Office Depot adjusts stores, staffing levels

04/16/2011 12:08 AM

04/16/2011 12:08 AM

FORT LAUDERDALE, Fla. —Office Depot admits it hasn't been taking care of business when it comes to its retail store customers.

The big-box retail concept offering thousands of office-supply products was no longer working. "Our model was broken," said Kevin Peters, head of the retail division for Boca Raton, Fla.-based Office Depot.

So when Peters was given the job a year ago, he donned a baseball cap and became a "mystery shopper" in more than 70 Office Depot retail stores around the country. "I didn't tell anyone I was coming. It was important to experience the store the way our customers were experiencing it," he said.

"The experience was disappointing."

Peters' mea culpa was a few days before Office Depot had a startling announcement: The company would restate its 2010 financials, due to a tax error. That restatement, which turned a $33 million profit into a $46 million loss, is likely to be among shareholder concerns at Office Depot's annual meeting on April 21 in Boca Raton.

As restated, retail sales fell 2 percent for the fourth quarter compared with the same period in 2009. Office Depot has suffered the economic impact felt by small businesses and consumers during the recession. And Office Depot is not only competing with Staples, the market-share leader, and OfficeMax, but also discount retailers Wal-Mart, Costco and Amazon.com.

On his retail store tour, Peters spent time in store parking lots to see how many customers walked away without bags. When he asked customers about it, he would get answers such as "I don't get the help I need" and "It's not easy to shop."

The experience led Peters to recommend an overhaul of Office Depot's retail stores that includes reducing the size of stores; shrinking the inventory to the best-selling products; emphasizing its technology, print and copy services; and hiring more full-time employees. Previously, Office Depot hired mostly part-time workers.

"We're talking to customers more today than we ever have been," Peters said. "We need our customers a lot more than they need us."

Smaller-format Office Depot stores are in Delray Beach, Fla., Baltimore; Silver Springs, Md.; Washington, D.C.; and Arlington, Va.

Time-stressed small-business owners represent 65 percent of Office Depot's customers. That has prompted the retail chain to reduce confusing signs and train employees to escort customers directly to the item they're trying to find.

More technology vendors are being asked to spend time at the store, and employees are being trained to help customers choose laptops and printers and even learn software.

The small-store format is "a good strategy," said Joscelyn MacKay, analyst at Morningstar. But, "it's nothing that Staples and OfficeMax aren't doing."

Peters said Office Depot's new retail business model is still taking shape. The company has 15 employees focusing solely on retail store changes and hired a consultant to lead them through the change process.

Office Depot says one result is it has eliminated most employee tasks not related to customer service. Delray Beach store manager Christine Boss said the new edict is, "We drop everything and help the customer."

Aaron Hemlepp, who shops at Office Depot three or four times a week, likes corporate discount he gets on products and services. "There's no point in going to five different places when they have it all under one roof," said Hemlepp, who works for RediLearning, an online health care education company in Delray Beach.

He hasn't found the reduced product selection a problem.

But lawyer Andrew Jackson couldn't find the postage scale he needed on a recent visit to the Delray Beach store, though he bought other office supplies. He also wasn't able to get a document double-bound on his last visit. Jackson asked the store manager about it and was assured the store now had the needed equipment.

Peters, who still visits stores several times a week, said the retail store format is far from perfected. "It's not fixed, and it's not going to be fixed for a while. I don't want to set an expectation that our work is done."

But he thinks the smaller store format is paying off, and hopes to roll it out to about 100 stores a year as leases expire. Stores will range as small as Delray Beach's 5,000 square feet to 17,000 square feet.

Other changes, to improve the shopping experience, will be rolled out to as many as 300 stores by year-end, Peters said.

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