Office Depot 2002 Annual Report Download - page 16

a new web site (www.techdepot.com) for technology purchases. We
believe our Internet business will provide significant future growth
opportunities for our BSG segment and our business as a whole based
on the growth rates we have experienced over the last three years.
Robert Keller, President, Business Services Group, leads our BSG organi-
zation. Mr. Keller has been with our Company for five years in various
executive capacities. Under Mr. Keller’s direction, selling and warehouse
expenses have declined, and order fill rates, delivery operations and
customer service indices have improved. Mr. Keller reports directly to
our Chairman and CEO, Bruce Nelson.
International Division
Our International Division sells office products and services in 20 coun-
tries outside the United States and Canada through Office Depot retail
stores, Office Depot姞brand and Viking Direct姞brand direct mail catalogs
and Internet sites, and an Office Depot contract sales force. We have
grown this business through licensing and joint venture agreements, and
most particularly the 1998 merger with Viking. The growth in more
recent years has come from startup operations, primarily in Europe.
The international catalog business was launched in 1990 under the
Viking Direct姞brand with the establishment of operations in the
United Kingdom. With the expansion into three additional countries
during 2002, we now have catalog offerings in 14 countries outside of
North America.
In March 1999, we introduced our first international public web site
(www.viking-direct.co.uk) for individuals and businesses in the United
Kingdom. Today we operate 23 separate international web sites. Our
international e-commerce business increased 66% during 2002 and
additional growth is expected in future years.
We launched our Office Depot contract business in the United Kingdom
in 2000; and in 2001, we began service in three new countries—Ireland,
the Netherlands and France. During 2002, we expanded to Italy and
made startup investments in Germany, in advance of our launch in early
2003. This channel targets medium- to large-sized businesses and
offers personalized service through a dedicated sales force, individual-
ized pricing and overnight fulfillment, using our existing European
logistics infrastructure.
At the end of 2002, our International Division sold office products and
services through either wholly owned operations, or through joint ven-
tures or licensing agreements, in Austria, Belgium, Costa Rica, France,
Germany, Guatemala, Hungary, Ireland, Israel, Italy, Japan, Luxembourg,
Mexico, the Netherlands, Poland, Portugal, Spain, Switzerland, Thailand
and the United Kingdom. Nine of these countries served retail customers
through a total of 171 office supply stores, of which 50 stores were
wholly owned. This compares to 143 stores in seven countries at the end
of 2001, 39 of which were wholly owned. International Division store
and CSC operations, including facilities operated through licensing and
joint venture agreements, for the last three years are detailed below.
Office Supply Stores
Open at Open at
Beginning End
of Period Opened Closed of Period
2000 118 19 5 132
2001 132 15 4 143
2002 143 32 4 171
Customer Service Centers(1)
Open at Open at
Beginning End
of Period Opened Closed of Period
2000 17 — — 17
2001 17 4 1 20
2002 20 3 3 20
(1) The number of Customer Service Centers has been reduced to reflect Australia as a
discontinued operation.
In 2003, we plan to expand our International Division’s retail presence
by opening five to 10 new retail stores in France and Japan, and six new
retail stores in Spain.
All of our European businesses are under the leadership of Rolf van
Kaldekerken, President, European Operations. Mr. van Kaldekerken
reports directly to our Chairman and CEO, Bruce Nelson. Richard Lepley,
President, Office Depot Japan leads our Japanese business and also
reports directly to our Chairman and CEO.
Results of Operations
Over the last three years, our overall operations have improved and we
have expanded internationally; but we have been adversely affected by
a generally weak domestic economy, with related slowdowns in new
business formations and reductions in the number of employees by our
large contract customers. During this period, we have increased gross
margins, operating profit, and net earnings. Diluted earnings per share
increased to $0.98 in 2002 from $0.66 in 2001 and $0.16 in 2000.
These changes reflect shifts in our product mix away from certain lower
margin technology products, the benefit of warehouse operating effi-
ciencies, expansion in Europe, and in 2002, a strengthening of European
currencies. In addition, over the past three years, we have been highly
focused on reducing our operating expenses and increasing efficiencies
in all our operations, with the benefits somewhat offset by an increase
in costs incurred to seed our European growth.