OfficeMax is the biggest, now it has to prove it's the best

Discount Store News, Nov 17, 1997 by Mike Troy

CLEVELAND -- If OfficeMax chairman and ceo Michael Feuer comes across as smug, who can blame him? The chain he founded two years after the first Staples and Office Depot stores were op-ened will end this year with more stores than either of its rivals.

OfficeMax is on track to have 714 stores open by yearend, and nearly half of those stores were opened within the past three years. During the past year alone, while Staples and Office Depot invested their time and energy pursuing a merger that was eventually scuttled, Feuer accelerated the expansion of OfficeMax and opened 150 stores. The chain now finds itself in a position that few, with the exception of Feuer, might have imagined earlier this decade.

When we first started we were No. 19 on a list of 19 companies," Feuer told DSN.

With another 125 stores planned for 1998 and an exceptionally strong balance sheet to fund new store expansion and possible acquisitions, Staples and Office Depot will have a tough time surpassing OfficeMax's store count. Feuer can certainly lay claim to being the biggest and most geographically diverse of the big three office superstore operators. But before OfficeMax can earn the outright distinction of being the best, it faces several key challenges.

The most obvious is overcoming a glaring disparity between its sales volume and that of its competitors. OfficeMax will end this year just shy of the $4 billion mark, compared to Office Depot's annual sales of $6.7 billion and Staple's annual sales of $5.2 billion.

Feuer attributed the sales gap to the relative immaturity of the OfficeMax store base, something which OfficeMax will ultimately benefit from. Not only are OfficeMax stores younger than those belonging to the competition, they are more geographically diverse. OfficeMax is in 260 markets in 48 states and Puerto Rico and serves those stores with 17 distribution centers.

"We have a broader base than Staples or Office Depot," Feuer said. "Over the next five years, we are going to be able to accelerate our growth and productivity, and the real key becomes the foundation we have in place today."

Solid as that base looks to be, the mortar is still curing. OfficeMax only recently completed the addition of CopyMax centers to nearly all of its stores after opening the first such copy center in July 1995. Not only do copy and printing services offer 50% margins, they help drive customer visits. The company's first FurnitureMax unit was opened in November 1994. Today, all stores offer furniture, and by yearend there will be roughly 140 FurnitureMax hub locations approximately 4,000- to 8,000-sq.-ft. departments within an OfficeMax store.

OfficeMax stores are arranged around an easy-to-shop, store-within-a-store concept, and store sizes range from 23,000 sq. ft. to 36,000 sq. ft. Within the confines of the larger box stores, referred to as TriMax, the retailer can locate FurnitureMax and CopyMax hubs. The large CopyMax locations are able to execute large or complex jobs for which smaller copy centers aren't equipped. The hub and spoke arrangement allows a customer to visit any store when ordering copy services, even though the actual work may be done at one of the hub locations. It's transparent to the customer where the actual work is done, and OfficeMax is able to keep its equipment running at capacity while ensuring associates are proficient at operating the equipment

Copy centers, with the exception of hub locations, are typically located at the rear of the store as a way to drive traffic through the store and expose customers to impulse items. A typical store also has computers, printers, faxes merchandised on two, long low-rise gondolas that run parallel to the store's front wall. An area called TechMax is at one end of the gondolas. The outer wall is home to cellular telephones, personal data assistants and other small electronics.

Beyond the front of the store, a functional layout features gondolas running from front to back. A gondola break at the mid-store point allows for the placement of bins and pallets loaded with promotional merchandise. Such a configuration also allows customers to move laterally and locate products by relying on large, yellow aisle markers that sit atop the endcaps.

OfficeMax can also be a little unconventional at times in its approach to merchandising. Feuer is a rabid Cleveland Indians baseball fan, and city pride swelled when its team unexpectedly made it to this year's World Series. OfficeMax took advantage of the euphoria with an endcap devoted to Indians merchandise at its Cleveland area stores.

Other examples of what Feuer refers to as "merchandising on a string" involve the use of dead space on the side of endcaps or in aisles where unglamorous commodity products are merchandised: for example, there are key ringsize Coleman flashlights on clip strips in aisles where commodity products don't lend themselves to creative merchandising. OfficeMax will also stock products that defy the traditional definition of office products. Bottled water and leather work gloves are two examples.