In bid for survival, Office Depot focuses on business services and subscriptions

In the age of Amazon, Office Depot is using its 1,400 retail stores and 50,000-plus staff to focus on higher-margin services, with a focus on catering to businesses.

On Wednesday, the retailer reported third-quarter overall sales revenues of $2.9 billion, up 10 percent from the same period last year; retail sales, however, were down 6 percent. Growth was driven instead from Office Depot’s Business Services Division, which saw sales grow 6 percent, and service revenues, which grew by 28 percent. It’s an indication of where the company will continue to focus competitive efforts as it bolsters its position against e-commerce players and other large traditional retailers.

Office Depot has long offered customer-facing services like copying and IT support; the company’s retail division saw services revenues up 11 percent. But the company is realizing its sweet spot is personalized services for businesses. Beyond foundational tech and office supplies, the company is positioning itself as a one-stop shop for businesses seeking advice, including coaching services that cover business strategy, marketing and staffing.

“I view our retail footprint as a key component of our omnichannel strategy and one of our primary differentiators versus online or distribution only competitors,” said CEO Gerry Smith, in a call with investors. “It allows us to deliver an increasing spectrum of services and solutions, as our customers prefer human interaction when making a purchase.”

Office Depot, which has 10 million small-business customers, is relying on its store network as an edge over competitors since nearly 60 percent of small-business customers are situated within a three-mile radius of a physical store. It’s an approach other large retailers including Home Depot and Best Buy are relying on to promote the value of human advice to customers.

Office Depot offers businesses possibilities to hand over their infrastructure operations to Office Depot through the service offerings and subscriptions (ink and toner and software, for example). The company said it has around 700,000 subscribers. Earlier this year, it also rolled out a co-working space called Workonomy in Los Gatos, California. The company said it sees the Workonomy concept as a growth area, because co-working and associated service offerings can drive up sales.

“[Workonomy] is still in a test-and-learn phase; it’s driving higher sales for services and products compared to the average store,” Smith said.

Andrew Lipsman, e-commerce and retail analyst at eMarketer, said Office Depot’s pivot to business services is both a hedge against Amazon and a competitive offering against Amazon Business. He said business buyers tend to be less price sensitive, so transactions can be more profitable.

“Human capital and adjacent services are absolutely a differentiator against Amazon,” he said.  “On the consumer side, it’s one of the ways a retailer like Best Buy is succeeding despite selling the same SKUs as Amazon. Customers want to be well-informed on buying decisions and feel like they’re being taken care of.”

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