Officemax, Inc.

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OfficeMax, Inc.

founded: 1988

Contact Information:

headquarters: 3605 warrensville center rd.

cleveland, oh 44122 phone: (216)921-6900 fax: (216)491-4040 toll free: (800)758-5804 url: http://www.officemax.com

OVERVIEW

OfficeMax, Inc. is one of the world's largest and most successful sellers of high volume, deep discount office products. In 1996 it was one of the fastest growing and most valued superstore chains in the United States. It became the fourth company in the history of U.S. businesses to reach over $3 billion in sales within nine years from the date it began.

OfficeMax operates 735 full-size superstores in over 290 markets with stores in 48 states and Puerto Rico, as well as through joint ventures in Mexico and Japan. This market presence gives OfficeMax considerable buying power, allowing it to buy large quantities of products and sell them 30 to 70 percent below manufacturer's prices. Reduced prices and strong marketing enables OfficeMax to continuously grow. They have tried to take advantage of the need for computers and other technological products. They also took advantage of the consumer's need for office supplies. OfficeMax believes they can expand sales and all around growth of the business by expanding the company both in the United States and internationally.

In addition to OfficeMax, the company has in-store concepts—CopyMax and FurnitureMax—and new store layouts—TriMax Super Centers and OfficeMax PDQ. The company uses an array of technology through the Internet with OfficeMax Online; TechMax, a module in stores giving the latest updates on computer equipment; OnLine Kiosk, where customers can order on a touch screen display in the stores; OnLine CD-ROM, a disk for small business customers so they can access the company's products; and Corporate Direct, an ordering system for medium-sized businesses.

COMPANY FINANCES

OfficeMax reported sales of $3.8 billion in 1997, up 18.7 percent over 1996's sales of $3.2 billion. The company's sales have increased over 171 percent since 1993's sales of $1.4 billion. OfficeMax's net income rose 30.2 percent, from $68.8 million in 1996 to $89.6 million in 1997. Net income for the company has grown almost 715 percent since the reported $11.0 million in 1993. For fiscal 1997 (January 26, 1997 to January 24, 1998) the company's stock reached a high of $1,600 and a low of $1,000. OfficeMax does not pay dividends on its stock, but uses instead earnings for expansion.

ANALYSTS' OPINIONS

While noting OfficeMax was in a highly competitive business, many analysts agree it would likely continue growing. While many companies in the mid-1990s concentrated on cutting costs, OfficeMax continued to grow, paying little attention to profit margins. As a result, some analysts say, the company's margins aren't as high as its competitors' margins. Now that the company is through with its expansion frenzy, it is turning inward, looking to cut costs and keep shareholder value more in mind. With the new focus, some analysts predict 20 percent annual earnings growth, putting OfficeMax in the position to continue doing well as corporate sales are expected to drop off. On the plus side, the company has little debt and is willing to trade sales for profits as it discontinues low margin items.

HISTORY

The first OfficeMax superstore was created in July 1988 in Cleveland, Ohio and was co-founded by Michael Feuer, who later became its chairman and chief executive officer. In the following 28 months, OfficeMax opened 28 superstores and obtained stores from a Chicago-based company called OfficeWorld, Inc. In November 1990 OfficeMax obtained 5 office supply stores from Kmart Corporation; these office square stores were located in Chicago and Akron, Ohio. Kmart Corporation gained a 21.6-percent equity interest in OfficeMax as part of the exchange. In November 1991 Kmart purchased all of the outstanding capital shares in OfficeMax except for 10 percent, which were owned by the co-founders.

OfficeMax continued to strategically buy companies around the United States. It acquired 41 Office Warehouse office supply superstores from the Mid-Atlantic region in June 1992—as well as 105 Bizmart stores, an office supply chain located in the western United States—and transformed them into OfficeMax stores. With these new stores and the creation and operation of 297 new superstores from 1991 through 1995, Office-Max grew into a powerful company.

Aiding the further growth of the company, Kmart-took OfficeMax public in 1994 through an Initial Public Offering. The IPO, which sold off about 65 percent of Kmart's ownership, was the largest initial offering of a retail stock, generating $678 million. In 1995 Kmart sold its remaining OfficeMax stock.

STRATEGY

Expanding the company both domestically and internationally is a key concern for OfficeMax, so the company plans to launch an aggressive program to enter new single-store markets. OfficeMax also plans to open multi-stores, or TriMax Super Centers, in up to five major markets including New Orleans and Jacksonville, Florida. By the end of 1997 OfficeMax operated approximately 700 stores in the United States and wanted to further expand foreign markets. In 1996 OfficeMax already had over 520 superstores in over 190 markets in all but 7 states, Puerto Rico, Mexico and it planned to build up to 50 stores in Mexico and also to expand considerably into Asia—notably Japan—in the late 1990s.

OfficeMax's primary strategy, serving the consumer with convenience, was essential to its business. The company's buying power allows them to sell their products at low prices. In addition OfficeMax offers low-price guarantees and promises to match competitors' prices on identical items. OfficeMax wants to sell goods to both businesses and customers for home and office use. In order to get customers in the door and boost sales, the company targeted its store set-up according to seasonal changes such as Father's Day, Back to School, Graduation, and Christmas since the holiday season is a crucial period in the business year.

OfficeMax capitalized by turning the store into a place where adults could buy something for themselves. In addition the company applied the Version 5.0 prototype set-up, which was the fifth different store setup. This arrangement allowed ample shopping space, room for many different displays, and an opportunity for shoppers to look at and actually try products. This setup was well liked by customers and sales grew from the Version 5.0 setup.

