OfficeMax tries to cut its floor space, but the mix may be wrong

OfficeMax (NYSE:OMX) may soon be swallowed in a merger with Office Depot (NYSE:ODP), but the smaller chain is continuing to experiment with smaller store sizes anyway. On Monday (April 1), OfficeMax opened a one-off store in Milwaukee that is less than a quarter the size of a typical big-box OfficeMax store.

The pilot concept store, which the retailer is calling an "OfficeMax Business Solutions Center," chops the usual 23,000-square-foot store to 5,000 square feet and dedicates a chunk of that space for customers to use for meetings or to work, complete with free Wi-Fi. The focus is on services, especially small-business technical services including Web hosting and cloud storage, network setup and software installation, along with shipping and printing.

The store will also sell a selection of laptops, smartphones, shredders and office furniture. In other words, it's the high-margin services without all the high rent that has been killing big-box specialty retailers in the face of competition from Amazon (NASDAQ:AMZN) and general merchandise chains.

As concepts go, it's not a bad idea. It's also not the first time OfficeMax has tried to slash its real estate costs. (Remember OfficeMax's 2,000-square-foot Ink Paper Scissors stores from a few years ago? Neither does anyone else.) But focusing on small businesses while cutting out the low-margin lines like endless varieties of office paper may end up working against what OfficeMax is trying to accomplish.

Small-business people may love the concept of free Wi-Fi and meeting space, but they can't usually afford to be away from the office except for when on outside sales calls. And they rarely shell out for new office equipment or furniture — that's exactly what they will go to Amazon or eBay (NASDAQ:EBAY) for.

On the other side, small businesses see the chance to pick up extra paper or toner when the printer runs out as a major advantage of having a big office-supply store nearby. (Buy extra toner in advance? What, and tie up $100 in working capital?) Those consumables that take up so much floor space are also the items that drive traffic. A conventional OfficeMax store is the coin-operated office supplies closet for every small business in the vicinity.

Still, as with all attempts to escape from Big-Box Hell, this experiment is worth the effort. If OfficeMax can find the right limited mix of products and get its target customers to pay for IT services, it may survive long enough to make the Office Depot merger worthwhile.

For more:

- See this story
- See the OfficeMax news release

Related stories:

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Staples, Office Depot, OfficeMax Are Sued For Their Web Sites—And Much Of The Rest of E-Tail Could Be Next

 

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