Office Depot 2000 Annual Report Download - page 16

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Management’s Discussion and Analysis of Financial Condition
and Results of Operations
General
Office Depot, Inc., together with our subsidiaries, is the largest
supplier of office products and services in the world. We sell
to consumers and businesses of all sizes through our three
business segments: North American Retail Division, Business
Services Group, and International Division. These segments
include multiple sales channels consisting of office supply
stores, a contract sales force, Internet sites, and catalog and
delivery operations. Each of these segments is described in
more detail below. In 2000, we refined our segment definitions
to better reflect our current management responsibilities.
Segment information for 1999 and 1998 has been restated to
reflect these changes. Also, in accordance with the consensus
reached in Emerging Issues Task Force (“EITF”) 00-10, we
reclassified delivery income from store and warehouse operating
and selling expenses to sales for all periods presented in this
Annual Report. We operate on a 52- or 53-week fiscal year
ending on the last Saturday in December. Our results for the
fiscal year 2000 contained 53 weeks, all other years contained
52 weeks.
This Management’s Discussion and Analysis (“MD&A”) is
intended to provide information to assist you in better under-
standing and evaluating our financial condition and results of
operations. We recommend that you read this MD&A in con-
junction with our Consolidated Financial Statements and the
Notes to those statements. This MD&A section contains signifi-
cant amounts of forward-looking information, and is qualified by
our Cautionary Statements regarding forward-looking information.
You will find Cautionary Statements throughout this MD&A;
however, most of them can be found in a separate section
immediately following this MD&A. Without limitation, when we
use the words “believe,” “estimate,” “plan,” “expect,” “intend,”
“anticipate,” “continue,” “project,” “should,” and similar expres-
sions in this Annual Report, we are identifying forward-looking
statements, and our Cautionary Statements apply to these
terms and expressions.
North American Retail Division
Our North American Retail Division sells office products, copy
and print services and other business-related services under the
Office DepotTand the Office PlaceTbrands through our chain
of high-volume office supply stores in the United States and
Canada. We opened our first office supply store in Florida in
October 1986. From our inception, we have been a leader in the
retail office supplies industry, concentrating on expanding our
store base and increasing our sales in markets with high con-
centrations of small- and medium-sized businesses. As of the
end of 2000, our North American Retail Division operated 888
office supply stores in 47 states, the District of Columbia and
Canada. Store activity for the last five years has been as follows:
Open at Open at
Beginning Stores End
of Period Opened Closed of Period Relocated
1996 501 60 — 561 3
1997 561 42 1 602 2
1998 602 101 1 702 5
1999 702 130 7 825 14
2000 825 70 7 888 4
The decline in the number of stores opened in 1997 was the
result of our proposed merger with Staples, Inc. (“Staples”). In
September 1996, we entered into an agreement and plan of
merger with Staples. The proposed merger was blocked by a
preliminary injunction granted by the Federal District Court at
the request of the Federal Trade Commission, and in July 1997
we announced that the merger agreement had been terminated.
During this period of uncertainty, several of our key employees
in the real estate area left the Company. After the merger dis-
cussions with Staples were terminated, we re-staffed our real
estate department and re-launched our store expansion
program. Many of the locations opened during this period of
aggressive expansion have not performed to our expectations.
In 2000, we scaled down our expansion plans and announced
the closing of 70 locations in the first quarter of 2001 (see
One-time Charges and Credits).
In 2001, we plan to add approximately 50 new retail stores,
most of which will be located in areas in which we currently
enjoy strong market positions, with the balance in under-served
markets. In future years, we expect to continue this approach
to retail store expansion, with an emphasis on market density
in order to leverage advertising dollars and cross-channel
opportunities to create a seamless customer experience across
all channels. All new stores will incorporate a more efficient plat-
form of approximately 20,000 square feet and will feature a
more interactive customer experience.
Business Services Group (“BSG”)
In 1993 and 1994, we expanded into the contract office supply
business by acquiring eight contract stationers with 18 domestic
customer service centers and a professional sales force. These
acquisitions allowed us to enter the contract business and
broaden our commercial (primarily catalog) and retail delivery
businesses. In 1998, we expanded our direct mail business
through our merger with Viking Office Products (“Viking”).
Today, BSG sells office products and services to contract and
commercial customers through our Office DepotTbrand and
Viking Office ProductsTbrand direct mail catalogs and Internet
sites, and by means of our dedicated sales force. Customer