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OfficeMax, Inc.

OfficeMax, Inc.

3605 Warrensville Center Road
Shaker Heights, OH 44122
U.S.A.
Telephone: (216) 921-6900
Fax: (216) 491-4040
Web site:http://www.officemax.com

Public Company
Incorporated:
1988
Employees: 38,489 (2001)
Sales: $5,156 billion (2000)
Stock Exchanges: New York
Stock Symbol: OMX
NAIC: 453210 Office Supplies and Stationary Stores

OfficeMax, Inc. is the third-largest office supply chain in the United States. The company operates nearly 1,000 high-volume, deep-discount superstores in 49 states, Puerto Rico, and the US Virgin Islands. In addition to office products, OfficeMax stores also feature CopyMax modules (offering print-for-pay services) and FurnitureMax facilities, which offer office furniture. The company also maintains an e-commerce business (officemax.com), which carries over 20,000 items. Through joint ventures, OfficeMax operates stores in Mexico and Brazil.

OfficeMax started in 1988 as a simple idea. In little more than five years the company bolted to the forefront of the American business supplies industry, posting more than $2 billion in annual sales by 1995 and generating sound profits by 1993. The company achieved that stunning success despite intense competition and an economic recession that began in the late 1980s and lingered throughout the early 1990s. The companys savvy marketing, distribution, management, and financial systems and strategies became models for other superstore retailers in the 1990s.

1988: Humble Beginnings

The OfficeMax concept was hatched by entrepreneurs Michael Feuer and Robert Hurwitz. Feuer, who became the driving force behind the chains growth, had been nurturing the idea during more than 17 years of service with Fabri-Centers of America, a 600-store retailer in Cleveland. By his early 40s, Feuer had risen to the executive ranks. Still, he was frustrated by his inability to run the company as he believed it should be operated. At age 42 I was bored and, like many executives, I also suffered from the Frank Sinatra syndromeI wanted to do it my way, Feuer recalled in September 1993. I had always claimed that if we could just cut through all the nonsensefor example, the 20 to 25 percent of time most executives spend on CYB (covering your butt)and do it my way, we could make millions, Feuer observed.

Feuer finally jumped ship and, despite other excellent corporate job offers, decided to start his own enterprise. He and Hurwitz decided that they didnt want to fund the start-up with bank debt or venture capital because they didnt want to forfeit control of the operation. So they scrambled to raise capital from friends and family. They eventually found 50 investors, including several doctors and lawyers, who were willing to contribute a total of $3 million. The sum was paltry compared to other retail start-up businesses at the time, but the pair thought that they could parlay the cash into a winning enterprise.

Feuer and Hurwitz launched their enterprise on April Fools Day in 1988. On that day, they laid out on a sheet of paper their concept for a new type of office products store. Their goal was to create a large business supplies discount store that was an exciting place to shop, and offered professional and friendly service, as well as prices between 10 and 30 percent less than those found in more traditional office supply retailer shops. The main goal was to bypass all of the middlemen, such as wholesalers and distributors. Achieving that goal, they reasoned, would allow them to effectively replace mom-and-pop office supply stores, much as supermarkets had replaced small grocers years earlier.

OfficeMax was fighting an uphill battle from the start. In May, an office supplies industry trade paper published a list of 15 start-up companies that were trying to crack into the business; OfficeMax was 14th on the list by asset size. The start-up team knew that it had to keep expenditures at an absolute minimum to compete. So Feuer and Hurwitz rented office space in a 500-square-foot brick warehouse that had barely any heat or air-conditioning. The space was equipped with a few pieces of cheap office furniture, a coffee machine, and a copier (the copier and coffee machine couldnt be operated at the same time, however, because the fuse would blow). They decided not to invest in a fax machine until it became absolutely necessary.

OfficeMax started out with a skeletal staff of seven people, not including the founders. Their requirements for potential employees were simple: they had to be hard workers with open minds, big hearts, and plenty of enthusiasm. They also had to be willing to work for very little money. Feuer and Hurwitz attracted the workers by promising them part ownership in the company if they stuck with it, and by offering them the chance to go farther, faster, and to have more fun than they had ever had in any other job. From the beginning, Feuer made it clear that OfficeMax would be operated differently from the bureaucracies from which most of the team members had come. There would be no secrets, criticism and praise would be swift and frank, and everyone would cooperate as a team.

Thus, OfficeMax was up-and-running without a single store or any other operation that could bring in any money. The founders hoped that they would be able to get manufacturers to fund their inventory, but they soon found that few big companies were eager to do business with a meager upstart. To overcome such hurdles, the team got together every morning and created a game plan for the day on a blackboard. They flew by the seat of their pants and used every trick they could conjure to get what they needed. Importantly, the company was able to get an unsecured line of credit from a local Cleveland bank. The bank granted the line of credit under one condition: that the founders agree never to use it.

Feuer and Hurwitz were able to take their line of credit to big suppliers like Xerox and convince them to fund their inventory on credit, sometimes for a full year or more. Indeed, the OfficeMax team learned early that the only way to get the cooperation of potential suppliers was to act as though OfficeMax was much bigger than it really was. They dealt with suppliers as though OfficeMax was a soon-to-be major chain with 20, 50, or even 300 stores going up in the near future, suggesting that if those suppliers wanted to secure a place with OfficeMax tomorrow, they would have to cooperate today. To the founders surprise, most companies played along. Those that didnt often regretted it, as OfficeMax quickly became the leading customer for many major office equipment and supplies manufacturers.

1988-90: Going from One Store to Thirty in Two Years

Incredibly, OfficeMax opened its first store just 90 days after the founders had created their business blueprint on April Fools Day. Observers were surprised that the team had managed to find space, hire and train a store staff, and hone a store concept in just three months. But to them it was a simple matter of survival; they had to start generating cash flow so that they could pay their bills. The first OfficeMax was opened on July 5, 1988, at the Golden Gate Shopping Center in the Cleveland area. The only advertising for the grand opening was a newspaper ad two days prior to the stores opening. Nevertheless, the store had sales of $6,400 on its first day.

After only six months in operation, the store was breaking even (before corporate overhead). That feat was accomplished partly as a result of the grueling hours put in by the team. Feuer, for instance, worked at the corporate office from 7:00 a.m. to 7:00 p.m. He would then race home, shower, put on casual clothes, and drive out to the store to observe the customers and employees. When a customer left the store without purchasing anything, Feuer was known to chase him down in the parking lot and ask him if OfficeMax had failed in any way. That type of thinking was later reflected in OfficeMaxs intensive customer-satisfaction orientation. For example, the company began requiring that all customer complaints be resolved to the customers satisfaction within 24 hours.

