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Staples Energy Plan is Good for the Earth, the Brand and the Bottom Line

January 3, 2007

Analysis of:Staples Aims for a Greener Planet | www.chainstoreage.com

As Staples marches forward with reducing its environmental footprint, look for more retailers to hop aboard the "green train" in the forseeable future. As the 2007 Business models for mega retailers begin to appear, it should not come as any surprise to find how many of them will consist of internal strategies built around expense austerity related to controlling/reducing the high overhead of energy. When faced with the choice of reducing business cost overhead through traditional methods like staffing, outside services, marketing and advertising which all negatively affect customer service, brand image, market basket size and ultimately, revenues, controlling energy costs will be the least bitter pill to swallow. Other significant implications of an eco-friendly business model include:
1)Reinforcement of Brand image and value proposition to customer base
2)Strong corporate citizenry and emotional connection to local community ideals and responsibility
3)A "new found" method of profitability in the face of ever growing gross margin pressures created by competition and the continually declining price points in the consumer electronics segment
4)Long term savings after the initial capital expense has been amortized/depreciated

Circuit City Needs to Re-examine Long Term Business Plan

January 3, 2007

Analysis of:Ahead of the Bell: Electronics Retailers | businessweek.com

I don't anticipate a complete turnaround in share price of Circuit City stock in Q4 despite the optimism from CEO Phil Schoonover of "staying the course" in the long term growth strategy. I do agree with the statement that their outlook into 2007 is probably more achievable than that of Best Buy but the statement relating to problems with internal execution are at very least, disconcerting. With the strength of execution at Best Buy and the basic need in today's world of competition, differentiation and strength of Brand, it is somewhat difficult to understand just how Circuit City put itself into a position of less than stellar execution.  Damage control in Q4 is imperative if the results of the disappointing Q3 are not to be long term. Careful re-examination of the long term business plan will be a requirement, but needs to address the following implications:
1)A large part of the ($16 million) Q3 loss was due to the declining prices in flat panel TV's and subsequent gross margin declines. There is great likelihood that the declines will push further in 2007 and a strategy and subsequent tactics must be developed if this retail price freefall continues. Competition has heated up.
2)Service and selling expertise have become an "ante up" basic requirement in big ticket electronics sales strategy. Best Buy's 300 Magnolia store within store concept has eclipsed anything that Circuit City has done to date from a product knowledge, features and benefits training initiative with its associates.
3)Flat panel TV's are not Circuit City's only concern--there are also challenges in audio, video software, PC hardware, camcorders, and desktop PC's, and Extended Warranties that are declining and must
be addressed at once.

Forget Post-Holiday Mall Traffic-The Greater Concern is Q4 and Full Year EPS

January 3, 2007

Analysis of:Mall traffic 'moderate' after holiday | www.usatoday.com

 Key Implications
1)Black Friday has created a self fulfilling prophecy, Catch 22, scenario for retailers with solid topline revenues but diminished profitability. The shape of consumerism and retail shopping has forever been changed(scarred?) in the quest for an early jump start on Holiday selling fueled by low, even negative margin doorbusters. Customers are now content to "load up" on Black Friday and then take a wait/see attitude on markdowns throughout the balance of the shopping season.
2)Gift cards and online shopping, although vital to multi-channel retailers have created a paradigm shift away from 4th quarter revenues in the brick and mortar stores, store comps, and lost incremental selling opportunities when customers do not visit the actual stores.
3)Based on less than stellar 3rd Q earnings posted from CE retailers like Best Buy and Circuit City coupled with WalMarts announcement of a somewhat disappointing post Thanksgiving weekend, what strategies will the mega retailers use in Holiday '07 to lure customers and increase revenue without losing momentum in profitability?
4)The true dilemma for retailers is a much longer term issue than the fear/worry/anxiety of what traffic will be like in the days immediately following Christmas. It has become a real "crap shoot" for earnings in Q4 and the potential jeopardy of "losing the year" in EPS despite strong revenues but much lower earnings due to doorbusters/discounts/coupon promotion based marketing/selling.

TV's, Home Furnishings, Candy, Christmas Ornaments-Will Produce and Lingerie be Next at Home Depot?

