Office Depot To Close 9% of Its Stores

(Crystal Proenza is associate editor of Real Estate Florida.)

DELRAY BEACH, FL-Locally based Office Depot Inc. has announced that it will close 112 underperforming retail stores and six distribution facilities throughout North America over the next three months. The closings account for approximately 9% of its retail locations, with an additional 14 stores to close in 2009 as leases expire. The office furniture company will be left with 1,163 stores and 27 distribution facilities in North America. Approximately 2,200 jobs, or 4.5% of its workforce will be cut, according to Bloomberg News. The closings are expected to add $90 million to pre-tax earnings in 2009.

“Just like many companies, Office Depot is faced with conducting business in an extremely challenging economic environment so we need to be constantly reviewing our assets and store base,” Melissa Perlman, a spokesperson for Office Depot, tells GlobeSt.com. “The decision for the closings was part of a strategic review of underperforming stores or stores in locations that are no longer a strategic fit for the company.”

The closings will be located throughout North America with 45 in the Central US regions, 40 in the Northeast and Canada, 19 in the West and eight in the South. Each of the stores are approximately 20,000 square feet, according to Perlman.

New store openings for next year have also been cut in half to 20, which will facilitate a reduction in total company capital spending in 2009 to less than $200 million, according to Office Depot. The company has annual sales of nearly $15 billion in 42 countries, and employs approximately 50,000 associates, according to its website. Office Depot is also one of the world’s largest e-commerce retailers with an annual revenue of $4.9 billion in online sales.

“The announcement is not a surprise because consumers are frozen–they’re not spending,” says Stephen Nostrand, executive vice president with Collier Abood Wood-Fay in Miami. “We’re in a shrinking economy and it’s an extraordinarily difficult time. Companies are squeezing everything they can out of the orange and doing those things that prudent management would do to show shareholders they’re making adjustments based on economic conditions today.”

Nostrand says the list of national chains and brand names that are closing stores and distribution centers is, though staggering, a direct reflection of what’s going on with the economy. “Even high-net-worth individuals with huge amounts of discretionary income are frightened and are not buying or fixing up assets,” he says.

“Unfortunately, this type of announcement from a retailer will continue to show up in the near future,” says Greg Masin, retail broker with Cushman & Wakefield of Florida. “Retailers are under tremendous pressure, not just in their top line sales, but from Wall Street and the credit markets as well. Boards of directors need to take some action to offset declining same-store sales and cash positions. Store closings are one way to display that type of action.”

Even retailers that are perceived as relatively healthy will look to close stores, warns Masin. “They will take the opportunity to trim below average producers from their portfolio. More vacant storefronts are in store.