Enthused by the quick success of the first store, Feuer and Hurwitz hurried back to the original investment group and raised additional capital for expansion. They dumped the cash into an aggressive growth program that, amazingly, had OfficeMax operating 13 stores in Ohio and Michigan less than 12 months after opening the first outlet. Sales had climbed to an impressive rate of $13 million annually and, more important, the stores were operating at a profit. The success was so quick that it worried Feuer, who was convinced that the companys accounting system was messed up and that OfficeMax could easily be teetering on the edge of bankruptcy.

Shortly before OfficeMax had fired up its first store, a similar office superstore venture called Office World had started in Chicago. The business was funded heavily by retailer Montgomery Ward, but despite hefty financial backing, the effort had lost $10 million in the span of a few years. Thus, when Montgomery Ward approached OfficeMax about the possibility of a merger between OfficeMax and Office World, Feuer and Hurwitz were hesitant. They eventually warmed up to the idea, however, and the resulting agreement brought seven new stores to their chain, as well as the resources of several deep-pocketed venture capital firms. OfficeMax, for its part, only had to give up two of the ten seats on its board.

By the summer of 1990, following the Office World merger, OfficeMax was operating a total of 30 stores. After once again going back to its investment group, the company was banking an impressive $33 million in cash. The cost-conscious founders finally decided that it was time to move into a better headquarters facility, one that featured separate mens and womens bathrooms, for example. The rest of the money was put to use funding an aggressive expansion plan that would, the company hoped, add 20 more stores to the chain within a year. Despite healthy gains and a bright future, however, a development in 1990 threatened to quash OfficeMax and its competitors.

Company Perspectives:

OfficeMax provides office goods and services to small and medium-size businesses, home office customers, and individual consumers. The company has almost 1,000 superstores and delivery centers in the United States, on the Internet at OfficeMax.com, via direct mail catalogs, and through a nationwide commercial sales force.

Feuer and Hurwitz had perceived the threat years earlier. Finally, their fears were realized when mass discount merchant Kmart announced plans to roll out an office supplies superstore dubbed Office Square. OfficeMax executives realized that the new venture, backed by Kmarts massive bank account and retailing savvy, could literally crush start-ups like OfficeMax. Feuer and Hurwitz, refusing to ignore the threat, began trying to initiate talks with Kmart. The talks initially centered on an outright purchase of OfficeMax by Kmart. But Feuer and Hurwitz were hesitant to give up control of their company. The two companies finally agreed to a plan whereby Kmart invested $40 million in OfficeMax in return for a 22 percent ownership share.

Early 1990s: Life with Kmart

Fortunately for the founders, Kmart turned out to be OfficeMaxs greatest ally, rather than its worst enemy. Feuer and Hurwitz were allowed to maintain total control of the company, and Kmart smartly became a silent financial partner. With its new bankroll, OfficeMax intensified its expansion efforts and quickly met the goals that it had set with Kmart executives. Both companies were so pleased with the arrangement that Kmart decided to up the ante in 1991. It purchased 92 percent of the outstanding shares from the original investors and became the owner of OfficeMax. The net result was that OfficeMax was sitting on a mountain of cash and had virtually no long-term debt. Furthermore, Feuer and Hurwitz were still firmly in control of the company.

The deal couldnt have been sweeter for OfficeMax, which was suddenly positioned to launch a bid to dominate the national business supplies superstore segment. Thats exactly what the company did. During the next 18 months the company began opening new OfficeMax outlets at a feverish pitch. More importantly, the company purchased the 46-store Office Warehouse chain and the 105-outlet Bizmart chain, and eventually integrated those stores into the OfficeMax organization. As a result of store additions and acquisitions, OfficeMax was operating 328 stores in 38 states, coast-to-coast, by the end of 1993. Sales for that year climbed to $1.41 billion, from just $245 million in 1991, while net income increased to $1.08 billion (OfficeMaxs first positive annual net income).

Although cash was a major ingredient in the companys recipe for growth, its shrewd operating strategy was just as important for success. Indeed, throughout its expansion, OfficeMax maintained its customer focus. It also adapted the format of its stores to capitalize on the huge growth in the small and home-based business markets, which became the dominant industry trend during the early 1990s. In addition, OfficeMax managed to implement cutting-edge information and distribution systems that allowed the top mega-discounters like Kmart and Walmart to thrive. By the mid-1990s, OfficeMax was efficiently operating nearly 400 stores and several distribution centers, and stocking more than 6,000 brand name office products, business machines, computers and related electronic devices, software, and other goods.

With Kmarts financial backing and the OfficeMax teams successful operating strategy, the company sustained its blistering growth rate in 1994. By the end of the year, the company was operating 388 stores in 40 states and Puerto Rico. Importantly, the end of 1994 marked a huge change for the company. Late in that year, its well-heeled parent, Kmart, sold out. Kmarts investors had been pressuring Kmart to sell off its side interests and refocus its resources on the hyper-competitive general merchandise discount industry. Kmarts directors stooped to the pressure and decided to bail out of the OfficeMax venture. OfficeMax completed the largest initial public offering in the history of the retail chain industry when it sold 35.7 million shares at a price of $19 per share, bringing in the $678 million that allowed Kmart to reduce its ownership interest. A subsequent offering in July 1995 entirely eliminated Kmarts ownership share.

Mid-1990s: Going Public Without Kmart

Thus, after growing by leaps and bounds with the help of Kmart, OfficeMax was suddenly on its own again as a publicly held enterprise. For 1994, OfficeMax posted $1.81 billion in sales, $30.4 million of which was netted as income. As Hurwitz had removed himself from day-to-day operations at OfficeMax following the stock sale, Feuer stepped up expansion plans in 1995, hoping to boost OfficeMaxs 11 percent share of the U.S. office supplies superstore market. By 1995, OfficeMax became the second largest business superstore in the nation (behind Office Depot), and was gunning for the number one slot.

