Can OfficeMax/Depot Succeed?

Office Depot (ODP) and OfficeMax (OMX) are in merger talks. Finally! On Feb. 8, I tweeted (@shortideas) that nothing would make me happier than consolidation in the office-supply space to better compete with the leader, Staples (SPLS). Looks like I will get my wish.

The office-superstore format has been under pressure since 2002. Back in the golden age of office superstores, the industry generated sales per square foot close to $300. But with endless competition and store saturation, sales have crashed below $200. At that level, they might as well close down and turn the place into a dog park. Office Depot, for example, generates a depressing $183 per square foot. As sales per square foot headed south, margins disappeared. In this business, an operating margin greater than 10% is considered an achievement. And if that wasn't enough, business spending on office supplies has declined at a 2% annualized rate since 2000. Forty percent of office supply orders are less than $75, which means it's an ugly way to make a profit....160 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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