Store of the Future: Intuitive by Design

M2 helps push Office Depot into new territories.

Office Depot, the second leading chain of office supply stores, operates more than 1,000 company-owned and licensed stores worldwide. It also operates through its catalog and call centers, Internet site and a contract sales force. In addition to typical office supplies, its stores offer computer hardware and software, furniture, art and school supplies, and printing and copying services. The stores sell to both consumers and small and medium-sized businesses.

Office Depot Chairman and CEO Bruce Nelson wanted to reinvent the retail model by creating a store that is less expensive to open, more efficient to operate and easier to shop. He formed a cross-functional task force and the result was the M2 store concept."M2 is intuitive, logical and designed specifically for the way people make purchase decisions," Nelson says.

Revamping Processes
To ready the M2 concept for introduction, Rick Lepley, executive vice president of North American retail for Office Depot, teamed with Chuck Rubin, executive vice president and CMO, and Patty Morrison, executive vice president and CIO. Together, the store operations unit, marketing and merchandising organizations, and IT group, set forth to completely revamp existing processes and ways of doing business.

"We looked at M2 as a rare opportunity to begin with a clean slate," Rubin says, in noting that almost every aspect of the retail environment was scrutinized, analyzed and dissected. "The result is a series of innovations that make M2 unlike any other format in the retail industry."

As an example, Lepley points to the highly visible, strategically located pods, with core supplies at the outer perimeter of the store and furniture and technology at the center to better support consultative sales. According to Lepley, the extensive research conducted for M2 indicated that customers want two specific things when shopping at an office supply superstore.

"For basic supplies, they want convenience, including help in getting oriented, the ability to find everything on a shopping list and fast checkout. For technology and furniture, they want information and advice, including assistance and support from knowledgeable staff and the ability to touch and try out various product options."

Quick Benefits
The M2 format stores will open using Retek solutions already in place at Office Depot including merchandising, data warehousing, demand forecasting, inventory planning and optimization, price management and assortment solutions. Office Depot also has an agreement with Sun Microsystems for a network computing system that reduces costs and standardizes business systems on Sun solutions.

Despite having many systems to implement, IT setup costs are expected to be reduced by 40 percent with virtually no reduction in functionality, and annual IT maintenance costs are expected to be reduced by 45 percent.

Lepley notes that the initial feedback from customers has exceeded expectations: "Our tracking shows higher overall satisfaction scores, easier product selection, faster checkouts and improved service levels — all areas that we believe will lead to increased traffic, a larger market basket and broader attachment rates across multiple categories."

According to Lepley, the development of the M2 format plays a central role in addressing the company's primary corporate strategy: realigning its North American real estate portfolio. Lepley also identified several retail initiatives that are designed to achieve this objective: increase the number and speed of new store openings; remodel older stores to accelerate comparative growth; and utilize the Kids R Us sites purchased from Toys R Us to enter new markets.
"We are also committed to remodeling a good portion of our retail base over the next few years," Lepley adds, "because Office Depot has the oldest stores in the industry, with an average age greater than eight years, and studies have proven that newer stores drive sales and comp better."

Cost Savings
Other advantages Office Depot sees in the new format include significant cost savings. The new store build-out costs are less expensive, and remodel costs are in the range of $250,000 to $300,000 as opposed to the $350,000 to $400,000 typically associated with Office Depot remodels.

On average, M2 remodels will have a lower incremental sales hurdle and M2 offers a broader roll-out opportunity for the portfolio of Office Depot stores. The modularity of the new store format is expected to dramatically reduce the number of unique planograms as well as overall store planning complexity.

"Most importantly, we will leverage the M2 format along with our recent purchase of Kids 'R' Us locations to give us immediate access to large areas of the country in which we do not currently have a strong retail concentration, such as Massachusetts, New York, New Jersey and Pennsylvania, as well as enhance Office Depot's presence in existing core markets," Lepley adds.

The first store opening with the new format is in Venice, Florida. More M2 format stores are expected to open in the Northeast.
"The Northeast is the country's least saturated market for office supply superstores," notes Lepley in explaining the decision to expand in an area in which, historically, the company has had a limited presence. "To successfully enter the market, we felt a differentiated and lower-cost retail model was required — and that's where M2 comes in."

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