Key Dates:

1988:
Company founded by Michael Feuer and Robert Hurwitz.
1990:
Company merges with Office World; Kmart invests $40 million in OfficeMax.
1991:
Kmart purchases 92 percent of outstanding shares and becomes companys owner.
1992:
Company purchases Office Warehouse and Bizmart.
1994:
Company makes largest IPO in industry history; launches FurnitureMax, CopyMax, and OfficeMax Online.
1995:
Second stock offering eliminates Kmarts ownership.
1996:
Company opens Mexico City superstore.
1997:
Company opens more stores in Mexico and its first store in Japan.
1998:
Company opens its first urban-targeted OfficeMax PDQ store and opens stores in Brazil.
2000:
Gateway invests $50 million in company and becomes its exclusive computer provider.
2001:
HP replaces Gateway as companys computer provider; company closes 50 stores.

Meanwhile OfficeMax launched related ventures beginning in 1994, including FurnitureMax, a chain of discount office furniture stores, and CopyMax, a chain of copy-service centers. Both of the new store concepts were designed to be connected to existing OfficeMax stores and to serve as add-on profit centers. In 1995, the company debuted its TriMax stores, which consisted of an OfficeMax superstore flanked by a FurnitureMax and a CopyMax. The company also initiated a computer service called OfficeMax Online, (which later became OfficeMax.com), that was designed to enable customers to purchase OfficeMax products online from their home or office computers.

A period of tremendous expansion for OfficeMax began in 1996. In its annual shareholders meeting, the company announced a major expansion into Southern Californiaan area where its rivals, Office Depot and Staples, were already well established. Additionally, the company made its first international foray by opening a superstore in Mexico City with its venture partner Grupo Oprimax. This store was followed by more store openings in Mexico, and the companys success in that country was phenomenal. CEO Feuer told Discount Merchandiser in 1998, We went in with very modest expectations, but they have been more fully realized than anticipated, The volume in Mexican stores is equal or better than in the US. The company also began testing a smaller format store called Office PDQ, aimed at urban markets, and formed a joint venture with Jusco Co., Ltd., to open OfficeMax stores in Japan.

During 1997, Staples and Office Depot attempted a merger that was ultimately blocked by the FTC. While its two main competitors were focused on merger plans and court battles, OfficeMax took the opportunity to expand even further, opening a total of 150 stores in 1997 alone. This growth earned themfor a timethe long-coveted number one position in the market. Despite the large number of openings, the company still suffered a gap in sales numbers. Even though it had the greatest number of stores, the companys sales volume fell below $4 billion in 1997as compared with Office Depots $6.7 billion and Staples $5.2 billion. Feuer attributed the gap to the companys relative youth in the market. He planned to make up the numbers in part by focusing on the copy center portion of the business, which had a very high profit margin. In 1998, the company turned its focus to increasing the productivity of its store base, primarily by reducing its inventory of computersan area that had been disastrous in terms of profitability.

By 2000, the company had eliminated computers completely, instead forming a partnership with Gateway. Under their agreement, Gateway would install Gateway stores inside OfficeMax superstores. The Gateway operations would be staffed by Gateway employees. Gateway also invested $50 million in OfficeMax. However, the deal was scrapped in 2001, with Hewlett Packard replacing the flagging Gateway as OfficeMaxs computer supplier.

The year 2000 was challenging for OfficeMax. The companys profits continued to fail to keep pace with its expansion, and the company underwent a major restructuringwhich Feurer called deliberate suffering. It installed a new integrated computer system and revamped its distribution system, a move that it hoped would ultimately save the company several million dollars a year. It also changed its purchasing policies to be more in line with what its customers actually bought, rather than what vendors provided incentives for it to sell. These measures helped, but in 2001, the company was faced with the decision to close stores. In January of that year, the company announced plans to close 50 storesresulting in the loss of 1,200 jobsand take a one-time after-tax charge of $69 million. Despite these troubles, Feuer remained optimistic, telling Futures World News in May 2001 that he expected the companys growth rate to accelerate in the third quarter of 2001-02.

Principal Operating Units

FurnitureMax; CopyMax; OfficeMax.com.

Principal Competitors

Buhrmann; Office Depot; Staples.

Further Reading

As Staples, Office Depot Battle FTC, OfficeMax Expands its Concepts, Discount Store News, July 7, 1997, p. 80.

Baird, Kristen, OfficeMax Plan May Supply 900 More Local Jobs, Crains Cleveland Business, July 31, 1995, p. 1.

Bartalos, Greg, Til the Cows Come Home, Barrons, Chicopee, June 11, 2001, p. 35.

Big Name in Office Game is Diversity, Discount Store News, August 9, 1999, p. 50.

Brandt, John R., and Michael Feuer, Taking It to the MAX: How Did Michael Feuer Take a Start-up Company to $1.5 Billion in Revenue in Just Five Years?, Corporate Cleveland, September 1993, p. 16.

Cotlier, Moira, OfficeMax to Close 50 Stores, Catalog Age, New Canaan, March 15, 2001, p. 7.

Einhorn, Cheryl Strauss, Maximum Markdown, Barrons, Chicopee, December 18, 2000, pp. 23-24.

Einhorn, Cheryl Strauss, Promises Kept, Barrons, Chicopee, February 5, 2001, p. 14.

Garvey, Martin J., Gateway Takes Aim at the Business PC Market, Informationweek, Manhasset, February 28, 2000, p. 30.

Gateway to the Future, Discount Merchandiser, April 2000, p. 23.

Hanover, Dan, Honey, IShrunkthe Store, Chain Store Age, January 1999, pp. 40-45.

Harrison, Kimberly P., OfficeMax to Launch New Unit: Company to Test Concept of Furniture Showroom, Crains Cleveland Business, November 14, 1994, p. 1.

Howes, Daniel, Kmart Plans to Sell Rest of Stake in OfficeMax, Detroit News, June 27, 1995, p. El.

HP Replaces Gateway at OfficeMax, Client Server News, May 21, 2001.

Icon Group International, Inc., Staff, OfficeMax, Inc.: International Competitive Benchmarks & Financial Gap Analysis, San Diego: Icon Group International, Incorporated, April 2000.

Icon Group International, Inc., Staff, OfficeMax, Inc.: Labor Productivity Benchmarks & International Gap Analysis, San Diego: Icon Group International, Incorporated, April 2000.

Johnson, Jay L., OfficeMax: On a Fast Track, Discount Merchandiser, March 1998, pp. 32-34.

Johnson, Jay L., The FTC shuffle: Two Losers, One Winner, Discount Merchandiser, August 1997, p. 19.

Kemp, Ted, Staples Chases Small Biz, Internetweek, November 13, 2000, p. 11.

King, Angela G., OfficeMax Stock Shines for Openers, Detroit News, November 3, 1994, p. E1.

