Dive Brief:
- Office Depot's parent plans to separate its retail and business-to-business units into two independent, publicly traded companies, according to a press release.
- Under the separation, some 1,100 Office Depot and Office Max stores and the officedepot.com e-commerce site will form one company (ODP). Another company (NewCo) will house the B2B contract and office-supply distribution units.
- The separation comes after years of differing trajectories for the retail and B2B businesses. In the release, CEO Gerry Smith described the split as a way of maximizing "the strategic focus and financial flexibility of each entity and aligning their go-to-market strategies and capital investments."
Dive Insight:
It's a tough world for an office supply retailer. Competition with big-box generalists and online players, especially Amazon, have taken a toll on both Office Depot and Staples over the years.
A physical retail business could complement a B2B unit contracting with small, medium and large businesses to provide office supplies and related services. A store footprint means distribution nodes, customer touchpoints and convenient pickup if a business customer needs an item in a hurry. ODP's Office Depot and Office Max stores provide printing, tech, shipping and other services to small businesses, while retail customers can also benefit from regional print production centers.
As ODP's B2B unit has evolved, including through the development of a digital procurement platform, they have grown further apart in what they do.
They are also on different trajectories. Both have had their struggles in recent years, including during the pandemic, but retail sales have declined at a faster clip until COVID-19 hit. The pandemic has taken a toll on both sides of the business. In fiscal 2020, retail sales (excluding services) fell slightly to $3.7 billion while B2B sales, hit by school closures and offices going dark during the pandemic, fell more than 11%
Differing financial profiles can also invite pressure from investors to split the entities to create more stock value and focus inside the corporate parent. Yet ODP still intends to keep the two entities tied by commercial agreements that could benefit their respective sourcing and supply chains by adding scale.
Staples parent Sycamore Partners has also split that company's retail and B2B units into separate corporate entities since acquiring it in 2017.
Speaking of Sycamore, the private equity firm has approached ODP about the acquisition of some of ODP's assets, including its retail and e-commerce business. ODP publicly rebuffed Sycamore on its offer, which lacked a valuation and price, and would require ODP to assume the risk of navigating the federal antitrust approval process.
While ODP declined the officer, it did indicate willingness to combine its and Staples' retail businesses under better terms and tried to push Sycamore to continue negotiating.
For now, Office Depot is moving ahead with a plan to split itself up. The company said more details, including management of the new companies, will be announced in the coming months. ODP expects to complete the separation in the first half of 2022.
