Why Office Depot Closes Stores While Amazon Grows
Expert Analysis of Good; Bad Retailing Systems Behind Good, Bad Experiences
Why is it that Office Depot (ODP) continues to close stores while Amazon (AMZN) continues to grow? The leaders of Office Depot told their investors, customers, and employees that the reason their business plan in 2014, 2015, and 2016 included declining revenues and 400 retail store closings (a/k/a "retail store portfolio optimization") is because of office digitization, stiff competition and shifting consumer preferences.
Perhaps the unspoken reason is that Office Depot is bad at the business of retailing. And since consumers have unlimited access to every retailer in the world, perhaps the "shift" in their "preference" is to spend their money with a company that does retailing better than Office Depot (a/k/a Amazon Business).
Attributing the decline of Office Depot to "bad retailing" might seem like a harsh generalization for a company that generates about $16 billion in revenue annually. And it may seem like a particularly harsh judgment because the excuses/reasons offered for Office Depot's downward spiral seem so plausible. But the fact that Office Depot hasn't kept pace with office digitization, stiff competition, and shifting consumer preferences seems to be proof enough, in and of itself, that Office Depot's leaders aren't very good - or at least very visionary - retailers.
I had an opportunity to have a firsthand experience with both a declining Office Depot and an expanding Amazon.com in the same week which provided a picture of the difference between "good" retailing and "bad" retailing in today's quickly shifting U.S. retail industry.
I recently placed an order online at OfficeDepot.com. I had to spend $50 to get free delivery, which normally would have sent me straight to my Amazon Prime login page. But HomeDepot.com was promising free next day delivery for my $50 purchase and I would have to pay for that same next-day delivery service with Amazon.
So Office Depot won that competition and I completed my order with them. My order, in fact, was delivered the next day and it was complete and correct.
A couple of days later I placed an order on Amazon.com for organic tea bags. As an Amazon Prime member, I was promised 2-day shipping, which, if taken literally, would have meant that my box of organic teabags would be delivered on a Sunday. It's not as if I had an organic tea emergency (and if I had, I could have taken a five-minute walk to the grocery store to remedy it). So it didn't bother me that the package would most likely be delivered on Monday. Sure enough, though, the package was delivered as promised on Sunday and my order was both correct and complete.
This seems to illustrate "good" retailing by both Office Depot and Amazon.com, right? Yes... except for one thing.
My Office Depot delivery included two boxes - one that contained the banker's boxes I had ordered, and one that contained nothing more than a packet of labels. That packet of labels was delivered in a box that was big enough to hold three cases of label packets and was stuffed with an obscene amount of packaging materials as if it was a collectible, delicate, hand-crafted, one-of-a-kind, irreplaceable hand-blown glass packet of labels.
For a packet of labels that could have been placed inside a 9X12 manila envelope (which Office Depot stocks and sells), I was shocked by the inefficiency and wastefulness of the packaging.
The Amazon.com box, on the other hand, contained exactly what I had ordered in one box that was exactly the size of the purchase, with no room for any packaging materials at all. And since they weren't collectible, delicate, hand-crafted, one-of-a-kind, irreplaceable hand-blown glass tea bags, there were no packaging materials needed to transport my ordered items.
The Difference Between Good Retailing and Bad Retailing Is Systemic
The reason why Amazon is growing while Office Depot is declining is not about one bad shipping incident. It's about the holistic retail system which supports the overall retail experience and the customers who use it.
From the beginning, founder Jeff Bezos has consciously worked to develop a retail system that masterfully blends cost-effective flawless execution with customer-centric products and services. Amazon is not one or the other. Amazon is consistently both. And when efficiencies and customer-centricity get out of balance, Amazon makes adjustments so that the Amazon retail experience continues to be equally good in both aspects, the sum total of which is really good-great-superior retailing.
Office Depot's ridiculously costly shipping execution is just symptomatic of "bad" retailing choices that are systemic. It's lack of company vision, lack of leadership focus, lack of communication, lack of employee engagement, lack of training, lack of quality assurance, lack of accountability, lack of supervision, lack of caring, or lack of all of the above plus more that allows $8 to be spent on shipping in order to deliver an $8.99 packet of labels.
Amazon's ongoing dominance in U.S. and global retailing is not about price, or unfair tax advantages, or the laziness of Internet shoppers. The reason why Amazon is beating out the largest and oldest retail chains in the U.S. is because Amazon's leaders have a clear vision of what an elevated retail experience can be and a compelling mission to create the vision. Amazon continues to develop and expand its retail experience with that vision and mission in mind. And after that elevated Amazon retail experience becomes a reality, the Amazon team focuses on how to elevate its own highest vision some more. It's an upward spiral of continuous retail improvement that doesn't create a downward spiral of revenue results.
This is what the leaders at Amazon are focused on while the leaders at some of the largest U.S. retail chains are focused on creating the balance between the right quarterly report numbers and the right set of excuses that will justify the numbers so that stock prices will continue to rise. That's a different kind of retailing mastery altogether.