Liebeck, Laura, Staples, OfficeMax Look Abroad, Discount Store News, January 6, 1997, pp. 6, 88.

Marcial, Gene G., Officemax May Be Hunteror Prey, Business Week, November 25, 1996, p. 154.

Market Slows, But Still Grows, DSN Retailing Today, August 7, 2000, p. 40.

Nottingham, Nancy, Office Superstore Opens Today on West End, Billings (Montana) Gazette, June 15, 1995, p. D5.

Office Superstore Chains Plan 9 Million Sq. Ft. of New Space in 98, Discount Store News, March 23, 1998, pp. 6, 67.

Office Superstore Expansion in High Gear, Discount Store News, October 20, 1997, pp. 5, 77.

Office Supply Chains Foresee Continued Expansion, Discount Store News, July 13, 1998, p. 86.

OfficeMax Boosts Expansion, Chain Store Age, November 1996, p. 43.

OfficeMax Plans California Blitz, Discount Store News, June 3, 1996, p. 3.

OfficeMax Reveals Plans at Shareholders Meeting, Discount Store News, May 25, 1998, p. 3.

OfficeMax to Close 50 Stores, Cut 1,200 Jobs, Futures World News, May 7, 2001.

OfficeMax to Offer On-Line Custom Printing, DSN Retailing Today, May 21, 2001, p. 6.

Pascale, Moira, The Price is Right ... or is It?, Catalog Age, New Canaan, February 1999, p. 6.

Radcliff, Deborah, Back-to-School.com, Computerworld, August 23, 1999, p. 40.

Russell, John M., OfficeMax Breaks Loose, Small Business News-Cleveland, September 1994, p. 16.

Shingler, Dan, Hurwitz Trading Paper for Pillows, Crains Cleveland Business, April 11, 1994, p. 1.

Speculation over OfficeMax Suitor Points to Staples, Hints at Antitrust, Discount Store News, October 26, 1998, p. 6.

Staples to Sell 63 Units to OfficeMax, FTC to Decide on Acquisition, Discount Store News, April 1, 1997, p. 6.

Swanson, Sandra, Office-Supply Vendors to Offer E-learning, Informationweek, August 21, 2000, p. 40.

Thompson, Chris, OfficeMax Sees Profits Stack Up for Pending IPO, Crains Cleveland Business, September 12, 1994, p. 3.

Troy, Mike, 98 Writing Instrument Sales Script Strong Outlook for 99, Discount Store News, February 22, 1999, pp. 41-44.

, Accessories Rise to Demands of Evolving Office Environs, Discount Store News, April 5, 1999, pp. 19-20.

, Office Suppliers Scurry to Revamp Financials, Discount Store News, October 25, 1999, pp. 5, 63.

, OfficeMax is the Biggest, Now It Has to Prove Its the Best, Discount Store News, November 17, 1997, pp. 31-39.

, OfficeMax Looks for Improvement Before its Too Late, DSN Retailing Today, November 6, 2000, pp. 37-38.

, OfficeMax Names Peterson President, Gateway In-Store Pact First Challenge, Discount Store News, March 6, 2000, pp. 5, 87.

, OfficeMax Reorganizes, DSN Retailing Today, March 19, 2001, pp. 1, 8.

, OfficeMax Unveils New Prototypes, Discount Store News, August 10, 1998, pp. 10, 118.

, OfficeMaxs Actions Draw Shareholder Lawsuits, DSN Retailing Today, May 8, 2000, pp. 10, 144.

, Softened Office Supply Market Gives Big Three Cause for Pause, DSN Retailing Today, April 2, 2001, pp. 8, 74.

, Store Closings Imminent for Office Superstore Channel, DSN Retailing Today, January 1, 2001, p. 6.

, The Rx That Delivers the Max, Discount Store News, December 8, 1997, pp. 75-76.

Dave Mote
update: Lisa Whipple

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OfficeMax Inc.

OfficeMax Inc.

P.O. Box 22500
Cleveland, Ohio 44122-0500
U.S.A.
(216) 921-6900
Fax: (216) 349-4220

Public Company
Incorporated:
1988
Employees: 17,133
Sales: $1.84 billion (1995)
Stock Exchanges: New York
SICs: 5712 Furniture Stores; 5734 Computer & Computer Software Stores; 5943 Stationery Stores; 5999 Miscellaneous Retail Stores Not Elsewhere Classified

OfficeMax, Inc. is the second largest operator of high-volume, deep-discount office products superstores in the United States. In mid-1995, the company was operating more than 400 superstores in 41 states and Puerto Rico and was planning to open more than 150 additional stores within two years. The company was also experimenting with related business concepts, including a chain of furniture stores and a string of copy-service centers.

OfficeMax started in 1988 as a simple idea. In little more than five years the company bolted to the forefront of the American business supplies industry, posting more than $2 billion in annual sales by 1995 and generating sound profits by 1993. The company achieved that stunning success despite intense competition and an economic recession that began in the late 1980s and lingered throughout the early 1990s. The companys savvy marketing, distribution, management, and financial systems and strategies became models for other superstore retailers in the 1990s.

The OfficeMax idea was hatched by entrepreneurs Michael Feuer and Robert Hurwitz. Feuer, who became the driving force behind the chains growth, had been nurturing the idea during more than 17 years of service with Fabri-Centers of America, a 600-store, Cleveland-based retailer. By his early 40s, Feuer had risen to the executive ranks. Still, he was frustrated by his inability to run the company as he believed it should be operated. At age 42 I was bored, and like many executives, I also suffered from the Frank Sinatra syndromeI wanted to do it my way, Feuer recalled in the September 1993 Corporate Cleveland. I had always claimed that if we could just cut through all the nonsensefor example, the 20 to 25 percent of time most executives spend on CYB (covering your butt)and do it my way, we could make millions, Feuer observed.

Feuer finally jumped ship and, despite other excellent corporate job offers, decided to start his own enterprise. He and Hurwitz decided that they didnt want to fund the start-up with bank debt or venture capital, because they didnt want to forfeit control of the operation. So they scrambled to raise capital from friends and family. They eventually found 50 investors, including several doctors and lawyers, who were willing to contribute a total of $3 million. The sum was paltry compared to other retail start-up businesses at the time, but the pair thought that they could parlay the cash into a winning enterprise.

