Growing USOP to acquire Mail Boxes

Discount Store News, Nov 3, 1997 by Mike Troy

WASHINGTON, D.C. - Staples, Office Depot and

OfficeMax will simultaneously lose 3,300 customers

and gain a new competitor on Nov. 20

when shareholders of Mail

Boxes Etc. are expected to

approve U.S. Office Product's

pending acquisition offer.

"Today, the Mail Boxes

franchisees literally go shopping

at Office Depot, Staples

or OfficeMax and pay full

retail for supplies they stock

in their stores as a convenience

to customers, sometimes

marking them up

100%," said Jon Ledecky,

chairman and ceo of U.S.

Office Products. "With a

very focused sku assortment

supported by our vendors,

we can provide products at

the same cost as an Office

Depot, Staples or OfficeMax.

Not on 5,000 or 10,000 products,

but on the 250 products

that small businesses

need and use everyday."

Serving "all" the needs of

a small office and home office market is what

USOP, as the company is commonly called, is

all about. Other companies have similar goals,

but what differentiates USOP is the strategy it

has pursued.

The buyout of Mail Boxes Etc. is a perfect

example. USOP is acquiring more than a retail

store base of 3,300 domestic locations. It also is

acquiring what Ledecky calls a "target rich"

environment where more than 500,000 mail box

holders regularly visit stores.

"Imagine what we can do at a Mail Boxes

Etc. if we can sell office products and services

to their customer base," Ledecky proposed to

200 employees and shareholders gathered

recently in Washington, D.C., for the company's

annual meeting. "We want to make Mail Boxes

Etc. a one-stop shop for the small business person.

Think about all the different things that

we can provide."

Ledecky certainly has.

The company which he founded in October

1994 and took public four months later is focused

on offering every product or service a small business,

home office or mid-tier company could

need. "If it walks in or out of an office, U.S. Office

Products should be able to provide

it," Ledecky has often said.

It's basically a one-stop

shop philosophy. USOP's

strategy is grounded in the

belief that small businesses

want to deal with one company

for all their needs. That's

why Ledecky has spent the

past three years acquiring

what at times seemed to be

anything that moved.

In just under three years,

USOP bought 190 companies

and linked them together

with a hub and spoke system.

The larger, established companies

USOP has bought are

referred to as hubs. Smaller

companies in nearby secondary

markets are referred

to as spokes. By integrating

their operations USOP is able

to reduce expenses and the

acquired companies benefit

from the buying power of a

company whose sales now

total $3.5 billion.

Beyond those synergies,

there's also a belief that enormous

cross-selling opportunities

exist among USOP's various

divisions. In the case of Mail

Boxes Etc., Ledecky has only

alluded to USOP's ability to

grow sales of office products.

However, other opportunities

are sure to involve Starbucks,

MCI and USOP's catalog. In

September 1996, USOP signed

a five-year agreement to distribute

Starbucks brand coffee in

North America.

At the shareholders meeting,

Ledecky announced a new

telecommunications deal with

MCI that allows USOP to

lower its telecommunications

bill and also receive commissions

by using its field sales

force to sell MCI products to

USOP customers.

Also this year, USOP produced

an 18,000-sku catalog.

Ledecky, who is prone to

sports analogies, said the company

is only in the second

inning of realizing cross-selling

opportunities. It might also

be said that it's only in the

first quarter when it comes to

taking advantage of expense

reduction opportunities.

Recently, USOP consolidated

its Florida warehouse operations

by having one district fulfillment

center serve the 10

companies it owns throughout

the state. "We are going to see a

$2 million cost reduction," said

chief operating officer Tom

Morgan. "We have six or seven

more just like that lined up, and

the dollars are going to start

dropping off."

Reducing expenses and

focusing on sales growth is a

new direction for USOP. The

company has become extremely

selective about acquisitions

as it looks to achieve more

organic growth.

It's a strategy J.P. Morgan

Securities analyst Mark

Husson refers to as the great

big plan: get big, then become

great. By focusing on operations,

USOP expects earnings

growth to come from gaining

market share in the highly

fragmented markets in which

it operates.