Staples, the leading office supply retailer, generates about $24 billion annually in sales from its stores and websites operating in 26 countries globally.  Combined, OfficeMax and Office Depot, generate $18.5 billion in sales annually.  The recently announced deal to merge OfficeMax and Office Depot is designed to help both companies compete with Staples by closing underperforming locations, eliminating duplicative positions, and increasing the merged company’s combined purchasing power.  According to retail analysts, the combined merger could help OfficeMax and Office Depot realize between $400 million and $700 million in synergies while also creating a larger and more capable competitor that is better equipped to take on Staples and Amazon.

However, critics believe that the gap between Staples and its next two rivals is too large to overcome.  Historically, mergers between two large retailers have not worked out well.  Furthermore, Staples is considered a much better managed organization. Followers of the merger on Wall Street are expecting Staples to actually be the winner in this merger and capture market share in parts of the U.S. where it has historically lagged behind.  Staples also has the potential to capture experienced retail professionals that might be let go in the merger.

All three office-supply chains face long-term challenges as people are using less paper, more work is going online, and there is increased competition from Amazon.   Since the financial crisis began, the U.S. retail industry suffered because of too many big-box retail stores.  Borders, Linens ‘n Things, and Circuit City are all casualties of the recession.  The fact that three office supply stores have survived this long is an economic mystery.

Discussion Question:

From an antitrust perspective, should the Justice Department allow the merger?

 

SOURCE: George Anderson, Retail Wire, February 20, 2013