Feuer and Hurwitz launched their enterprise on April Fools Day in 1988. On that day, they laid out on a blank sheet of paper their concept for a new type of office products store. Their goal was to create a large business supplies discount store that was an exciting place to shop, proffered professional and friendly service, and offered prices between ten percent and 30 percent less that those found in more traditional office supply retailer shops. The main goal was to bypass all of the middlemen, such as wholesalers and distributors. Achieving that goal, they reasoned, would allow them to effectively replace mom-and-pop office supply stores, much as supermarkets had replaced small grocers years earlier.

OfficeMax was fighting an uphill battle from the start. In May, an office supplies industry trade paper published a list of 15 start-up companies that were trying to crack into the business; OfficeMax was 14th on the list by asset size. The start-up team knew that it had to keep expenditures at an absolute minimum to compete. So Feuer and Hurwitz rented office space in a 500-square-foot brick warehouse that had barely any heat or air-conditioning. The space was equipped with a few pieces of cheap office furniture, a coffee machine, and a copier (the copier and coffee machine couldnt be operated at the same time, however, because the fuse would blow). They decided not to invest in a fax machine until it became absolutely necessary.

OfficeMax started out with a skeletal staff of seven people, not including the founders. Their requirements for potential employees were simple: they had to be hard workers with open minds, big hearts, and plenty of enthusiasm. They also had to be willing to work for very little money. Feuer and Hurwitz attracted the workers by promising them part ownership in the company if they stuck with it and by offering them the chance to go farther, faster, and to have more fun than they had ever had in another job. From the beginning, Feuer made it clear that OfficeMax would be operated differently from the bureaucracies from which most of the team members had come. There would be no secrets, criticism and praise would be swift and frank, and everyone would cooperate as a team.

Thus, OfficeMax was up-and-running without a single store or any other operation that could bring in any money. The founders hoped that they would be able to get manufacturers to fund their inventory, but they soon found that few big companies were eager to do business with a meager upstart. To overcome such hurdles, the team got together every morning and created a game plan for the day on a blackboard. They flew by the seat of their pants and used every trick they could conjure to get what they needed. Importantly, the company was able to get an unsecured line of credit from a local Cleveland bank. The bank granted the line of credit under one condition: that the founders agree never to use it.

Feuer and Hurwitz were able to take their line of credit to big suppliers like Xerox and convince them to fund their inventory on credit, sometimes for a full year or more. Indeed, the OfficeMax team learned early that the only way to get the cooperation of potential suppliers was to act as though OfficeMax was much bigger than it really was. They dealt with suppliers as though OfficeMax was a soon-to-be major chain with 20, 50, or even 300 stores going up in the near future, suggesting that if those suppliers wanted to secure a place with OfficeMax tomorrow, they would have to cooperate today. To the founders surprise, most companies played along. Those that didnt often regretted it, as OfficeMax quickly became the leading customer for many major office equipment and supplies manufacturers.

Incredibly, OfficeMax opened its first store just 90 days after the founders had created their business blueprint on April Fools Day. Observers were surprised that the team had managed to find space, hire and train a store staff, and hone a store concept in just three months. But to them it was a simple matter of survival; they had to start generating cash flow so that they could pay their bills. The first OfficeMax was opened on July 5, 1988, at the Golden Gate Shopping Center in the Cleveland area. The only advertising for the grand opening was a newspaper ad two days prior to the stores opening. Nevertheless, the mart had sales of $6,400 on its first day.

After only six months in operation, the store was breaking even (before corporate overhead). That feat was accomplished partly as a result of the grueling hours put in by the team. Feuer, for instance, worked at the corporate office from seven a.m. to seven p.m. He would then race home, shower, put on casual clothes, and drive out to the store to observe the customers and employees. When a customer left the store without purchasing anything, Feuer was known to chase him down in the parking lot and ask him if OfficeMax had failed in any way. That type of thinking was later reflected in OfficeMaxs intensive customer-satisfaction orientation. For example, the company began requiring that all customer complaints be resolved to the customers satisfaction within 24 hours.

Enthused by the quick success of the first store, Feuer and Hurwitz hurried back to the original investment group and raised additional capital for expansion. They dumped the cash into an aggressive growth program that, amazingly, had OfficeMax operating 13 stores in Ohio and Michigan less than 12 months after opening the first outlet. Sales had climbed to an impressive rate of $13 million annually and, more importantly, the stores were operating at a profit. The success was so quick that it worried Feuer, who was convinced that the companys accounting system was messed up and that OfficeMax could easily be teetering on the edge of bankruptcy.

Shortly before OfficeMax had fired up its first store, a similar office superstore venture called Office World had started in Chicago. The business was funded heavily by retailer Montgomery Ward, but despite hefty financial backing, the effort had lost a big $10 million in the span of a few years. Thus, when Montgomery Ward approached OfficeMax about the possibility of a merger between OfficeMax and Office World, Feuer and Hurwitz were hesitant. They eventually warmed up to the idea, however, and the resulting agreement brought seven new stores to their chain as well as the resources of several deep-pocketed venture capital firms. OfficeMax, for its part, only had to give up two of the ten seats on its board.

By the summer of 1990, following the Office World merger, OfficeMax was operating a total of 30 stores. After once again going back to its investment group, the company was banking an impressive $33 million in cash. The cost-conscious founders finally decided that it was time to move into a better headquarters facility, one that featured separate mens and womens bathrooms, for example. The rest of the money was put to use funding an aggressive expansion plan that would, the company hoped, tag 20 more stores onto the chain within a year. Despite healthy gains and a bright future, however, a development in 1990 threatened to quash OfficeMax and its competitors.

Feuer and Hurwitz had perceived the threat years earlier. Finally, their fears were being realized when mass discount merchant Kmart announced plans to roll out an office supplies superstore dubbed Office Square. OfficeMax executives realized that the new venture, backed by Kmarts massive bank account and retailing savvy, could literally crush start-ups like OfficeMax. Feuer and Hurwitz, refusing to ignore the threat, began trying to initiate talks with Kmart. The talks initially centered around an outright purchase of OfficeMax by Kmart. But Feuer and Hurwitz were hesitant to give up control of their company. The two companies finally agreed to a plan whereby Kmart invested $40 million in OfficeMax in return for a 22 percent ownership share.

Fortunately for the founders, Kmart turned out to be Office-Maxs greatest ally, rather than its worst enemy. Feuer and Hurwitz were allowed to maintain total control of the company, and Kmart smartly became a silent financial partner. With its new bankroll, OfficeMax intensified its expansion efforts and quickly met the goals that it had set with Kmart executives. Both companies were so pleased with the arrangement that Kmart decided to up the ante in 1991. It purchased 92 percent of the outstanding shares from the original investors and became the owner of OfficeMax. The net result was the OfficeMax was sitting on a mountain of cash and had virtually no long-term debt. Furthermore, Feuer and Hurwitz were still firmly in control of the company.