In May 1998 OfficeMax announced the launching of a new concept in Cleveland, Ohio, with the opening of its first OfficeMax PDQ. The PDQ store will be about one-third the size of a regular OfficeMax, containing only 2,000 products plus an OfficeMax hub. OfficeMax is a full service copy center. The PDQ concept will allow OfficeMax to locate in smaller areas, urban areas, colleges, and office parks. The company looks to enhance its online marketing presence through sponsorships of leading Internet directories and search sites. All of these strategies were applied to please the customer and maintain the company's success.

INFLUENCES

The company was greatly helped when rivals Staples and Office Depot attempted to merge. Although blocked by a U.S. district court judge, the two companies had used extensive resources in attempting the merger. OfficeMax took advantage of this by pushing up expansion plans, opening 96 stores instead of 80 in 1996 and 150 stores instead of 80 in 1997.

In June 1997 OfficeMax terminated its transportation and logistics contract with Ryder Integrated Logistics, the largest third-party provider in the country. Ryder operates logistic and distributions centers for companies and transports products from the centers to individual offices. OfficeMax insisted Ryder hadn't lived up to the terms of the contract. A lawsuit ensued, with bitter and public accusations from both sides. After, observers raised questions about the wisdom of outsourcing, a popular trend as companies downsized their own operations.

FAST FACTS: About OfficeMax, Inc.

Ownership: OfficeMax is a publicly owned company traded on the New York Stock Exchange.

Ticker symbol: OMX

Officers: Michael Feuer, Chmn. & CEO, 1998 base salary $851,923, bonus $712,000; John C. Martin, Pres. Retail Sales, 1998 base salary $375,481, bonus $175,000; Edward L. Cornell, Exec. VP New Business Development, 1998 base salary $259,998, bonus $87,450; James C. Tener, Exec. VP Store Operations, 1998 base salary $238,558, bonus $88,000

Employees: 31,000

Principal Subsidiary Companies: OfficeMax, Inc.'s subsidiaries include: Furniture Max; Copy Max; and TriMax Super Centers.

Chief Competitors: OfficeMax competes with other mass-merchandisers, business-supply and computer-equipment retailers. Its most direct competitors include: Staples and Office Depot.

CURRENT TRENDS

At the time of OfficeMax OnLine's introduction in 1995, there were millions of people on the Internet; however, 200 million are expected to be surfing the Internet by the year 2000. OfficeMax OnLine allows customers to use their computers to purchase the 7,000 products they had in supply and also provides a chance for customers to buy special products only available through OfficeMax OnLine to have them delivered directly to the customer's door. OfficeMax OnLine was successful in its first year. Its presentation made it easy to access information and browse through products. It is believed that the success of the online service could essentially make or break the company in future years.

PRODUCTS

OfficeMax offers over 7,700 products for businesses and individual consumers. It sells office supplies, computers, software, printers, computer upgrades, copiers, fax machines, phones, calculators, and office furniture. According to Wholesale and Retail Trade USA, in 1995 OfficeMax was rated second in furniture sales and third in miscellaneous retail goods sales. The company also was named the third most successful stationary store.

OfficeMax has established a company-produced name brand through which it offers additional discounts to customers over name-brand products. Sales with this brand, especially the paper products, were promising. The company hopes to keep producing these products and gain worldwide recognition.

GLOBAL PRESENCE

OfficeMax thinks growth in the international market would build a stronger name and be highly profitable. With the Internet, the company was catching people's attention all around the world. It also entered into the Mexican market with plans to build at least 50 stores. Seeing the potential for growth in Japan as well, the company also plans to open 200 stores there, with the first opening in November 1997. The next areas of the world OfficeMax plans to conquer are other parts of Asia and South America.

EMPLOYMENT

When OfficeMax began in 1988, it lacked the money to pay its employees. In fact, it hired only people who were willing to work for low wages. The company offered them a chance to earn part-ownership of the company by promising them quick promotions. These initial employees were told that working at OfficeMax was going to be fun and that teamwork would make it all happen. These workers laid down the foundation and made it possible for future employees to get better earnings and benefits.

CHRONOLOGY: Key Dates for OfficeMax, Inc.

1988:: The first OfficeMax superstore opens
1990:: OfficeMax purchases office supply stores from Kmart
1991:: Kmart purchases a controlling share of OfficeMax
1994:: OfficeMax goes public
1995:: Kmart sells the rest of its share
1998:: Launches OfficeMax PDQ, a smaller store and copyshop

OFFICEMAX LINKS UP WITH ON-LINE AFFILIATES

In 1995 OfficeMax established the OfficeMax OnLine Affiliate Program, which enables affiliates to develop new ways of generating additional revenue when they place links to http://www.officemax.com on their sites. More than 50 companies have joined the program, including Excite, Inc.; the globe.com; iMall, Inc.; and GTE. The affiliates involved in the program provide information and services to small businesses, home offices, and consumer markets. Affiliates receive commission on every delivered sales transaction made through links from their sites. The OfficeMax OnLine Affiliate Program provides many advertisement and content options that can be tailored to meet the needs of the affiliates. OfficeMax is the first office products superstore to sell products on the Internet.

OfficeMax grew enough to provide for workers and reward them for their hard work. The company allowed full-time workers—those who worked at least 32 hours a week—to receive many benefits. The automatic benefits are paid vacations, life insurance, disability income, associate discounts, and family and medical leave. The elective benefits for full-time workers are a medical, dental, and prescription drug plan; dependent's life and short-term disability insurance, savings plan, and an associate stock purchase plan that allows employees to share the company's success through stocks.