Fewer stores overall but more small, highly curated “stores of the future” are in the works for Office Depot. The retailer will shutter 300 stores over the next three years as part of a cost-saving program expected to deliver $250 million in annual relief by 2018.
But while closing stores, Office Depot is planning to expand its pilot store-of-the-future program to a total of 24 locations in 2016, with a target of 100 locations by the end of 2017. These 15,000-square-foot stores are designed to enhance the shopping experience with a curated assortment of products and expanded services.
The retailer is still reeling from the impact of the failed $6.3 billion merger with Staples, which was finally blocked by a U.S. District Court judge in May after nearly 18 months of effort. Staples also has been trying to find its bearings in recent months; one casualty of the failed merger was CEO Ron Sargent, who stepped down in June.
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Even before the merger was quashed, Office Depot had been closing brick-and-mortar locations. Its U.S. Retail Store Optimization plan, launched in 2014, resulted in the closure of 400 stores. Sales transfer rates in excess of the company’s 30% stated target led to more than $100 million in ongoing benefits from these closures, according to a company statement. The retailer operates approximately 1,800 stores in 59 countries around the world.
The store closings announcement came with the release of Office Depot’s Q2 financial results. Total sales were down 6% compared to the same quarter in 2015, dropping from $3.4 billion to $3.2 billion. Adjusted net income also dropped, from $32 million last year to $19 million in Q2 2016. The company’s North American Retail Division suffered a 1% same-store sales decline, dropping from $1.3 billion to $1.2 billion for the period ending June 25, 2016. Office Depot will initiate a quarterly dividend of $0.10 per share on an annualized basis.
“We are making good progress rebuilding our sales pipeline and moving our overall business forward, despite the disruption of the prolonged Staples acquisition attempt,” said Roland Smith, Office Depot Chairman and CEO in a statement. “In the near term, we remain focused on executing our Critical Priorities, completing the OfficeMax merger integration, implementing our new cost saving programs, and returning capital to shareholders. Longer term, our business review has also identified several attractive growth initiatives that we intend to aggressively pursue.”