The deal couldnt have been sweeter for OfficeMax, which was suddenly positioned to launch a bid to dominate the national business supplies superstore segment. Thats exactly what the company did. During the next 18 months the company began opening new OfficeMax outlets at a feverish pitch. More importantly, the company purchased the 46-store Office Warehouse chain and the 105-outlet Bizmart chain, and eventually integrated those stores into the OfficeMax organization. As a result of store additions and acquisitions, OfficeMax was operating 328 stores, coast-to-coast, in 38 states by the end of 1993. Sales for that year climbed to $1.41 billion from just $245 million in 1991, while net income increased to $1.08 billion (OfficeMaxs first positive annual net income).

Although cash was a major ingredient in the companys recipe for growth, its shrewd operating strategy was just as important for success. Indeed, throughout its expansion OfficeMax maintained its customer focus. It also adapted the format of its stores to capitalize on the huge growth in the small and home-based business markets, which became the dominant industry trend during the early 1990s. In addition, OfficeMax managed to implement cutting-edge information and distribution systems that allowed the top mega-discounters like Kmart and Walmart to thrive. By the mid-1990s, OfficeMax was efficiently operating nearly 400 stores and several distribution centers, and stocking more than 6,000 brand name office products, business machines, computers and related electronic devices, software, and other goods.

With Kmarts financial backing and the OfficeMax teams successful operating strategy, the company sustained its blistering growth rate in 1994. By the end of the year the company was operating 388 stores in 40 states and Puerto Rico. Importantly, the end of 1994 marked a huge change for the company. Late in that year, its well-heeled parent, Kmart, sold out. Kmarts investors had been pressuring Kmart to sell off its side interests and refocus its resources on the hyper-competitive general merchandise discount industry. Kmarts directors stooped to the pressure and decided to bail out of the OfficeMax venture. OfficeMax completed the largest initial public offering in the history of the retail chain industry when it sold 35.7 million shares at a price of $19, bringing in $678 million that allowed Kmart to reduce its ownership interest. A subsequent offering in July 1995 entirely eliminated Kmarts ownership share.

Thus, after growing by leaps and bounds with the help of Kmart, OfficeMax was suddenly on its own again as a publicly held enterprise. For the 1994 year, OfficeMax posted $1.81 billion in sales, $30.4 million of which was netted as income. As Hurwitz had removed himself from day-to-day operations at OfficeMax following the stock sale, Feuer stepped up expansion plans in 1995, hoping to boost OfficeMaxs 11-percent share of the U.S. office supplies superstore market. By 1995, in fact, OfficeMax had become the second largest business superstore in the nation (behind Office Depot), and was gunning for the number one slot.

To that end, Feuer hoped to add about 200 new stores to the chain by January 1997. Meanwhile OfficeMax launched related ventures beginning in 1994, including FurnitureMax, a chain of discount office furniture stores, and CopyMax, a chain of copy-service centers. Both of the new store concepts were designed to be connected to existing OfficeMax stores and to serve as addon profit centers. The company also initiated a computer service called OfficeMax Online, which was designed to enable customers to purchase OfficeMax products online from their home or office computers. OfficeMax expected to post sales of about $2.5 billion for the fiscal year ending January 31, 1996.

Principal Subsidiaries

Bizmart, Inc.

Principal Operating Units

FurnitureMax; CopyMax; OfficeMax Online.

Further Reading

Baird, Kristen, OfficeMax Plan May Supply 900 More Local Jobs, Crains Cleveland Business, July 31, 1995, p. 1.

Brandt, John R., and Michael Feuer, Taking It to the MAX: How Did Michael Feuer Take a Start-up Company to $1.5 Billion in Revenue in Just Five Years?, Corporate Cleveland, September 1993, p. 16.

Harrison, Kimberly P., OfficeMax to Launch New Unit: Company to Test Concept of Furniture Showroom, Crains Cleveland Business, November 14, 1994, p. 1.

Howes, Daniel, Kmart Plans to Sell Rest of Stake in OfficeMax, Detroit News, June 27, 1995, p. E1.

King, Angela G., OfficeMax Stock Shines for Openers, Detroit News, November 3, 1994. p. E1.

Nottingham, Nancy, Office Superstore Opens Today on West End, Billings (Montana) Gazette, June 15. 1995, p. D5.

Russell, John M., OfficeMax Breaks Loose, Small Business News-Cleveland, September 1994, p. 16.

Shingler, Dan, Hurwitz Trading Paper for Pillows, Crains Cleveland Business, April 11, 1994, p. 1.

Thompson, Chris, OfficeMax Sees Profits Stack Up for Pending IPO, Crains Cleveland Business, September 12, 1994, p. 3.

Dave Mote

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OfficeMax Inc.

OfficeMax Inc.

150 East Pierce Road
Itasca, Illinois 61043
USA
Telephone: (630) 438-7800
Fax: (800) 572-6473
Web site: www.officemax.com

WHAT'S YOUR THING? CAMPAIGN

OVERVIEW

OfficeMax Inc., the third largest chain in the office supplies superstore category, faced the difficult task of differentiating itself from larger rivals Staples, Inc., and Office Depot, Inc. In late 2003 OfficeMax and its new advertising agency, DDB Chicago, launched the "What's Your Thing?" campaign to help mold a distinct image.

The campaign was mostly driven by television spots. One of the three spots in the initial phase featured an Afro-sporting African-American, the Rubberband Man, who delivered supplies from a souped-up pushcart to his office colleagues while dancing to the Spinners' 1970s hit song "The Rubberband Man." The character became a hit with consumers and led to a back-to-school television spot, as well as a commercial that parodied a vintage stop-motion holiday special. More Rubberband Man spots followed in 2005.

The first Rubberband Man spot won an Emmy Award nomination, and all of the spots featuring the character were repeatedly downloaded from the OfficeMax website. Sales improved dramatically, and the company was so convinced that the Rubberband Man provided the point of difference it was looking for that it built its marketing around the popular character.

