OfficeMax 2007 Annual Report Download - page 7

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from the paper operations of Boise Cascade, L.L.C., under a 12-year paper supply contract we
entered into at the time of the Sale.
As of January 26, 2008, our Retail segment operated 981 stores in the U.S. and Mexico, three
large distribution centers in the U.S., and two small distribution centers in Mexico. Each store offers
approximately 10,000 stock keeping units (SKUs) of name-brand and OfficeMax private-branded
merchandise and a variety of business services targeted at serving the small business customer,
including OfficeMax ImPress. As of January 26, 2008, our Retail segment operated six OfficeMax
ImPress print on demand facilities with enhanced fulfillment capabilities. These 8,000 square foot
operations are located within some of our contract distribution centers, and serve the print and
document needs of our large contract customers in addition to supporting our retail stores by
providing services that cannot be deployed at every retail store.
OfficeMax, Retail sales for 2007, 2006 and 2005 were $4.3 billion, $4.3 billion and $4.5 billion,
respectively.
Competition
Domestic and international office products markets are highly and increasingly competitive.
Customers have many options when purchasing office supplies and paper, print and document
services, technology products and solutions and office furniture. We compete with worldwide
contract stationers, office supply superstores, mass merchandisers, wholesale clubs, computer and
electronics superstores, Internet merchandisers, direct-mail distributors, discount retailers,
drugstores, supermarkets and thousands of local and regional contract stationers. In addition, an
increasing number of manufacturers of computer hardware, software and peripherals, including
some of our suppliers, have expanded their own direct marketing efforts. The other large office
supply superstores have increased their presence in close proximity to our stores in recent years
and are expected to continue to do so in the future. In addition, many of our competitors have
expanded their office products assortment, and we expect they will continue to do so. In recent
years, two package delivery companies have established retail stores that compete directly with us
for copy, printing, packaging and shipping business, and offer a limited assortment of office
products and services similar to the ones we offer. We anticipate increasing competition from our
two domestic office supply superstore competitors and various other competitors, including the two
package delivery companies, for print-for-pay and related services. Print-for-pay and related services
have historically been a key point of difference for OfficeMax stores and are expected to become an
increasingly more important part of our future strategies. Any or all of our competitors may become
even more aggressive in the future, including potential business combinations among competitors,
which may afford them greater cost leverage and scale advantages.
Increased competition in the office products markets, together with increased advertising, has
heightened price awareness among end-users. Such heightened price awareness has led to margin
pressure on office products and impacted the results of both our Retail and Contract segments. In
addition to price, competition is also based on customer service, the quality and breadth of product
selection, and convenient locations. Some of our competitors are larger than us and have greater
financial resources, which affords them greater purchasing power, increased financial flexibility and
more capital resources for expansion and improvement, which may enable them to compete more
effectively than we can.
We believe our excellent customer service and the efficiency and convenience for our
customers of our combined contract and retail distribution channels gives our OfficeMax, Contract
segment a competitive advantage among business-to-business office products distributors. Our
ability to network our distribution centers into an integrated system enables us to serve large
3