Office Depot 2004 Annual Report Download - page 12

10 |Office Depot 2004 Annual Report
PART I
Item 1. Business.
Office Depot, Inc. is a global supplier of office products and
services. The company was incorporated in 1986 with the open-
ing of our first retail store in Fort Lauderdale, Florida. In fiscal
year 2004, we sold almost $14 billion of products and services
to consumers and businesses of all sizes through our three
business segments: North American Retail Division, Business
Services Group, and International Group. These segments
include multiple sales channels consisting of office supply
stores, a contract sales force, Internet sites, and catalog and
call centers, all supported by our network of crossdocks, ware-
houses and delivery operations.
Additional information regarding our business segments is
presented below and in Management’s Discussion and Analysis
of Financial Condition and Results of Operations (MD&A) else-
where in this Annual Report on Form 10-K.
North American Retail Division
Our North American Retail Division sells a wide selection
of merchandise, including brand name and private label office
supplies (many carrying the Office Depot®brand), business
machines and computers, computer software, office furniture
and other business-related products and services through our
chain of high-volume office supply stores. Most stores also con-
tain a multipurpose copy and print center offering printing,
reproduction, mailing, shipping, and other services.
Our retail stores are designed to provide a positive shop-
ping experience for the customer, while promoting an effective
and efficient supply chain. We strive to optimize visual presen-
tation, product flow, product placement, shelf capacity, in-stock
positions, and inventory turnover, as well as our distribution
capacity and handling costs. Most store replenishment is han-
dled through our crossdock flow-through distribution system.
Bulk quantities of vendor merchandise is received at one of our
central locations, sorted for distribution and generally shipped
the same day to stores needing to replenish their inventory.
In recent years, we launched a pilot store re-design pro-
gram, initially referred to as “Millennium.” The initiative was
intended to improve lines of sight, update signage, lighting and
other features, and to enhance the overall shopping experi-
ence for customers. We subsequently modified the initial design
to create an enhanced “M2” version that is now our standard
retail store configuration, both for new and remodeled stores.
We believe this design has better graphics and layout. At the
end of 2004, we had 101 M2 stores in operation.
Additionally, we offer copy, print and ship services in many
of our retail stores. We have an extensive selection of packag-
ing and shipping supplies, and established relationships with
carriers, such as United Parcel Service, that allow us to offer a
portfolio of U.S. domestic and international shipping services at
regular customer counter rates.
During 2004, we committed to purchase from Toys “R” Us
124 retail locations, formerly operated as Kids “R” Us stores,
with plans to convert approximately 50 of these sites into Office
Depot stores and to sell or sublease the remaining sites. This
transaction closed in phases during the year, and by year-end,
we had opened 36 of these locations, all configured in the M2
format. This transaction gave us an accelerated entry into many
areas of the highly desirable Northeast region of the country
where we historically have been under-represented. We plan to
supplement these converted stores with new store openings in
this region.
At the end of 2004, our North American Retail Division
operated 969 office supply stores in 49 states, the District of
Columbia and Canada. The largest concentration of our retail
stores is in California, Texas and Florida, but we have broad rep-
resentation across North America. As of December 25, 2004,
the average size of our North American retail stores was approx-
imately 26,000 square feet. Store opening and closing activity
for the last three years has been as follows:
Open at Open at
Beginning End
of Period Opened Closed of Period Relocated
2002 . . . 859 21 13 867 8
2003 . . . 867 36 3 900 12
2004 ... 900 80 11 969 11
In 2005, we plan to continue our store expansion by adding
approximately 100 new retail stores, averaging approximately
20,000 square feet, and remodeling approximately 50 existing
locations. In recent years, we have launched initiatives into non-
traditional retail selling, such as selling our products within other
retailers’ locations or on military bases. We expect to continue
to pursue various types of non-traditional solutions to expand
the reach of our products and services.
Business Services Group (“BSG”)
We have provided office supply products and services to
businesses through our catalog and contract sales operations
for over ten years. In 1998, we expanded our catalog business
and strengthened our international operations through our
merger with Viking Office Products (“Viking”), a company that
sold from catalogs and used customer call centers in the United
States and several European countries. The European catalog
business is now managed as part of our International Group.
Currently, BSG sells branded and private label products
and services by means of a dedicated sales force, through cat-
alogs and call centers, and electronically through our Internet
sites. We strive to ensure that our customers’ needs are satis-
fied through the delivery channel that is most appropriate for
them, and continue to develop the systems and processes to
enable us to do that flawlessly and cost-effectively.
Our contract business employs a dedicated sales force
that services the office supply needs of medium- to large-sized
businesses. Depending on the size and type of customer, our
sales force tailors its service offerings to optimally serve the
customer’s needs at the lowest possible cost. Sales represen-
tatives increase revenues, we believe, by building relationships
with customers and providing information, business tools and
problem-solving services to them. We also allow contract