OFFICE PRODUCTS Big retailers invade others' turf

They've run out of room to grow in their traditional markets.
FRAMINGHAM, Mass. (AP) -- Any reluctance by the three big players in the U.S. office products market to move into their competitors' regional strongholds is waning, with Staples, Office Depot and OfficeMax setting their sights on battlegrounds such as the Northeast and as far away as Europe and China.
The rival big box-style retailers transformed the fragmented U.S. office products market when they emerged in the 1980s, crowding out many smaller independent stores. Now, the Big Three are gearing up for more rapid growth and heated regional competition by giving their so-called "superstores" makeovers.
"All three players envision themselves as national players," Ron Sargent, Staples' chief executive and president, told The Associated Press.
The three rivals spent their early years in the late 1980s and early 1990s focusing growth in their home regions: Framingham-based Staples in the Northeast, Delray Beach, Fla.-based Office Depot in the South, and Itasca, Ill.-based OfficeMax in the Midwest, where it traces its roots to the Cleveland area.
Market situation
The three are now spread broadly across the country and running out of new places to grow, with some exceptions. Staples, the largest of the three with 1,600 stores, has yet to enter major markets such as Chicago, Houston, Miami, Denver, St. Louis and San Antonio. OfficeMax's 950 U.S. stores are spread across the country but with the greatest concentration in the Midwest and Southwest.
Office Depot, with about 1,100 stores in 13 countries and the biggest overseas retail presence, is spread out fairly evenly in the United States but its Northeastern footprint is largely limited to New York, New Jersey and the Philadelphia area.
But in June, Office Depot announced plans to move into Staples' stronghold in the Northeast.
After adding just 12 stores since 2000, Office Depot is opening 80 new stores this year -- many in the Northeast -- and plans 100 next year, company spokesman Brian Levine said.
"Office Depot is making this [Northeast] move because they don't really have anywhere else to grow, and they don't want to cannibalize their existing stores," said Anthony Chukumba, a Morningstar Inc. analyst.
Because of saturation in their existing markets, the big three companies "are sort of getting outside of their comfort areas," he said.
But, Chukumba said, Office Depot faces difficulty challenging Staples, which has enjoyed a stronger bottom line than its competitors recently. However, Office Depot could see some success in the Northeast if it is willing to engage in a price war, he said.
The chain's move is not the first into the Northeast. Office Depot opened a few stores in the Boston area a few years ago, only to close them a short time later.
Staples' Sargent says that retreat was a recognition of his company's advantage in having a high density of stores in the Northeast -- a trait that can yield economies of scale in marketing and distributing products.
"These store networks have been built up over the last 18 years," Sargent said. "It's not something that's going to change overnight."
Growth strategies
Staples has continued to slowly add stores in the Northeast in the past couple of years while moving more aggressively into the South and West in cities such as Atlanta, Dallas and Seattle. The company plans to add about 90 North American stores this year and the next couple of years, with the shops adopting a new look and reduced size.
OfficeMax has expanded in southwest Florida this year but is growing more cautiously than its rivals in a time of transition. Last winter, Boise Cascade Corp. acquired OfficeMax for $1.2 billion. In July, Boise Cascade said it would sell its paper and timber assets for $3.2 billion to focus on its OfficeMax chain.
OfficeMax closed 45 underperforming stores earlier this year, but also has opened 12 new stores this year and expects to open 50 next year as it remodels 250 existing stores per year. The new stores will be located in markets where OfficeMax holds a No. 1 or 2 position, said Chris Milliken, OfficeMax's president and chief executive.
"We're very optimistic about growth. I don't think the market is saturated," Milliken said.
With around 3,300 office superstores in North America, Staples' Sargent believes the market is big enough to support about 4,000.
Standing apart
He does not expect the three office superstore chains to wage price wars amid the growth surge. Instead, executives of all three companies said, the players will continue setting themselves apart from competitors in areas such as store design, customer service and product offerings.
If market research by Office Depot is any indication, the companies have some ground to make up in differentiating themselves. The company found that about half of customers who buy office supplies are uncertain afterward which of the three chains' stores they shopped in.
The chains are abandoning the traditional shelves-to-the-ceiling warehouse design in favor of smaller stores with easier-to-use floor layouts as they emphasize profitable copying services and products carrying in-house store brand names. They're also creating mini-office products stores within supermarkets and small "express" stores in urban downtowns.
Staples' Sargent said there is still plenty of room for the superstores to grow in the U.S. office products market, which they share with general retailers like Wal-Mart, contract sales dealers and drug, grocery and electronics stores.
Sargent said the three office superstore chains account for a little over $30 billion of a $165-billion-a-year market -- an indication that the superstore chains, at less than two decades old, are still in their infancy.
"I think the three major players realize that the big opportunity is to take market share from the 80 percent they don't have," Sargent said.