OfficeMax Announces Plans for Fall Opening of 20 Southland Stores
In what is bound to increase competition in an already crowded office supply market, OfficeMax Inc. said Wednesday that it plans to open 20 “superstores” in Southern California this fall, its first entry into the region. Fifty more stores may open in coming years.
The planned openings by the fast-growing, Cleveland-based operator of discount office products stores illustrates how business equipment and supplies are seen as among the most lucrative sectors of retailing. The move by OfficeMax--known for being an aggressive price cutter--will intensify pressure on competing chains such as Staples, which has 62 Southern California stores, and Office Depot, which has 35.
But analysts said the big losers in the opening of such superstores are the small mom-and-pop retailers, which have rapidly lost share in the $100-billion office supply market to big chains because they don’t have the purchasing leverage or financial flexibility of the giants.
Superstores such as OfficeMax have also been able to steal growing slices of computer, fax and cellular phone equipment sales from consumer electronics chains such as Best Buy and Circuit City, said Chicago Corp. retail analyst Timothy Tucker. For example, OfficeMax saw its computer sales grow 50% last year in stores open at least a year.
“This move is a real aggressive push, a juggernaut, to open 20 stores in the first go-round,” Tucker said. “Obviously, the issue of saturation in office supply superstores is always in the background. It’s not as though the market is unlimited. They inevitably will bump up against each other.”
But Bear, Stearns & Co. retail analyst Dana Telsey said the region’s economy can easily support the OfficeMax openings--and more.
“They’ve waited because they wanted to open up in a large number of sites, to spread advertising, training and distribution costs over more locations. And the California economy is doing a little bit better,” Telsey said.
OfficeMax Chief Executive Michael Feuer declined to disclose the locations of the 20 stores, citing competitive reasons, but said they will be in new and rehabilitated shopping centers in Los Angeles, Orange and Ventura counties. By the time the stores open, the chain will have hired 2,000 new employees, he said.
Although the company already has 25 stores in Central California, the San Francisco Bay Area and the Inland Empire, OfficeMax has been waiting to enter the Los Angeles area until real estate prices moderated.
“We hid in the weeds for about three years,” Feuer said.
Asked if the new stores will lead to a price war among office supply retailers, Feuer said, “We have done our homework, and we think there is room.”
OfficeMax said the Southland outlets will follow its “TriMax Super Center” concept of three stores within a store: office furniture, 24-hour print and copy services and office supply items. The stores will be as large as 45,000 square feet.
OfficeMax operates about 475 stores and 14 delivery centers, as well as an online ordering service. The chain expects to add 75 locations in 1996. Most of its current sites are in Texas, Florida, Ohio and Illinois.
OfficeMax, a former unit of Kmart Corp., became independent two years ago. Its 1995 sales of $2.54 billion were 38% higher than the previous year’s $1.8 billion. Analyst Tucker expects revenue of OfficeMax, Office Depot and Staples to grow 30% or more in 1996.
OfficeMax also announced a 3-for-2 stock split, its second split in less than a year. Shares gained 25 cents to close at $26.50 on the New York Stock Exchange on Wednesday.
