Can the Office Depot Inc (ODP) Retailers Survive?

Office Depot Inc (NYSE:ODP)In a few months there will be two office “superstores” left, once Office Depot Inc (NYSE:ODP) finishes its purchase of OfficeMax Inc (NYSE:OMX) and begins its direct competition with Staples, Inc. (NASDAQ:SPLS).

The question for investors isn’t which company will survive, but will any of them? Over the last year, five years, or 10 years, all three of these companies have been losing value and losing money.

How can they at least make an argument toward survival? Let’s explore that a moment.

OfficeDepot Seeks Direction

As preparation for their merger, OfficeMax Inc (NYSE:OMX) and Office Depot Inc (NYSE:ODP) have launched a search for a new CEO.

It’s instructive that the leaders of this effort aren’t insiders at either company. They’re the CEO of Dunkin Brands Group Inc (NASDAQ:DNKN), who was on the Office Depot Inc (NYSE:ODP) Board, and the former CEO of Alberto Culver, who served OfficeMax.

Whomever they choose has their work cut out for them. Over the last five years OfficeMax Inc (NYSE:OMX) has lost 40% of its value. Office Depot Inc (NYSE:ODP) has done even worse, losing 70% of its valuation. This is basically a 1+1=1 merger.

The first step is going to be easy, eliminating stores that compete directly with one another, and laying off the workers. Will these be the largest stores in a region, or the smaller ones? That will tell us a lot about the company’s faith in its new direction.

The second step is to choose that direction. Recent visits to both stores have found listless employees, empty aisles nearly devoid of merchandise, and a mix of offerings from the 1990s. The smaller Office Depot Inc (NYSE:ODP) stores look better than the larger OfficeMax outlets. But both have a basic problem.

How do you become relevant to business again? What can an “office supply” store offer in a post-office supply era, where companies are even planning on ending PC purchases, insisting that employees “bring their own?”

Can Office Depot Inc (NYSE:ODP), perhaps, get contracts for employee “bring your own” purchases, with costs shared by the companies?

Staples Seeks New Niches

Staples, Inc. (NASDAQ:SPLS) has shown an interest in reinventing the space by launching itself into the 3D printer space, with 3D Systems‘ Cube, a $1,299 unit that is aimed at a mass market alongside MakerBot’s Replicator.

This is a follow-on to the company’s decision to offer 3D printing services at its stores last December. That move was made in conjunction with a small 3D printing company, Mcor, but it points to a dramatic new direction for the space.

Services

Want to know what the most crowded store in this space is? It’s the UPS Stores, formerly Mailboxes Etc. locations. Those stores are very small, they offer only two services – shipping and receipt of packages and mail – but they have dramatically increased UPS’ reach into the small business market.

Another word for services is logistics. And logistics is what small-to-medium sized businesses need more than anything else. They need help getting stuff in, getting stuff out, expanding their lines of business.

If these stores have a future, it’s in services, logistics, in doing for businesses what businesses find hard to do for themselves. Staples has made the first tentative steps in this direction. And the market has begun to notice – Staples, Inc. (NASDAQ:SPLS) stock has been practically stable the last three months while the glow of the Office Depot Inc (NYSE:ODP) merger talk has died off, sending that stock down 13%.

There is plenty of time to speculate that one of these two stores gets it right, but right now Staples is the way to go.

The article Can the Office Retailers Survive? originally appeared on Fool.com and is written by Dana Blankenhorn.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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