Office Depot 2001 Annual Report Download - page 20

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Office Depot, Inc.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
General
Office Depot, Inc., together with our subsidiaries (“Office Depot” or the
“Company”), 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 con-
sisting 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. 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 reflected in the preceding table contained 52 weeks.
This Management’s Discussion and Analysis of Financial Condition and
Results of Operations (“MD&A”) is intended to provide information to assist
you in better understanding and evaluating our financial condition and results
of operations. We recommend that you read this MD&A in conjunction with
our Consolidated Financial Statements and the Notes to those statements.
This MD&A section contains significant amounts of forward-looking infor-
mation, 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 expressions in this Annual Report, we are identifying
forward-looking statements, and our Cautionary Statements apply to these terms
and expressions and the text in which such terms and expressions are used.
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 inception, we have been a leader in the retail
office supplies industry, concentrating on expanding our store base and increas-
ing our sales in markets with high concentrations of small- and medium-sized
businesses. As of the end of 2001, our North American Retail Division oper-
ated 859 office supply stores in 44 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
1997 561 42 1 602 2
1998 602 101 1 702 5
1999 702 130 7 825 14
2000 825 70 7 888 4
2001 888 44 73 859 5
The number of store openings and closings over this five-year period has
been affected by our proposed (and subsequently abandoned) attempts to
merge with Staples, Inc. (“Staples”), another large company in the retail office
products segment. In 1996, we entered into an agreement and plan of merger
with Staples. The proposed merger was enjoined 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 employ-
ees in the real estate area left the Company. After the merger discussions with
Staples were terminated, we re-staffed our real estate department and aggres-
sively re-launched our store expansion program. Many of the retail store
locations opened during this period of aggressive expansion have not per-
formed to our expectations. In 2000, we scaled back our expansion plans and
announced the closing of 70 under-performing store locations in the first
quarter of 2001. During 2001, we opened 44 new stores, most of them in
existing markets where we continue to find real estate sites that enhance our
current market positions, build density and target new opportunities for
growth. We also identified 13 additional under-performing stores, three of
which were closed in 2001.
In 2002, we plan to add 25 to 30 new retail stores, most of which will be
located in areas where 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 are expected
to incorporate a more efficient platform of approximately 20,000 square feet
and to feature a more interactive customer experience.
In 2001, we reorganized our management team and hired Jerry Colley
as President, North American Stores. Mr. Colley has now been with our
Company approximately one year; and he, in turn, has made numerous changes
in our management ranks, along with other changes in the ways in which
we operate our retail stores. Mr. Colley reports directly to our Chairman and
CEO, Bruce Nelson.
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 outside 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 cata-
logs and Internet sites, and by means of our dedicated sales force. Customer
service centers (“CSCs”) are warehouse and delivery facilities, some of