Office Depot owner close to decision on sale of retail business as revenue falls

Dive Brief:

Sales in ODP's retail division, which includes the Office Depot and OfficeMax banners, fell 9% to $943 million in the first quarter, which the company attributed to the closure of 114 stores since this time last year.
Sales at the company's business-to-business division, which suffered during the pandemic, rose 9% as workers returned to the office. Companywide sales were flat for Q1.
Executives on the company's earnings call said they anticipate ODP's board will complete a review "in the near term" of proposals to buy the company's consumer business, a decision that will have ripple effects in the office supply retail sector.

Dive Insight:

ODP is at a crossroads. After decades of decline in office supply retail, the company this year will likely either sell its consumer business — which includes its Office Depot and OfficeMax stores and digital business — or spin it off into its own company.

Throughout last year, rival Staples and its private equity owner Sycamore Partners pursued ODP, first proposing to buy the entire business. After rebuffing Sycamore and Staples, ODP moved forward with a plan to separate the operations of its various divisions — a process that CEO Gerry Smith said is nearly complete — and spin off its consumer business.

After previously signalling that the spinoff of ODP's consumer business would happen this year, the company paused as it reviewed another bid from a suitor who remains anonymous, as well as Sycamore's offer.

A combination of the Staples and ODP retail businesses would leave just one dedicated brick-and-mortar office supply retailer left in the U.S. David Silverman, senior vice president with analysis and data firm Creditntell, told Retail Dive earlier this year a combination would help the banners rationalize their store footprint with more speed and efficiency to match the remaining demand.

Demand at big box retailers of office supplies has been on the downswing for roughly two decades, driven by the digitization of work, the rise of Amazon and e-commerce, and the expanding power of generalists like Walmart and Target. Revenue at ODP's retail division declined during the pandemic even as overall sales in the category spiked with the boom in remote work. And on top of the sector challenges, Smith pointed to cost inflation and supply chain challenges, familiar themes across retail today.

The company has been working to make the consumer business healthier, partly by closing stores — it ended Q1 with 1,032 stores — and partly by investing in its digital and omnichannel business. Sales in ODP's retail BOPIS channel, while down from last year, are still up 30% from 2019, Smith said on the call. Omnichannel sales, according to the company, also helped offset lower foot traffic in Q1.

As for the possibility of a sale of the retail division, executives said on the call that they expect to provide an update before the end of the current quarter.