Office Depot Parent ODP To Split B2B From Retail Amid Slump In Sales

Office Depot

The parent company of retailer Office Depot said on Wednesday (May 5) that it is splitting its B2B unit from its chain of 1,100 physical stores to create two independent publicly traded businesses that can focus on their respective areas of expertise while also unlocking shareholder value.

The news comes as Sycamore Partners-backed Staples has been looking to buy Office Depot. An offer it made earlier this year was reportedly blocked by the ODP Corporation on antitrust concerns.

The spin-off announcement from ODP also comes as the Florida-based office supply retailer reported its first-quarter results, which showed sales declines in both businesses. Specifically, for the three months ending March 27, ODP said sales at its business solutions division fell 16 percent to $1.1 billion, while revenue in the retail division fell 10 percent to $1.0 billion.

In a statement, the company said the decline was the result of COVID-linked disruptions related to business and school closures, as well an 11 percent — or a 150-location — reduction in its store count, which currently stands at 1,146.

“We believe creating two focused, pure-play companies will unlock significant opportunities by improving our ability to meet the needs of our customers, while better matching assets and investment profiles of both companies to generate greater value for our shareholders,” ODP CEO Gerry Smith said in the company’s press statement.

Trajectories and Transformation

The move by ODP comes nearly four years after rival retailer Staples was taken private in 2017, in a $6.9 billion deal that marked an approximately 70 percent reduction from its valuation peak, along with sweeping store closures as part of the company’s belated effort to boost online sales.

Although Office Depot and the temporarily named “NewCo” B2B unit will both remain public companies, ODP explained that the move is aimed at maximizing strategic focus and financial flexibility while allowing for better alignment of the two companies’ respective marketing strategies.

“In addition, positioning their respective growth trajectories and shareholder-specific return profiles will achieve appropriate market valuations,” Smith said, adding that the separation will also allow both companies — and their 37,000 employees — to realize their full potential.”

Business vs. Consumer Split

With the split, the consumer-facing retail unit will operate the retail stores as well as the flagship website, while the B2B company will handle contract business, supply distribution and the newly formed digital platform technology business, BuyerQuest, which was just acquired in February.  The new B2B unit will also take on ODP’s sourcing, supply chain and logistics assets. In addition, the sale of the company’s small workplace IT service provider, CompuCom, will continue as planned.

As far as its digital transformation is concerned, ODO said the business division saw eCommerce sales rise 3 percent last quarter, accounting for 44 percent of revenue. The company did not break out the retail division’s digital sales metrics, but said the unit saw unspecified growth in sales per shopper, as well as a 35 percent increase in its buy online, pick up in-store (BOPIS) offering.

The ODP Corporation’s stock has doubled over the past year and is currently worth approximately $2.3 billion.