December 18, 2006

Analysis of:Home Retailers Expand Mix to Offset Sluggish Sales | www.retailingtoday.com

Hardly a week goes by that does not contain news of ever changing events at the world's largest home improvement chain, Home Depot. Recent news includes additions to the assortment which include TV's in all stores; candy and gum in over 100 test stores; doubling the sku count over LY in holiday decor and gift items; finally, the introduction of a new private label brand called Orange Works which made its debut on 11/29. Although there are many potential pluses in refreshed assortments, upside in incremental sales/market share, there are an equal if not greater number of risks associated in playing outside your arena. Among these risks are the following potential negative implications:
1Moving away from core competencies and dilution of Brand image
2)Perception that the addition of a lot of new "stuff" to bolster sagging sales may in fact be a short term, knee jerk reaction to the longer term issue of the housing slowdown, i.e., softness of core demographic and market
3)Increased risk of inventory investment in non-core categories, subsequent effect on turns if new items don't sell incrementally, and of course, MD peril if the new items are purchased vs allocated on a consignment basis from vendors.
4)Lack of product knowledge by current associates--your associates know nuts, bolts, drywall, and how to wire, saw and plumb--they are not as well versed on the features and benefits of HDTV, Holiday gifts and other non-core new items which is not likely to be conducive to strong sales

Will the Positive News of November Increases Amount to Disappointment at Year End?

December 18, 2006

Analysis of:Reports: November Retail Sales Increase | www.retailingtoday.com

In what could well be the foretelling of the classic "good news/bad news" story for the retail sector at year end, this article speaks positively of the November sales increases across various channels.
Highly promotional activities and price slashing in apparel and consumer electronics which began Black Friday to lure consumers have indeed, brought record footsteps and revenue; however, they have placed increased pressure on profitability as evidenced in Best Buy's 3Q earnings announcement this week. Implications for retailers across all channels include:
1)Uncertainty in just how far to go in terms of further selling price erosion to keep the flow of foot traffic moving
2)Similar to Best Buy, increased revenues on the topline (comp) side of the ledger, but at risk of diminished productivity in profitability and EPS estimates for both Q4 and year end.
3)Thus far, a relatively mild winter which will inevitably create further price cutting in outerwear, cold weather accessories, snow removal equipment, etc.
4)Further MD/promotional activity from major retailers like WalMart and Best Buy(Brad Anderson, CEO of Best Buy supported price slashing strategy despite the .04 cents EPS drop in Q3) will draw consumers away from malls creating even more potential profitability issues for specialty apparel retailers and department store anchors.
5)While increasing promotional strategies is a sure- fire method to continue to drive footsteps and create price/value equations that are more attractive to consumers while reducing inventory risk in retailers, the longer term implications are mostly negative when considering destruction of Brand image, creation of commodity product assortments selling mainly on price, and finally, further pressure on gross margins.

Too Much, Too Little, or Out of the Question?

December 5, 2006

Analysis of:Home Depot rises on takeover speculation | www.businessweek.com

Despite the slump in share price in recent weeks, don't look for a PE takeover of Home Depot to occur in the near term even with the almost 10% rise in share price over the past 2 weeks. Based partly on this, I don't see a takeover happening due to the following:
1)CEO Bob Nardelli has already placed his reputation on the line by unequivocally denying any discussion of an LBO or recapitalization with any group. In fact, Nardelli has expressed full confidence in the current TEAM and the business strategy they are pursuing.
2)Given that a deal of $100 billion would represent a figure twice the size of any PE deal in history, it is difficult to fathom that any equity group could muster the amount of capital needed($7-$9 billion in free cash) to pull off a buyout of this magnitude.
3)There are those who feel that the Real Estate is valuable enough to push the offer price up another 15-20% and that in essence, PE would be trying to steal the company at a "mere" $100 billion citing the Albertson's deal and property so valuable in California that Albertson's has closed stores to redevelop the land for housing and retail. At that, Home Depot would be wise to at least evaluate/re-evaluate RE holdings prior to listening to any offers if there ARE truly offers.
4)Since GAAP requires that both assets and liabilities be accounted for and reported on the basis of acquisition price(historical cost principle), then the property value on Home Depot's balance sheet definitely doesn't reflect current value and could potentially drive price upward, requiring even more free cash and an even larger financing package that would put a deal of this size into the stratosphere of dollars.

