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OfficeMax Incorporated (OMX) Is Suffering From a Herd Mentality

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Business trends come and go as fast as women’s fashion changes. From Japanese-inspired total quality management initiatives in the 1980s to the Six Sigma movement and now “kaizen,” they’re all manifestations of corporations embracing the latest fad.

Go big or go home
Other ideas that illustrate a herd instinct among executives include the big-box superstore concept pioneered by the likes of Wal-Mart Stores, Inc. (NYSE:WMT) and The Home Depot, Inc. (NYSE:HD). But now after the Great Recession, everyone is running in the opposite direction, reducing a company’s bricks-and-mortar footprint to its essentials. Even Wal-Mart is downsizing again.

When customers proved the only thing they wanted to buy from Best Buy Co., Inc. (NYSE:BBY) was mobile phones, the electronics superstore went from spacious 45,000-square-foot stores offering everything from electronic gadgets to appliances to opening up cozy mobile phone-only stores that average 1,200 square feet in size. RadioShack Coporation (NYSE:RSH) was even more radical in opting for little more than a kiosk stationed inside a Target Corporation (NYSE:TGT) store. Sometimes, though, too small is just too small, and the two recently severed their relationship after the concept flopped.

Perhaps the best example of the store-in-store ideal is Bed Bath & Beyond Inc. (NASDAQ:BBBY), which often houses its makeup and personal-care division Harmon Face Values in its big-box stores in addition to their own standalone models.

Everybody in the pool!
So it comes as no surprise that office-supply retailer OfficeMax Incorporated (NYSE:OMX) is hopping on the less-is-more bandwagon and reducing the size of its store square footage. Although rival Staples, Inc. (NASDAQ:SPLS) began the process several years ago, OfficeMax is following with gusto. It closed around 40 stores last year without barely opening any new ones and now is embarking on a plan to go from a cavernous 30,000-square-foot store to a more intimate 5,000- to 15,000-square-foot one.

Not to be outdone, Office Depot Inc (NYSE:ODP) has committed $60 million a year to shoehorning approximately 500 stores into a new smaller format over the next five years and closing as many as 20 stores per year as leases expire.

For retailers like office-supply shops that stock tens of thousands of SKUs — the large selection is why Staples is actually the second largest online presence behind Amazon.com, Inc. (NASDAQ:AMZN) — going with the smaller footprint makes sense. It eliminates a lot of extra inventory that’s expensive to carry, it reduces the number of employees needed to staff the stores, and it just might squeeze more profit out of the same concept at lower cost. Of course, Wall Street still thinks merging Office Depot and OfficeMax would be the best outcome for the two, because the current state of the economy can’t support all three retailers.

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