Office Depot puts the lights out on six distribution centers, 112 stores
Tepid economy means supply chain changes for office product supplier
By Maria Varmazis -- Purchasing, 12/10/2008 2:50:00 PM
Boca Raton, Fla.-based supplier Office Depot announced it will close 112 retail outlets over the next three months and shut six of its 33 distribution centers in North America, as part of its ongoing strategic overhaul originally announced in late October.
On the retail side, the office products supplier will only open half of the new stores it originally planned for—down to 20 stores in 2009 from 40. According to the press release, anticipated staff cuts include "store, headquarters and field sales," though it is not readily clear if or how these cuts will affect corporate accounts.
On the supply chain side, Office Depot's decision to close six of its distribution centers is a continuation on the plan announced in its third-quarter earnings report in October to decrease its distribution network from 12 cross docks and 21 DCs with 7.2 million square feet down to 12 total facilities that provide more flexibility in warehousing space. The company reported a 11% decline in North American sales in the third-quarter, citing higher supply chain costs as one of the reasons.
In its October presentation to investors, Office Depot also said it was planning to focus more on global sourcing as a way to reduce costs. The company opened a global sourcing office in Shenzjen, China in 2007 and said it plans to increase the categories of products it sources overseas. It also planned to institute independent audits of all factories and chain of custody of goods for environmental, social, and quality issues.
Beyond global sourcing, Office Depot said in October it was taking several actions to streamline its work with corporate accounts including:
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Focusing on small to medium-sized businesses
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Implementing redesigned telephone account management (TAM) program
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Making buyer-focused enhancements to its web ordering.
The store and DC closures announced this week will add an additional $300 million charge on Office Depot as it liquidates assets and pays leases on closed locations. Although Office Depot could not be reached for comment, in its official statement the company does not rule out taking more cost-cutting actions, such as business restructuring, as it moves into 2009.
Analysts said the move would help the struggling supplier in the short-term, but said its long-term outlook was still murky given the slumping demand in many industry sectors. “It's not enough to really close the gap and make a meaningful impact compared to Staples and the mass merchant competitors," said Morningstar analyst R.J. Hottovy in a recent Associated Press report. "But it's probably a Band-Aid on a flesh wound."
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