Print and Copy Services are High on 2007 Radar Screen of OfficeMax and Staples

December 5, 2006

Analysis of:OfficeMax Rebrands Print and Document Services as "ImPress" | officemax.mediaroom.com

In an effort geared at breaking from tradition and most significantly, building Brand recognition of its print and copy services, OfficeMax has recently announced that it has dropped the name CopyMax(utilized since inception in the mid 1980's to ID its print for pay service offering) in favor of the new identity, ImPress. In doing so, OfficeMax hopes to benefit from the following:
1)Growth of penetration of a larger base of business customers. Advantages include:
--Greater frequency of store visits(footstep growth)
--Larger POS ring size(businesses spend $120 on average/visit vs consumer visits at $40 average ticket)
--Enhanced Gross margins between 70-73%
--Opportunity for sales of private label supplies since 75-80% of total purchase of business is private vs branded goods with elevated gross margins.
--Relationship building since the print business is hands on, face to face, customer centric transaction type.
2)Repeat traffic-Print service customers shop print for pay providers an average of 2 times/month. Weighed in against the consumer supply shopper who shops retail store 3.5 times/year and the small and midsize business customer who shops an average of 7.8 times/year, the upside opportunity for 24 potential shops where purchases of both supplies as well as print services expenditures can significantly bolster average ticket, same store comps, topline revenue and profitability generation based on 70% or better gross margins makes this venture extremely appealing, perhaps vital, to OfficeMax as it attempts to gain share within the sector and grow topline sales in 2007.

Websites Could Be the Key to a Great vs Good Holiday Season

November 22, 2006

Analysis of:Big-box battle: Retailers hope to lure holiday shoppers early | seattletimes.nwsource.com

It looks like the beginning of a "shoppers market" as retailers across America attempt to vie for the largest dollar slice possible in the upcoming Holiday season. Prices are being slashed at Wal-Mart and Target and the ripple effect that will ultimately reach other clothing, toy and consumer electronics merchants is certain to create a frenetic, value laden shopping experience for the consumer. The significance of creating the early mindset of value is:
1)Consumers will ultimately make this season one of the strongest in recent history due to all the values and early marketing efforts.
2)A strong shopping season will certainly help bolster the economy as retailers garner strong traffic, elevated comps, and a solid run of sales right up until December 24th.
3)Multi channel retailers like Wal-Mart and Target who have done an early marketing campaign on low prices, direct mail, and enhanced websites are sure to be positioned to capture the largest share.

The challenge, of course, will be to achieve earnings expectations in the face of roded margins and to be successful, every retailer will need a strategy to add on to the market basket to bolster the margins. Add ons like batteries for the toy sale, ink, toner, and paper for the CE sale, accessories for the clothing sale will be the difference in achieving profitability vs giving away the farm on the deal priced items.

Office Depot Promotes Website to Help Deliver Strong Holiday Sales

November 14, 2006

Analysis of:Office Depot Nationwide Survey Reveals Top Challenges for Holiday Shoppers | mediarelations.officedepot.com

Office Depot has become the first player in the OSS sector to begin marketing the optional use of its website as an alternative to the in-store shopping experience. In a study commissioned by OD that comprised the feedback responses of 2500 consumers(with only a small percentage being those who purchased office supplies), OD found that the pressures of gift shopping coupled with staying on budget were the two dominant concerns. The advantages of an early campaign and creation of an alternative to visiting traditional brick and mortar stores will have a positive impact on OD's Q4 as well as full year results.

Implications
-OD is capitalizing on the findings of Internet Retailer in terms of positive projected gains of 20-25% for website usage TY due to the following:
1)Consumers and small business shoppers are time compressed and cognizant of web based solutions that fulfill needs efficiently, competitively and satisfactorily when a visit to the retail store is not feasible.
2)Gas prices, now perceived as low against the record highs of this past summer, are once again rising and expected to climb based on smaller than anticipated US reserves and OPEC's decision to cut production at the end of November.
3)Depot's website is already ranked in the 10 most popular utilized by end users who appreciate the experience, detail, assortment, ease of navigation, and are simply playing off this successful platform as a marketing weapon.
4)Getting ahead of the curve on competition by promoting the website alternative will further enhance brand image and create a subliminal mindset that Office Depot is there to help when the online experience is the shopping vehicle of choice.

