Office Depot is planning to cut 13,100 employees and close an unspecified number of retail stores and distribution centers as it restructures its operations and doubles down on IT services, a business line the company has in recent years made inroads in.
The Boca Raton, Fla.-based company said Tuesday in a regulatory filing that it is currently examining its retail operation to see how many and which retail stores and distribution facilities it will close by the end of 2023.
The closures and the layoffs are expected to result in restructuring charges of up to around $543 million by the end of 2023, of which $194 million will result in cash expenditures, including $30 million for supply chain capital investments and $21 million for IT capital investments. The cash charges for the restructuring are expected to be funded from operations and cash on hand, the company said.
[Related: Office Depot’s Push To Emphasize B2B Over Retail Paying Off]
The company expects the restructuring to result in up to approximately $860 million in net savings by the end of 2023.
The reason for the restructuring, Office Depot said, was "to realign its operational focus to support its “business-to-business” solutions and IT services business units and improve costs."
Office Depot was not available to discuss the restructuring. However, in an statement emailed to CRN, the company reiterated key points from its SEC filing.
"Office Depot Inc. recently announced a restructuring plan to realign its operational focus to support its 'business-to-business' solutions and IT services business units and improve costs. Implementation of the restructuring plan is expected to be substantially completed by the end of 2023 and may potentially include retail store and distribution facility closures and headcount reductions," the company said.
The move to shift its focus from retail to services culminates a years-long move to become an IT solutions provider.
Office Depot in November unveiled a planned study around bringing its two B2B businesses–CompuCom and the Business Services Division–into a holding company, called the ODP Corp., similar to recent moves that Google and Xerox made, with a goal of improving flexibility and improving the alignment of its assets and channels.
This followed the announcement in August that B2B business, and not retail, is driving the company's growth.
Office Depot in 2017 acquired CompuCom, a major IT solution provider. That move started the company's shift from a retail-focused office supplies seller to an IT services focus.
During Office Depot's first fiscal quarter 2020 quarterly financial conference call, held May 6, CEO Gerry Smith said that his company was affected by the COVID-19 coronavirus pandemic, but the combination of its business and technology products combined with the technology support and expertise from CompuCom positioned it well to support the needs of a distributed workforce and virtual learning environments.
Despite the pandemic headwinds caused, however, Office Depot is accelerating its three-year strategic pivot to become a leading integrated B2B provider of business products and services, Smith said.
"I believe that this is happening for a number of reasons, most notably, the advantages related to our global sourcing and supply chain capabilities," he said. "And we are providing a much broader set of in-demand products and services to our customers and delivering them in a consistent manner."
Office Depot entered fiscal 2020 with good momentum in its B2B businesses, led by a steady pace of net-new BSD customer wins and new business at CompuCom, Smith said. That was tempered by the impact of the COVID-19 outbreak, which disrupted the business operations of several of customers, he said.
"These impacts combined with a number of school systems that were shut down for the school year have had a negative impact in our contract channel within our BSD division," he said. "We're working with our customers to support them during this transition, supporting their needs with our distribution capabilities and tech support and ready to support them as more of the country opens up and resumes normal operations."
The pandemic resulted in a number of customer delays at previously scheduled project work, Smith said.
That said, CompuCom provides critical technology support for many enterprises and their core competencies are built around supporting large distributed workforces," he said. "We think their unique capabilities positioned them very well to capture future growth in this environment.
CompuCom's technology support infrastructure and large field force is particularly suited to support distributed workforces, and its performance in the early stages of the pandemic has proven CompuCom's capability to quickly and efficiently support our customer needs, Smith said.
"CompuCom's focus on connecting people, technology, and the edge with a seamless experience, combined with a large field support team, uniquely positions them to support the growing needs of customers in this distributed work environment, creating more long term growth opportunities," he said.
Office Depot remains focused on its accelerated B2B pivot and strategic plan and on executing upon its board-approved holding company reorganization directive, Smith said.
"I believe our opportunities are evolving as we expand our value proposition to customers, sourcing and distributing a broader set of in-demand products and business support services," he said. "We are uniquely positioned to support our customers in this challenging environment, and our focus on evolving our B2B platform and executing our pivot remains resolute.