Office sector unlikely to see much gain, regardless of back-to-school spending boost

NATIONWIDE RT REPORT—Office products retailers have been hit hard this year by business customers looking to cut costs. Office Depot and OfficeMax both saw their domestic retail operations lose money during the second quarter ended June 28 as same-store sales declined 10%. Staples also is expected to report a second-quarter same-store sales decline when its financial results are released Sept. 3 for the quarter ended Aug. 2.

Now, it appears seasonal back-to-school spending will offer little relief to these retailers, which have backed away from aggressive price promotions of years’ past in hopes of salvaging some margin. At issue for the likes of Staples, Office Depot and OfficeMax is the fact that consumers intend to increase spending on back-to-school merchandise, but 83% of the estimated $20.1 billion that will be spent on students in kindergarten through 12th grade will go toward clothes, shoes and electronics, according to the National Retail Federation. Actual school supplies, such as writing instruments, notebooks, folders and backpacks, represent about 17% of the $594 consumers said they intended to spend apiece during back-to-school season, according to an NRF survey. That figure is over 5% higher than last year, but a heavy promotional emphasis on price tends to erode margins on featured products, and in a difficult economic environment consumers are less likely to purchase additional products.

The back-to-college segment of the market also appears challenging for office superstore operators. Sales of school supplies are expected to increase slightly, according to survey results, but they account for only 11% of the estimated $600 that will be spent on the average college student. College kids normally spend more money on electronics, but that is an area where survey respondents indicated they will cut back this year.

To compensate for the tepid back-to-school outlook, as well as weak business conditions overall, office superstores are doing what many of their customers are doing—looking to cut expenses wherever possible. For Office Depot and OfficeMax that means further reducing store expansion and remodeling plans. Both companies have brought remodeling activity to a near stand-still and only plan to open stores during the remainder of the year where it would cost more to break the lease than open the store.