Can Home Depot Be Successful in the CE Business?

November 13, 2006

Analysis of:Home Depot wades into consumer electronics arena | www.retailingtoday.com

When a retailer with strong brand image, huge topline sales, marketing charisma and significant store presence makes a decision to add a new category to its existing assortment, rest assured that its competition will take notice and perhaps, begin to show concern for potential impact on sales and share. In the case of Home Depot's decision to dabble into the CE arena, Best Buy, Circuit City, clubs and mass merchants have noticed, but at this point, don't need to feel threatened. The potential implications for Home Depot moving into this arena are significant in terms of what they make of the opportunity:
-With over 2000 store locations(more than Best Buy and Circuit City combined), Home Depot can certainly compete, and most likely, steal some share from the CE giants and department stores even with a limited assortment.
-Timing is right as the Christmas season approaches and because CE purchases are rapidly growing due to strong consumer demand for the need for technology coupled with rapidly declining retail prices.
-Overall sales lift and impact on store comps could be huge due to the size of the ticket in TV's as well as from the sheer number of store locations.
-As a destination retailer for the home improvement customer, the addition of CE product could be the "icing on the cake" to the completed home remodel project.

Summary
-On the surface, adding CE to the assortment would appear to present a tremendous idea with infinite growth possibilities for continued revenue growth, comps and profitability; however, simply adding a new category to the mix will not insure success and Home Depot must learn well from Best Buy and Circuit City that selling $3000 LCD TV's is very different from selling a 2X4 and a box of nails.

WalMart Seeks a Mindset within Marketing

November 13, 2006

Analysis of:Wal-Mart jumps the gun on Black Friday? | money.cnn.com

Although the announcement of slashing prices on roughly 80 toy and 100 Consumer Electronics items is bound to drive some foot traffic into Wal-Mart stores prior to Black Friday, what they are really looking to do is create the early mindset for the future Holiday shopping customer that they will be the "can't beat the price" retailer to be in when it comes down to the buying decision. Breaking price early and advertising to this announcement is not necessarily the wrong Marketing approach.

Consider the recently completed Back to School season:
1)Mass merchants, Drug chains, Supermarkets and the entire Office Supply sector began breaking Ads with 4-5 loss leader/door buster items as early as the first 2 weeks of July.
2)Although sales of BTS related product is not heavy during a time frame that precedes the start of school in most parts of the US by as much as 2 months, the idea behind "early" marketing is to tease the customer with can't afford not to buy hot commodities, but more importantly, bring them into the retail store so that they can get a sneak preview of the entire assortment to understand what is available when the peak shopping actually begins. Stores now have their total BTS sets done by the last week of June, have it signed and are prepared to show it off.
3)Although there is gross margin risk caused by "cherry pickers" who will shop early but buy only the featured low, probably even negative gross margin items, the risk is mitigated somewhat by internal suggestive selling at store level, purchase of other necessary non-promotional items as well as the huge future impact of creating the mindset and drawing in the customer when peak season hits. 

Kohl's is "in style" With Innovation, Differentiation and Exclusivity

November 13, 2006

Analysis of:New and Improved Kohl's and Mervyn's | www.chainstoreage.com

Being very good at what you do has simply become the "ante" into the game at successful retailers today. Being different; being innovative and first to market; finally, being exclusive, has  quickly become the mantra for retailers who wish to sustain growth and continually capture market share going forward. Kohl's has certainly positioned themselves to do just that as they seek to continue to entertain their core female customer with family and seek to grab share of the young, single female.

