K Mart support to spur OfficeMax expansion - office supply warehouse stores - K Mart's Fresh New Face

Discount Store News, Dec 17, 1990 by Laura Liebeck

Kmart Support to Spur OfficeMax Expansion

When Kmart decided to sell its five-store Office Square division last summer to Cleveland-based OfficeMax in exchange for a 22% stake in the up and coming chain, the discounter repositioned itself from an also-ran to a major player in the growing office supply field.

The sale, completed last month, permits Kmart to relieve itself of daily management responsibilities of a growing concern while still reaping the financial rewards of its involvement.

Kmart's financial support enables OfficeMax, which now has nearly 50 outlets, to grow more rapidly than it originally planned, and without incurring debt.

According to Michael Feuer, president, the match was "fortuitous." OfficeMax can now attain its goal of becoming a 100-store chain of office supply stores without having had to turn to the public to raise expansion funds. And he and partner Robert Hurwitz get to maintain autonomous control over the company.

Control Own Destiny

"It was important for us to control our own destiny, and Kmart afforded us that," said Feuer.

Kmart's daily role in OfficeMax is the same as for any other of the office supply chain's 120 shareholders, he said. However, Thomas Murasky, chief financial officer at Kmart, is on the OfficeMax board of directors, and the office supply chain may receive assistance in operations areas from Kmart if needed.

The two chains, he said, "talk all of the time."

OfficeMax operates as a completely autonomous business from Kmart, stressed Feuer, noting that "if we need something we call them, and if they want something they ask."

Kmart officially sold Office Square to OfficeMax Nov. 3. The discounter closed on its equity position in OfficeMax Nov. 21. Exact terms remain secret. Kmart does have the option of expanding its equity in OfficeMax, but by how much also remains undisclosed.

OfficeMax is now one of the largest office supply chains in the growing office supply industry. It is positioned by sales after Office Depot, Staples, BizMart, Office Club and OW Office Supplies Warehouse.

Sales last year totaled $20 million, which was generated from about 18 units.

A lot has changed in a year. OfficeMax has nearly tripled in size since 1990 began, due to two acquisitions and its own regular expansion.

Last April, OfficeMax acquired seven-unit Office World in a transaction that swapped stock and cash in OfficeMax for ownership of the Great Neck, N.Y.-based chain. Then last summer Kmart announced it would sell its five Office Square locations to OfficeMax in exchange for a large equity position.

Also during 1990, OfficeMax determined that it would continue to look for acquisition opportunities every six months.

Feuer declined to name his newest prospect but did acknowledge that the consolidation in the industry has afforded him prospects.

Feuer founded OfficeMax in April 1988 with Bob Hurwitz. Both are retailing veterans.

Retailing Backgrounds

Prior to forming OfficeMax Feuer was a senior vice president of Fabri-Centers of America, operators of Jo-Ann Fabrics and Cargo Express, and Hurwitz was with Professional Houseware Distributors, a distributor of traditional housewares products.

Combined, the two men are the office supply chain's two largest shareholders. Kmart is second with its 22% equity and Montgomery Ward, the major shareholder in Office World prior to OfficeMax's acquisition of the chain, also maintains a large but unknown stake in the chain.

OfficeMax opened its first store in Cleveland in July 1988 and has grown steadily since. Feuer expects the chain to have 65 stores by next summer and reach its goal of 100 units by spring or summer of 1992.

The chain's recent openings include its third unit in Buffalo, N.Y.; second in Toledo, Ohio; seventh in Detroit; and first in South Bend, Ind.

These openings coincided with the grand reopenings of the seven Office World and five Office Square Stores under the OfficeMax banner, all at Thanksgiving. Prior to that, Office World stores were known as "Office World by OfficeMax," and Office Square was known as "Office Square Is Now OfficeMax."

PHOTO : Kmart's financial support enables OfficeMax, which now has nearly 50 outlets, to grow more rapidly than it planned, and without incurring debt.

PHOTO : Last year OfficeMax's sales totaled $20 million, which was generated from about 18 units. The chain has nearly tripled in size since 1990 began, due to two acquisitions and its own regular expansion.