Big Box Watch: Office store stock “uncertainty” on the rise

A recent article by Morningstar has listed their appraisal of OfficeMax stock to an uncertainty level of “extreme”. In a quote that I feel is only good news for online retailers and the end-user consumers, Morningstar said:

Office supply retailers have been disproportionately impacted by the current economic downturn as well as mounting competition from mass merchants and online retailers. In our view, an industry shakeout is inevitable, and it is unlikely that all three office supply superstore chains will survive in their current form.

And while they feel that Staples may be the best positioned to survive the economic storm, given their greater geographic reach and availability of online options over the other two big-box names, they went on to state:

…It is not immediately apparent whether OfficeMax or Office Depot (if either) is better-positioned to weather a severe economic downturn. Both firms carry heavy debt burdens on their balance sheets, and with few indications of an imminent pickup in office product sales, we expect free cash-flow generation to be increasingly difficult over the coming years.

I think this sort of uncertainty is definitely not a new concept, and is certainly being felt across the industry. The availability of quality online alternatives to big-box retailers has been chipping away at their stranglehold on the market for several years, and coupled with the downturn in the economy and stories of impropriety, consumer faith in the office megastore is at an all-time low.

To be fair, these businesses have no one to blame but themselves. They’re clinging to an outdated business model in a time where people are looking to move forward. Office supply sales is an old industry, but that doesn’t mean it needs to keep a death-grip on old ideas. Guess what, guys? Turns out if you provide good, lasting value to your customers, stock the inventory they want at a price that is reasonable and appealing, and deal with them in a friendly manner, your business ends up doing just fine. Who’d have guessed?

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