Implications
-By updating and expanding its penetration of exclusive selections of both national and private brands, Kohl's can compete head on with Penney's, Mervyn's, Nordstrom, Macy's and other mall based specialty retailers who seek the 18-25 single female customer demographic.
-By changing the institutional looking red brick exteriors of stores to a more contemporary, upscale facade featuring earth tones, marble accents, and glass window displays that feature proprietary brands like Candies and Apt.9, Kohl's is now in many respects, showing greater "curb appeal" than their competition.
-By revamping store interiors with enhancements such as wider aisles(10'vs 8'), enhanced lifestyle graphics that scream seasonality, strong value messages communicated through abundant promotional signage, and finally, more upscale fitting rooms with leather benches, Kohl's is sure to keep their core customer happy while appealing to the newly sought younger female.

Summary
-Kohl's has always had a great value proposition to offer its customers, but now, have added a complimentary fashion proposition as well. Sales and profit figures at midyear exceeded analyst earnings estimates and Kohl's subsequently raised expectations in August after net income increased 28%.

Staples and Office Depot Poised for Unprecedented New Store Growth

November 6, 2006

Analysis of:Securing New Markets Key to Staples Expansion | www.retailingtoday.com

Despite predictions from saturation analysts that cap out Office Supply stores at 4000 units in the US, Staples is intent on dramatically increasing store counts in the coming year. With 1300 already on the books, Staples looks to 2007 to put another 100+ stores in new, as well as in existing stronghold markets.

Implications:
-Staples will place great pressure on both Office Depot and OfficeMax by entering into new markets for them such as Las Vegas, Milwaukee, Minneapolis, Houston, Kansas City, Denver, Miami and others where competition already holds strong presence.
-Staples can rely on its experience in Chicago where 36 stores have already opened since March 2005 with 10 more slated to open in 2007.
-Given the fact that the Dover format was developed utilizing feedback from customer base in existing markets, the presence of storefronts in new markets coupled with increased marketing efforts to raise Brand awareness will give Staples quick recognition in core OD and OMX markets as well as national presence.
-If all new markets respond to same as Chicago, Staples can double its delivery business and further pressure competition.

Summary
-Competition will be fierce within the OSS sector in the near term as more markets shift from 2 to 3 players. The first clear winner will be the consumer and small business customer who will pay lower prices for core supplies based on competition; however, as retail price points fall, pressure to increase gross margins through expanded private label assortments and profitability through lower operating expenses will prevail in all 3 companies.

Retail Store Saturation Not a Concern For Office Depot

October 17, 2006

Analysis of:Future Possibilities Rest on Three Pronged Strategy | www.dsnretailingtoday.com

Office Depot has plans on growing exponentially. According to Steve Odland, the opportunity exists for the addition of 1000 more OD retail stores in the coming decade. The primary driver behind this thinking(aside from their string of successful financials in the past 2 years) has been the success of the M2 prototype which will be in place in over 500 North American stores by the end of FY 2006. Benefits of new store expansion and conversion of older stores to the M2 format will bring the following advantages to Office Depot in both near and future term:
1)Backfill of existing markets will positively affect share on the assumption that the Real estate decision is sound.
2)Entry into new markets where Office currently has little or no presence.
3)Enhanced Brand identity to an already strong, identifiable brand.
4)A store model that produces improved financial results due to customer centrism of layout/flow; product adjacencies that promote incremental sales and higher average tickets; finally, improved signage that makes it easy for the time-compressed business consumer to identify where they want to go the minute they step inside the store.

Coupled with the growth of private brands and the accelerated gross margins from this segment, it will not be surprising that Office Depot will continue to layer on positive financial quarters. With over 20% of its total topline sales coming from private brands, operating margins that have grown from 5.3% to 6.4% year over year at the end of Q2 and the opportunity to further increase its current 80%  small business penetration, customers who are value oriented and much less brand loyal, Office Depot is poised to dominate the sector.