HISTORICAL CONTEXT

In 1986 three office supplies superstores were launched in different corners of the United States: Staples in Massachusetts, Office Depot in Florida, and Office Club in California. Two years later another chain, called OfficeMax, Inc., was established (in Cleveland, Ohio). Along with Staples and Office Depot, OfficeMax became one of the fastest growing companies in the rapidly consolidating office supplies category that had been revolutionized by the superstore concept. By virtue of their size these retailers could leverage their buying power and eliminate traditional middlemen in the industry to offer small businesses and general consumers a wide variety of items at lower prices. Although it started late, OfficeMax emerged as the second largest player (trailing Office Depot) by 1995. At that point OfficeMax was larger than Staples. In the second half of the 1990s, Staples surged, however, taking over the top spot, leaving OfficeMax as the third largest office supplies chain.

At the start of the 2000s OfficeMax was challenged on a number of fronts. As the U.S. economy lapsed into recession, sales sagged, leading to losses and the closing of stores. OfficeMax also faced an image problem. The company's vice president of marketing, Scott Williams, told Suzanne Vranica of the Wall Street Journal in an August 2004 interview, "We found customers had difficulty in differentiating the office supply brands. They saw similarities between colors and the name. They didn't see differences in messaging. There was a lot of confusion with the brands … We wanted to break out. There was a lot of awareness, but we wanted to make sure OfficeMax was known for a unique and different experience." The pressure to hone the OfficeMax identity was further intensified after the Boise Cascade Corp. agreed to pay $1.3 billion for the chain in a deal that closed in December 2003. At the end of the month, the company and its new advertising agency, DDB Chicago, unveiled the "What's Your Thing?" campaign to address the image problem.

TARGET MARKET

The target market shifted as the "What's Your Thing?" campaign evolved. Initially the audience was the small business customer, which back in the 1980s had made the office supplies superstore concept viable. Many major corporations at that time had slashed their workforces, and a rising number of small businesses emerged to take up the slack in the economy. The distribution of office supplies was controlled by six major wholesalers, which then sold the goods to office supply dealers and stationery stores. In turn the dealers supplied large corporations and the stationers sold to small businesses and individuals. Superstores were able to eliminate these middlemen and offer much lower prices than the stationers could. As a result small business customers became a mainstay for OfficeMax. With the rise of home computers and home offices, the number of individuals buying paper, ink and toner, and other supplies also increased. After the initial phase of the "What's Your Thing?" campaign was completed, and the Rubberband Man character had connected with the general public, OfficeMax focused on these individuals. It launched a back-to-school campaign targeting parents and teachers shopping for school supplies. This mass market was next targeted in a holiday campaign that positioned OfficeMax as a place to buy gifts.

COMPETITION

When OfficeMax appealed to a wider market in its back-to-school push and holiday gift-buying pitch, it encountered competition from the likes of Wal-Mart and other retailers, but at its core the company's competition was Staples and Office Depot, both larger in size. According to an analysis conducted by Credit Suisse First Boston, Staples led the way in sales, posting $7.8 billion in 2003, followed by Office Depot's $5.7 billion, and OfficeMax's $4.7 billion. OfficeMax also trailed its larger rivals in the amount of money it could spend on advertising. In terms of measured media, in 2003, according to TNS Media Intelligences/CMR, Office Depot outspent Staples $89 million to $73 million, while OfficeMax spent $49 million. Other competition in the office supplies arena were mom-and-pop stationers and retailers that carried offices suppliesmdash; Wal-Mart, drugstore chains, and larger supermarkets. There were also warehouse clubs like Sam's Club and Costco to contend with, as well as companies that sold by catalog or online, such as Quill Corp., which operated as an independent Staples subsidiary.

MARKETING STRATEGY

The initial three television spots developed for the "What's Your Thing?" campaign tried to spice up the office supplies category, the advertising for which was not known for its creativity. OfficeMax commercials in the past had shown people shopping for a single product in a store setting. "Ads in stores set up certain limits to what you can do creatively," Tom Russell, director of marketing for OfficeMax, told Theresa Howard of USA Today. "People know OfficeMax has stores. We said, 'Let's get out of the store.' That opens up a world of possibility for you." And while the category might be mundane, Russell also noted that the marketers learned that consumers were actually passionate about office supplies: "We found whether it's a notebook, pen, highlighter or organizing system, they have to have a certain one."

In one of the new offbeat television spots, two office friends plotted to get out of work by faking an illness. They colored their faces with highlighters to affect a sickly hue, which worked well for the one who chose yellow but aroused the suspicion of the boss for the one using pink. A second spot featured a pair of mountain climbers in a fight over who forgot to bring the food. A candid still photograph of the tussle made it seem as if they were actually helping each other up. The picture then appeared as part of a poster positioned behind a motivational speaker rallying a group of employees.

INSPIRATION CLOSE TO HOME

The popular Rubberband Man character in the OfficeMax television spots was conceived by DDB Chicago creative director Don Pogany. He didn't have to look far for inspiration; he modeled the character after the ad agency's service center coordinator.

It was the third commercial, called "Rubberband Man," that caught the attention of the public and overshadowed the other two spots. The Rubberband Man character, a lanky African-American with a large Afro hairstyle, was identified by a large spinning disco ball of multicolored rubber bands on his pushcart, which itself was replete with fat tires and side mirrors. He danced and grooved and thoroughly enjoyed his job dispensing office supplies to his coworkers while in the background played "The Rubberband Man," the 1976 hit song by the Spinners.

The song was selected first, and then the creative team held a Los Angeles casting call and auditioned about 100 people of all types, both whites and African-Americans, goofballs and hipsters. One actor stood out—Eddie Steeples, a 30-year-old actor who had never done a commercial and only auditioned at the urging of a friend. "He had the right combination of looks and maneuvers, and the key thing for us was he grasped how varied the character could be," DDB's creative director, Don Pogany, told Mae Anderson, writing for Adweek. "The random items in the cart, he was thinking about each and every one. The other guys were a bit more superficial with it." Steeples described his character to Anderson as "kind of a happy guy going along, doing his thing. In my eyes, he's sharper than most people, especially more than most people give him credit for being. At the same time, he makes everybody happy." In the commercial the character was seen issuing supplies even before people realized they needed them. For example, a new desk chair was slipped under an employee to replace a broken one, and a woman with a messy office received a new desk organizer.

