Office Depot chief overhauls format to increase sales

Aaron Hemlepp shops at the Delray Beach, Fla., store several times a week because he likes the corporate discounts. The Office Depot is one of five leaner stores and the format will be rolled out to 300 stores.

FORT LAUDERDALE, Fla. — Office Depot Inc. admits it hasn’t been taking care of business when it comes to its retail store customers.

The big-box retail concept offering thousands of office-supply products was no longer working. “Our model was broken,” Kevin Peters, head of the retail division for Boca Raton, Fla.-based Office Depot, said.

So when Mr. Peters was given the job a year ago, he donned a baseball cap and became a “mystery shopper” in more than 70 Office Depot retail stores around the country.

“I didn’t tell anyone I was coming. It was important to experience the store the way our customers were experiencing it,” he said. “The experience was disappointing.”

Mr. Peters’ mea culpa was a few days before Office Depot had a startling announcement: The company would restate its 2010 financials because of a tax error.

That restatement, which turned a $33 million profit into a $46 million loss, is likely to be among shareholder concerns at Office Depot’s annual meeting this week in Boca Raton.

As restated, retail sales fell 2 percent for the fourth quarter compared with the same period in 2009. Office Depot has suffered the economic impact felt by small businesses and consumers during the recession. And Office Depot is not only competing with Staples Inc., the market-share leader, and OfficeMax Inc., but also discount retailers Wal-Mart Stores Inc., Costco Warehouse, and Amazon.com.

On his retail store tour, Mr. Peters spent time in store parking lots to see how many customers walked away without bags.

When he asked customers about it, he would get such answers as “I don’t get the help I need” and “It’s not easy to shop.”

The experience led him to recommend an overhaul of Office Depot’s retail stores that includes reducing the size of stores; shrinking the inventory to the best-selling products; emphasizing its technology; print and copy services, and hiring more full-time employees. Previously, Office Depot hired mostly part-time workers.

Smaller-format Office Depot stores are in Delray Beach, Fla., Baltimore; Silver Spring, Md.; Washington, and Arlington, Va.

Time-stressed small business owners represent 65 percent of Office Depot’s customers. That has prompted the retail chain to reduce confusing signage and train employees to escort customers directly to the item they’re trying to find.

Aaron Hemlepp, who shops at Office Depot three or four times a week, likes the corporate discount he gets on products and services.

“There’s no point in going to five different places when they have it all under one roof,” said Mr. Hemlepp, who works for RediLearning, an online health-care education company in Delray Beach.

He hasn’t found the reduced product selection a problem.

Mr. Peters, who still visits stores several times a week, said the retail-store format is far from perfected.

“It’s not fixed, and it’s not going to be fixed for awhile. I don’t want to set an expectation that our work is done,” he said.

But Mr. Peters thinks the smaller store format is paying off, and hopes to roll it out to about 100 stores a year as leases expire. Stores will range from as small as Delray Beach’s 5,000 square feet to 17,000 square feet.

Other changes to improve the shopping experience will be rolled out to as many as 300 stores by year-end, he said.