Staples Does It Because They Can

October 16, 2006

Analysis of:Staples plans to keep growing | www.retailnet.com

Staples does many things well and often, simply because they can; however, it should be noted that decisions on new and emerging business are not hasty, but rather, well thought out and done with expectation of current and future success regarding market share positioning. If one begins to analyze the go forward plans to sustain growth contained in this article, it becomes even more apparent that these are not "calculated risks" but simply a reinforcement of building on strengths. Looking at a couple of these initiatives individually, the success of the past is in reality, the compelling reason for continuation:
1) Real Estate-Prior to the Chicago entry, OMX and OD had a combined 80 stores in the market and consensus was that saturation had already been achieved. Staples, feeling differently, opened close to 25 stores by the end of FY 2005. They plan on over 50 stores in the market in the near term.
2) Store size-Staples RE strategy is not dictated to by rent cost, trade area size, nor business counts within 15 miles: they simply modify the footprint and build stores that best support the community that range in size from 14-20,000 sq.ft.
3) Private label-Growth in this segment is a natural as consumers and small business continue to purchase store brands that offer both quality and value against higher priced national brands. They are creating a worldwide, recognizable, Brand.
4) Free standing print shops-Recognizing that the print for pay segment is low hanging fruit, the Boston test appears to be a wise endeavor. With gross margins at 70%, repeat traffic is a by-product and this particular customer is mainly concerned with quality and speed vs price. In a downtown setting, this is a no brainer as businesses need it quickly and correctly done.

OfficeMax Plays on Private Label Growth to Narrow Financial Performance Gap with Staples and OD

October 11, 2006

Analysis of:OfficeMax reTULs Private Brand Strategy | www.retailingtoday.com

As OfficeMax continues to reinvent itself and position for further financial gains in FY 2006, turning to private label offerings gains even greater presence. With the launch of its proprietary TUL brand of writing instruments early in September, OfficeMax hopes to not only grow brand identity within this category, but to also position TUL into other supply based categories going forward. Some obvious advantages to OMX with this launch include the following:

1) Introducton of a prestige brand that can challenge market share leaders like Pilot, Pentel, EXPO and Sanford and go after the category at a price equal to or even above branded product pricing.

2) Elevated gross margins in the 45-50% range.

3) Taking private label beyond store brand and into the realm of proprietary brand identity.

4) Opportunity to close the gap in topline private brand sales that currently exists with OD at 20% penetration, Staples at 18%, and OMX in the low double digit range.

5) Build proprietary brands as part of a larger, far reaching strategy to narrow the overall financial performance gap that exists between them and the larger and more profitable #1 and #2 players in the sector.

Can Office Depot Surpass Staples Total Revenues in 2007?

October 11, 2006

Analysis of:Office Depot Announces Acquisition of Majority Stake in Leading Office Products Supplier in China | www.mediarelations.officedepot.com

In yet another strategic move geared at posturing against Staples for international dominance, market share and growth in a targeted business segment (small to midcap businesses), Office Depot has done it again. For an unprecedented fourth time this year, OD has either purchased or acquired majority share in an office supplier, this time, within the emerging economy of mainland China. Previously this year, OD had entered into agreement with business to business contract companies in Korea (Best), US (Allied), and more recently, Eastern Europe (Papirius).

Financial terms of the acquisition of AsiaEC were not disclosed, but the implications of this deal coupled with the previous three will play out over the coming year(s) in the following ways:

1) Office Depot is posturing well for the present business climate and looking long term for growth and eventual topline revenues that will surpass those of Staples.

2) Office Depot is investing in emerging growth markets in Asia under the assumption that the best is probably yet to come.

3) Although the European market has been somewhat lackluster over the past several years, the deal with Papirius shows that OD is "betting on the come" that the worst is behind the European economy.

4) The deal with Allied in the Northeast comes with two messages:
--First, a committment to grow contract operations through greater penetration of small and midsize customers who purchase more frequently, spend more than consumers and tend to buy 70% of total purchase in higher gross margin private label items.
--Secondarily, a clear message to Staples that there are market share opportunities in Staples back yard. 

