Office Depot Inc. and OfficeMax Inc. announced Feb. 20 that the two companies would merge in an all-stock deal. There were still plenty of unanswered questions about the merger, including who will serve as the company’s chief executive officer, what the new company will be named and where it will be located. Midwest Real Estate News recently spoke with Mark Keschl, national director of the retail services group with Colliers International, about the merger.
Keschl has a unique perspective. Keschl was the senior vice president of real estate for OfficeMax from 1993 to 1998. During that time, he saw a proposed merger between Office Depot and Staples fall apart in 1996 after the FTC denied the deal.
Midwest Real Estate News: How similar is the Office Depot/OfficeMax merger to the proposed merger between Staples and Office Depot in 1996? Mark Keschl: They are a little bit different. The merger plans in 1996 relied more on a geographical synergy. Staples had a strong presence in the Northeast portion of the country. Office Depot had little in the Northeast but had a strong presence in the Southeast and Southwest parts of the country. That was, of course, before you saw the rise of Internet sales. So that merger was proposed more for geographical synergy. The current merger between Office Depot and OfficeMax is based on the abilities of the two retailers. OfficeMax has always had a stronger Web presence. OfficeMax has had more appeal to the residential, home consumer. Office Depot has been stronger in terms of its catalogue, its direct sales.
MWREN: Are you surprised by the news of the merger? Keschl: Not really. The office-supply business has been one of the few retail businesses where there have been three major contenders. That’s made the universe a little more difficult for them. Overall, I think it will be a positive for the industry to have two strong players instead of three. It provides more of a point of differentiation between the two. And it makes more sense in terms of brick-and-mortar locations, too. In markets where you had all three players with brick-and-mortar stores, the overlap didn’t serve any of them very well.
MWREN: Do you think we’ll see much difference in either OfficeMax or Office Depot locations after this merger? Keschl: There really aren’t that many differences between the stores that either company operates now. They both operate stores of similar sizes. They are both experimenting with smaller store sizes. There are also a lot of commonalities in their merchandise and presentation. From those standpoints, these two retailers have a very compatible relationship already. I don’t think we’ll be seeing many major changes to the retail stores.
MWREN: What about the customers? Will they see any major changes after the merger? Keschl: That remains to be seen. There are some questions that need to be answered. In markets where OfficeMax and Office Depot already have good coverage, I think you’ll see little change. I think there will be little impact on consumers. Consumers will be able to find their office supplies in these markets, no matter what a particular store is named. Very often in mergers like this you see little impact on the customers. Customers should still be able to purchase good-quality office supplies at very competitive prices.
MWREN: Let’s take a look at some other retail trends. The latest retail report from Colliers International mentions the growth of large outlet centers. Why are these centers so popular today? Keschl: One of the reasons retailers like them so much is that they can have them more quickly. It takes less time to get an outlet center planned and constructed. And outlet centers are what consumers want today. Retailers certainly want to be receptive to what their customers want. Outlet centers have also provided for a much-larger trade area. They pull from a wider population then does a mall or a neighborhood shopping center or power center. Look at Gurnee Mills in the suburbs of Chicago. That pulls people from Milwaukee and all the way from Northwest Indiana. As more of these centers get built, their trade area does get diluted. But typically, these centers draw from a larger area.
MWREN: The retail report also mentions the positive impact that a recovering housing market is having on retail. Keschl: A stronger housing market can only be a positive for retail. Some of the retailers in the home-furnishings business, for example, have seen business pick up in the last year or so. We continue to like that category. A stronger housing market even drives some of the supermarket business. We are seeing new market opportunities for the new and interesting supermarkets. The whole organic and specialty market segment seems to be growing. There are plenty of up-and-comers in that segment.