The upbeat "Rubberband Man" spot with its catchy feel-good tune first aired shortly after Christmas 2003. Soon the OfficeMax website began receiving E-mails from people raving about the commercial. The company made the spot available on its website, and within two days it was downloaded 15,000 times. The marketers realized that the Rubberband Man had touched a chord with consumers and began making plans to exploit the character and center the marketing around him. A website was developed for him, offering outtakes from the TV spot and downloadable images. In-store signs featuring the Rubberband Man were designed, and he would also play a prominent role in catalogs and direct marketing. In June 2004 the Rubberband Man was featured in three half-page ads in the issue of Rolling Stone that celebrated the 50th anniversary of rock and roll. Moreover OfficeMax received a great deal of free publicity, as the spot was parodied on the Tonight Show, and Katie Couric and Matt Lauer of the Today show raved about it.

The follow-up to the original "Rubberband Man" spot was a back-to-school effort called "The Party's Over," which began airing in July 2004. The 60-second spot showed the Rubberband Man out of the office, merrily delivering school supplies from his pushcart to children (who were less than enthusiastic about going back to school) at summertime venues, like a beach and a ballpark. This spot continued to use the "What's Your Thing?" tag.

The creative team then began brainstorming about a Rubberband Man ad for the upcoming holiday season. They recalled the stop-motion holiday specials they watched as children and decided to turn the Rubberband Man into a clay figure in a spot with the style and look of an old stop-motion show. Since the character, like Santa, enjoyed giving out things, he was in his element giving out the kind of items OfficeMax sold that were suitable as gifts, such as a glue stick to keep Santa's beard in place, a new paper cutter to carve a roast, and a stepladder to help a short man kiss a woman beneath some mistletoe. Steeples, although not appearing in person, was filmed as part of the animation process.

The "What's Your Thing?" campaign and its star continued to flourish in 2005. A pair of Rubberband Man ads called "Lost" and "Found" were developed. The first promoted OfficeMax color ink and toner supplies as the character plastered an office with flyers and handed out other copies, announcing that his brightly colored ball of rubber bands was missing. The "Rubberband Man" song, minus the lyrics, played in the background. The "Found" spot opened with more somber music as the character glumly made his rounds, dumping products haphazardly. A "found" poster then caught his eye. After being reunited with his ball, the Rubberband Man was once again strutting down the hallway as the Spinners' song kicked in.

SEXY IS AS SEXY DOES

Actor Eddie Steeples, who had never done a commercial and rarely worked before landing the part as the Rubberband Man, became something of a minor celebrity. His rise to prominence culminated in him being named one of People magazine's Sexiest Men of 2004. "It's very flattering," he told Adweek. "At the same time, I just don't understand who decided that."

OUTCOME

The "What's Your Thing" campaign was a success on all levels. The Rubberband Man spots were highly popular and were downloaded repeatedly from the OfficeMax website, and the character helped to distinguish OfficeMax from Office Depot and Staples. Increasingly the company built its marketing around the Rubberband Man. Writing in Advertising Age, James B. Arndorfer noted, "Some question whether OfficeMax should pour marketing resources into a character that might be phased out after a couple years or so. Unlike some marketers who need to constantly change tactics to reach a changing customer base—brewers, athletic-wear marketers—OfficeMax is targeting a stable market." The strategy appeared to be working, as reflected by increasing sales for OfficeMax. In 2004 sales grew by more than 60 percent to $13.3 billion and net income soared to $173 million. While it was difficult to determine how much credit for the success was due to the advertising, there was no doubt that the campaign played a significant role. The Rubberband Man also reached iconic status, providing a boost for OfficeMax that money simply could not buy. Rather than avoid the spots, consumers actually sought out the Rubberband Man commercials. Although the campaign did not win any major advertising industry awards, the first Rubberband Man ad received a highly coveted nomination in the Emmy Award competition for commercials in 2004.

FURTHER READING

Anderson, Mae. "Rubberband Man' Makes OfficeMax Deliveries." Adweek, November 24, 2004.

――――――. "Supplies and Demand." Adweek, September 13, 2004, p. 30.

Arndorfer, James B. "Stretching into an Icon." Advertising Age, May 31, 2004, p. 3.

Baar, Aaron. "DDB, OfficeMax Bounce Back to School." Adweek, July 22, 2004.

Cardona, Mercedes M. "Taps McCann—Staples' Holiday Wish List: Humor." Advertising Age, July 19, 2004, p. 8.

Champagne, Christine. "Dr. Chel White Stretches to Create Rubberband Man." Shoot, December 17, 2004, p. 10.

Howard, Theresa. "OfficeMax Turns to Own Office Supply Guy for Inspiration." USA Today, May 10, 2004, p. 8B.

"Office Depot, Inc." International Directory of Company Histories, vol. 65. Farmington Hills, Michigan: St. James Press, 2004.

"OfficeMax, Inc." International Directory of Company Histories, vol. 43. Farmington Hills, Michigan: St. James Press, 2002.

"The Office Max Rubberband Man Appears in Stop-Motion Spot." Computer Graphics World, December 2, 2004.

"Staples, Inc." International Directory of Company Histories, vol. 55. Farmington Hills, Michigan: St. James Press, 2003.

Vranica, Suzanne. "'RubberBand Man' Breathes New Life into OfficeMax." Wall Street Journal, August 11, 2004.

                                              Ed Dinger

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Officemax, Inc.

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.




SOURCES OF INFORMATION

Bibliography

business rankings annual, 1997. detroit, mi: gale research, 1997.

darnay, arsen j., and gary alampi, eds. wholesale and retail trade usa. detroit, mi: gale research, 1995.

grant, tina. international directory of company histories, vol. 15. detroit, mi: st. james press, 1996.

johnson, jay l. "the ftc shuffle: two losers, one winner." discount advertiser, august 1997.

marcial, gene g. "officemax may be hunter—or—prey." business week, 25 november 1996.

motley, robert. "messy divorce; failed logistics contract between officemax inc. and ryder integrated logistics." american shipper, march 1998.

"the officemax 10-k405 form," 21 april 1998. available at http://www.sec.gov.

"the officemax def 14a form," 7 april 1998. available at http://www.sec.gov.

the officemax home page, 4 june 1998. available at http://www.officemax.com.

"officemax, inc." hoover's online, 16 july 1998. available at http://www.hoovers.com.


For an annual report:

on the internet at: http://www.officemax.comor write: office-max inc., 3605 warrensville center rd., cleveland, oh, 44122


For additional industry research:

investigate companies by their standard industrial classification codes, also known as sics. officemax's primary sics are:

2521 wood office furniture

2522 office furniture except wood

2678 stationery products

3571 electronic computers

3579 office machines, nec

5734 computer and software stores

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