Housing Stats, Unpredictability of Weather and Continued Threats of Domestic Terrorism Could Dampen Retailers Optimism

October 9, 2006

Analysis of:Retailers see strong sales for holidays | select.nytimes.com

Although consumers are seeing relief from gas prices at the pump which have fallen from 20-25% over the past month, the same cannot be said for what has happened in the Real Estate market. In August alone, over 115,000 home foreclosures occurred nationally, with over 60% of the foreclosures coming from mortgages less than 2 years old. Homeowners who have purchased a home within the past 16 months are still reeling from both high mortgage payments and facing the reality that their purchase price is worth 15-20% less than when they bought. All said, retailers are caught in the middle of renewed optimism (based almost solely on declining gas prices) for an acceptable Holiday and fears that both the economy and threat of terrorism will continue to plague the retail landscape. The implications of this article could have far reaching effects on year end financials in the event the optimism of a stronger Holiday doesn't play out:

1)Back to School has just ended with a "mixed bag" of results in various sectors. Retailers who come up short in Q3 will justifiably be squeamish about what they will need out of Q4 to land the year.

2)Retailers without websites or those with a website that is not Brand identifiable, difficult to navigate, don't offer trendy/HOT/quality merchandise nor exemplary customer support/service, will not see a solid Q4 if gas prices rise and threats of terrorism continue to dominate the evening news.

3)The current price of gas could change dramatically if OPEC decreases production as per barrel prices shift toward the $55/barrel range.

4)Hurricane season does not end until November leaving over 40 days for severe storms to arrive and disrupt drilling and refining in the Gulf Coast area.

New Private Label Offerings Place Continued Pressure on Branded Suppliers

September 20, 2006

Analysis of:OfficeMax Introduces New TUL Brand, With Launch of "Modernist-Inspired"Pens, Dry Erase Markers | officemax.mediaroom.com

As growth of Private Label product continues to dominate fulfillment of key initiatives in the OSS sector, offerings in the assortments are growing beyond basic "knock offs" of branded product to lines that offer proprietry branding, differentiation, pricing advantages to consumers, greatly enhanced gross margins to retailers, and finally, added pressure to companies like ACCO, Sharpie, and Avery for share within an already crowded marketplace. From the standpoint of the domestic suppliers previously mentioned, as well as companies such as Newell-Rubbermaid, Smead, Westvaco, Mead, Fellowes, and others too numerous to mention, unit sales and revenues are and will continue to be dramatically affected by the unbridled growth of store brands. Consider some past, current and future implications of growth in this segment to branded suppliers:
1)ACCO announced in May 2006, plans to close and/or consolidate nine facilities in Mexico, North America and Europe.
2)ACCO also showed a significant decrease in Office Products income in Q2 from $9.6 million LY to $6.0 million TY.
3)Avery reported an (11%) decline in sales to Office Suppliers in FY 2005 and has posted 2 Quarters TY with negative growth servicing the sector.
4)European markets for suppliers poses an even tougher challenge for suppliers. In Europe, 2 of every 5 items purchased at retailers is store brand vs a ratio of 1 of 5 in the US.

A Key Focus for OfficeMax--Shoring Up Contract Segment

September 19, 2006

Analysis of:OfficeMax Improves Contract Division Structure t Enhance Customer Satisfaction and Deliver Stronger Performance | officemax.mediaroom.com

As the OSS sector continually quests for operating efficiencies, internal and customer centric enhancements through systemic changes and/or acquisitions to shore up/take market share from competition, OfficeMax has become the most recent player to focus on the Contract segment to do so. Increased pressure from OfficeDepot and Staples created by acquisitions and partnerships TY of smaller Business to Business contract players in the US, Taiwan and Eastern Europe have put pressure on OfficeMax to re-examine its own Contract operation if it wishes to remain competitive in this business segment. The implications to OfficeMax by creating a stronger Contract operation are:
1)Stronger focus on the small to midsize business, an anticipated growth opportunity area highlighted in the 2006 Turnaround Plan.
2)Stronger topline revenue growth as the small to midsize business purchases more than twice as often as the consumer and spends nearly 3 times as much at each transaction.
3)Opportunity that is created due to the fact that businesses tend to purchase more Private label products(with significantly higher gross margins) within the total market basket coupled with the initiative to continually increase the assortment size and penetration rate of store brand to total topline sales.
4)To achieve as many strategies as possible within the turnaround plan, OfficeMax needs to strengthen Contract as well as to improve store productivity and its e-commerce platform. This year's first half financial successes have been driven mainly through control of cost and austerity in expense lines--shifting the focus to driving more sales is the logical, and more common sense long -term strategy to follow as the new fiscal year quickly approaches.

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