Office Depot Inc. Strategic Case Study and Analysis

Introduction and Scope

This report presents a comprehensive analysis, insights, and recommendations on various issues that affect the operations of Office Depot Inc. The analysis begins with an examination of the environmental factors affecting the company, including a review of economic conditions and trends, cultural and social values and trends, political and legal issues, and a summary of environmental opportunities and threats along with their implications for strategy development.

The report then proceeds to an analysis of the industry, covering a classification and definition of the industry, analysis of existing competitors, potential new entrants, substitute products, suppliers, and buyers, followed by a summary of industry opportunities and threats and their implications for strategy development. Firm-level analysis addresses the objectives and constraints of the company, its financial condition, management philosophy, organizational structure, and organizational culture, together with a summary of the firm's strengths and weaknesses.

The marketing strategy section covers the objectives and constraints facing the firm's marketing aspirations, an analysis of sales, profits, and market share, an analysis of target markets and marketing mix variables, and a summary of marketing strategy strengths and weaknesses. The report concludes with an identification of primary problems drawn from the situational analysis, a presentation of strategic alternatives, and a selection of the best alternative with implementation guidance.

Environmental Analysis

Economic Conditions and Trends

The housing and credit crisis that struck the United States had profound effects on American consumer behavior. Consumer borrowing and spending had been backed by rising home values, and disposable personal income is regarded as a major driver of personal consumption — the higher the level of disposable income, the greater spending on non-essential products and services. An analysis by the Bureau of Economic Analysis in 2008 indicated negative growth in the third and fourth quarters, signifying a considerable decrease in disposable income across the U.S. retail sector.

More recent figures indicate a general recovery in retail sales, with an increase of 0.1% from July 2011 and approximately 7.5% above the prior year's figure (USCB, 2011). Econoday (2011) also reported a general improvement in retail sales, suggesting a brighter future for Office Depot.

Office Depot has been noted to be operating in an uncertain economic environment (Linzmeier, 2008). The company faced the closure of 112 stores and the shuttering of 33 distribution locations, resulting in approximately 2,200 job cuts — close to nine percent of the company's total facilities. As of December 2009, the company had 41,000 employees. It recorded total revenue of approximately $12,144.5 million in 2009, a reduction of 16.2% compared to 2008 (Research and Markets, 2010). The company posted an operating loss of $265 million in fiscal year 2009, compared to a loss of $1,545 million in fiscal year 2008. Office Depot attributed this revenue decline to the tough and unpredictable economic conditions in the U.S. in 2009.

Economic factors are of great importance to Office Depot since they directly affect customer buying behavior. Although the global economy — particularly the U.S. economy — was officially declared to be in recession, governments made substantial reductions in interest rates in places such as the U.K. in order to minimize unemployment in 2009 (Euromonitor, 2010). Office Depot reported $1.5 billion in net losses for its fourth quarter of 2008 (Rosenberg, 2010). Consumer spending power has since gradually improved as confidence in economic conditions recovered. There remains, however, considerable financial uncertainty due to high unemployment rates in both Europe and the United States. The BBC (2011) reported that the number of Americans living below the poverty line had risen to a record 46.2%, with nearly one in every six people classified as poor, and that the poverty rate rose to 15.1% from 14.3% in 2009. This trend clearly affects consumer spending and has obvious implications for Office Depot's profitability.

A study by the Office Depot Small Business Index indicated that in 2011 there was strong expectation for business growth, with both small and medium-sized businesses holding a positive view of the economy and expecting profits to improve by 67% (Office Depot, 2011). The ongoing currency crisis has, however, also affected interest rates, inflation rates, and exchange rates, leading to a general rise in the price of food and other essential commodities — reducing discretionary spending at retailers such as Office Depot.

Cultural and Social Values and Trends

An analysis of Office Depot's customers reveals that many of its consumers are not particularly young or internet-savvy. Although the rate of internet literacy has been shown to decline among those over the age of 65, it was predicted that elderly consumers may still find it convenient to place orders online (Turban et al., 2001). The company also participates in in-person email acquisition, collecting customer email addresses at the point of sale as part of its customer relationship efforts (Mullen, Daniels, and Gilmour, 2008).

Political and Legal Issues

The most significant political and legal issues affecting Office Depot's operations include the rules and regulations governing the establishment and operation of large retail establishments. A notable example of political and legal interference was the proposed Office Depot–Staples merger, which was opposed and subsequently rejected by the Federal Trade Commission (Boulton and Dalkin, 1998). Other relevant legal matters include international contract law and labor law, given that the company operates in several countries, each with its own distinct regulatory framework.

Summary of Environmental Opportunities and Threats

A review of environmental opportunities and threats reveals that the company is negatively affected by business regulations and other political factors. The company can, however, capitalize on the latest trends in consumer monitoring and e-commerce in order to boost its sales.

Implications for Strategy Development

Office Depot should embrace e-commerce as well as an integrated marketing approach to ensure that its products are effectively marketed and sold across multiple channels.