Office Depot and OfficeMax are being “collated” in a merger of office supply giants that will leave the combined chain a commanding share of the Buffalo Niagara market.
The retailers said Wednesday they have agreed to combine in an all-stock deal worth about $1.2 billion that would transform the office supply retail sector by helping the second- and third-largest chains compete as one against industry behemoth Staples, which does not have any stores in the region.
The region has three Office Depot and nine OfficeMax locations, and all three Office Depot locations are within a mile of OfficeMax stores, which could mean store closings because of the merger.
The merger would also leave the region with only one big-box office supply chain.
But Arun Jain, a retail expert at the University at Buffalo School of Management, said it won’t create a monopoly. He said the combined chain will still have to compete with the likes of Amazon.com, Walmart, supermarkets and drugstore chains that also sell office and school supplies, computers and other goods at competitive prices.
“I don’t see a monopoly; you can find the same items almost anywhere,” he said.
Although the area’s two big-box office supply stores will merge, it won’t have a negative impact on consumers, some retail experts believe.
In fact, the merger of OfficeMax and Office Depot could lead to better deals for residential and commercial consumers, experts said.
The merger will combine and increase the two national chains’ procurement power, allowing it to lower prices and compete with the larger Staples.com, where many local businesses buy supplies, said Burt P. Flickinger III, managing director of Strategic Resource Group in New York City.
Flickinger said the merger could mean a savings of 2.5 to 5 percent for consumers.
“It’s a really big benefit to the greater Buffalo market to see two chains that have been struggling the past decade combine to create a strong financial foundation and to give both businesses significant size and scale,” he said.
“It’s going to be a big benefit for consumers and small businesses, in addition to larger corporations.”
If anything, the merger would allow the new chain to cut operating costs by closing stores, which could lead to lower prices for consumers.
The merger marks the first move toward consolidation in an industry that is bloated with stores.
It reflects the changing retail landscape as big-box stores have become outmoded and more people are shopping online.
“This combination will create a stronger, more global, efficient competitor able to meet the growing challenges of our rapidly changing industry,” OfficeMax CEO Ravi Saligram said in a call with analysts.
Still, doubts remain about whether the combination is enough to offset growing competition and a changing retail landscape.
Liang Feng, a Morningstar analyst, said the companies will face a lot of obstacles.
“The industry will face longer-term structural head winds, with competitors like Amazon and Costco gaining ground and the decline in demand for secular office products like paper, pens and ink,” he said.
Office Depot and OfficeMax, along with bigger rival Staples, were all founded in the 1980s and helped pioneer the big-box boom in the 1990s.
They expanded rapidly nationwide throughout the decade.
But the rise in competition from web retailers such as Amazon.com and discounters such as Costco and Walmart has been tough on the sector, leading to decreased sales.
In addition, office suppliers were slow to bounce back from the recession, as consumers and small businesses alike cut back on ordering office products.
Over the years, the companies have closed stores, slashed costs and streamlined operations to offset stagnant sales. But the industry was still seen as too bulky.
OfficeMax said the move is expected to result in $400 million to $600 million in annual cost savings by the third year of the deal. The combined company expects $350 million to $450 million in one-time costs related to the integration.
The deal, which is expected to be complete by the end of the year, still has to go through shareholder and regulatory approvals, and office supply mergers have been questioned by regulators in the past.
In 1997, Staples tried to buy Office Depot, but the deal was rejected by the Federal Trade Commission due to concerns about a possible unfair competitive advantage.
But Saligram said the industry has changed so much since 1997 that the companies have a strong case for approval this time. Amazon was “embryonic” in 1997, he said, and there wasn’t as many major competitors.
“It's a totally different landscape,” he said.
The Associated Press contributed to this report.