMart, OfficeMax operated 160 stores in 26 states. Initial growth had been in the Midwest, but expansion has been rapid recently along the East Coast. OfficeMax also has stores located as far west as Arizona.

BizMart has 104 stores in 22 states. These units provide entry for OfficeMax in the Southwest, West and Pacific Northwest.

It took OfficeMax president Michael Feuer nearly two years to close the BizMart deal. OfficeMax made its first bid on BizMart in 1991, but lost out to Intelligent Electronics in May of that year for what amounted to 50 cents per share. OfficeMax reinitiated its bid for BizMart, this time with Intelligent, last year. However, talks broke off in November.

But negotiations continued quietly.

"It was part of the process," said Feuer. "We never announced we ended conversations."

OfficeMax is paying $2.596 million per unit for BizMart. Intelligent paid $3.4 million per unit for BizMart's 57 stores in June 1991, or $196 million.

The $270 million purchase price is an estimated figure based on BizMart's audited book value on Nov. 28, 1992. The price, payable mostly in cash, does not include a $15 million to $20 million cash infusion Intelligent will pay to keep the BizMart stores operating, an industry source told DSN.

Another condition of the sale is that Intelligent will be responsible for the six remaining computer franchisee contracts in the stores until they expire, informed sources said. OfficeMax will not pick up any of the computer franchisees, believing that the program - which installed Intelligent's franchisees in large computer departments in the retail store - is flawed.

The $270 million figure fell within the $250 million to $300 million figure that industry experts originally predicted the financially troubled BizMart would fetch.

In fact, BizMart reported an operating loss of $11 million for third quarter 1992, ended Oct. 31, 1992, helping Intelligent post a net loss of $2.4 million. For the 1991 quarter, BizMart posted an operating income of $1.2 million.

The chain's sales, however, were robust for the same 13-week period. Intelligent reported that BizMart's sales for the quarter totaled $164 million, up from $126.5 million a year ago.

"They don't have a sales problem," said Feuer. "They have a profit problem." It is a situation Feuer said he will address immediately.

Feuer said OfficeMax "will integrate BizMart as quickly and efficiently as possible." This includes reconfiguring the stores to the OfficeMax prototype, typically 23,000 sq. ft. to 25,000 sq. ft. (Some BizMart units are larger.) and reducing the computer products inventory - including hardware, software, accessories and peripherals - from 40% of BizMart's total mix the 15% level commonly found at OfficeMax units. This will allow margins to "improve immediately," Feuer noted, adding, "it will be a very quick turnaround on the profit side."

In addition, OfficeMax will change the name on all BizMart stores over the coming nine months on a market-by-market basis, starting first in markets where the two names overlap.

Only a handful of stores will be closed, Feuer said, because only a few sites conflict with one another.

Many of BizMart's personnel will be absorbed in the acquisition, particularly the field and store level people. Some headquarters staff will be retained.

"One of the most positive things is their [BizMart's] field organization. It is outstanding," Feuer commented. He added that for field and store level people the change in ownership "will be transparent."

Currently, Feuer said he is evaluating the entire BizMart organization to see where its strengths can be applied to the entire company.

BizMart is OfficeMax's fourth acquisition since its founding in 1988. Preceeding BizMart were Office World, Office Square, and OW Office Supply Warehouse.