1. Specialty Retail
Leah Constan-Tatos

2. Specialty Retail - Industry Overview
Includes stores that sell stationery, school and office supplies
“Sub-industries” such as office stationery manufacturers and wholesalers provide goods to office supply stores in the U.S.
Schools, universities and households demand these resources
Products offered by this industry generally constitute normal goods
These stores can offer a wide range of other products too – from furniture to jewelry to automotive parts
Normal goods imply that as income increases so does demand. Expected weakness in consumer spending could imply negative growth in this industry. The use of internet services as an alternative means to delivering goods directly to the home also has an adverse impact on the specialty retail industry

3. Industry Financials Revenue $20.3bn Profit $811.3m Wages $2.3bn
Number of businesses involved 9,757
Historical growth is -3.2%
Expected growth is -0.4%

4. Industry Segmentation

5. Porter’s Five Forces Threat of Entry…..…………………………...Medium
Threat of Substitution………………………Medium
Bargaining Power of Buyers………………Medium
Bargaining Power of Suppliers……………Low
Industry Competition………….…………...Medium
Threat of new entrants – light barriers to entry but big competitors make it harder for small firms to gain market share
Threat of substitute products or services – competitors offer similar products
Bargaining power of customers (buyers) – although prices are typically non-negotiable buyers have a range of alternatives from which to purchase their goods
Bargaining power of suppliers – low due to large retail chains having a significant impact on suppliers’ revenue and profitability
Intensity of competitive rivalry – medium due to a number of large retailer competition – this makes it harder to gain majority market share; large rivals include Staples, Office Depot, and Amazon

6. Relationship between per capita disposable income and corporate profit
-Normal goods
-Per capita disposable income forecasted to increase in 2014 but a decrease in overall corporate profit is expected due to:
Increased competition from other stores – department stores, supercenters etc.
Recession which has an adverse impact on purchasing power
Highly concentrated industry – smaller players are merging to oppose the two dominant stores – Office Depot and Staples which currently host 76.8% market share. Larger stores are reducing store space to remain competitive – in order to avoid higher operating costs

7. Office Depot Overview
Second largest retailer of office supplies in the U.S. with 35.7% market share
Consists of three segments:
North American Retail(this is the only segment that is a part of the Specialty Retail Industry) – 42% revenue
North American Business Solutions -30% revenue
International Division – 28% revenue
North American retail-includes 1,112 stores in the United States and Canada;
North American business solutions - which represents the company's direct catalog, phone and online businesses;
International division-which is responsible for the firm's retail and direct sales in 57 countries across North America, Europe, Latin America and Asia. Only sales generated from the retail division in the United States are relevant to this industry.

8. Staples and Barnes and Noble are two of the many special retail companies registered under the S&P 500

9. Office Depot Valuation
Market Capitalization - $1.39B
Versus industry leader Amazon $2.384B
Beta
Beta coefficient > market (1), thus more volatility and risk is expected regarding returns
Market share decline forecasted to date with a drop of approximately 9% over the past five years due to reduction in household spending as a result of the recession

10. Office Depot Valuation Calculations
2012
2011
2010
EPAT
-40350
NEA
FCF  
EPAT – enterprise profit after tax shows the items associated with enterprise operations using the income statement
NEA – net enterprise assets shows the items associated with enterprise operations using the balance sheet
FCF – negative forecast of free cash flows

11. Office Depot Financials
2012
2011
2010
Net Earnings (Loss)
-77,111
95,694
-44,623
Comprehensive Income (Loss)
-58,916
66,423
-60,443
CF from Operating Activities
179,332
199,667
203,126
CF from Investing Activities
-29,727
-157,158
-191,520
CF from Financing Activities
-55,182
-98,576
-30,898

12. SWOT Analysis Strengths Opportunities
ODP hosts the second largest market share (approx. 36%)
Expansion into other markets/industries
ODP is multinational
Merging with Staples, its largest competitor
Weaknesses
Threats
Limited product scope/expansion
Increased use of the internet to purchase items
It is difficult to compensate for shifting consumer demand
Recession/economic turmoil
Positive factors – merging with Staples could enhance operational efficiency through lower costs and in terms of market cap, could oppose its largest competitor in the specialty retail industry – Amazon
Expansion into underdeveloped countries could help diversify its risk exposure to lower forecasted sales as internet accessibility may be more limited in those regions
Negative factors – limited product scope and expansion at higher prices could cause competitors to have a better hand on entrance into the industry
In the case of recession/turmoil consumers cut spending and this adversely impacts operations as people are less willing to spend money on transport and purchasing consumables that are not of extreme necessity

13. Websites Accessed
IBIS World
Bloomberg - Office Depot Form 10-K,
Yahoo Finance

14. S&P Capital IQ http://www. netadvantage. standardandpoors. com. proxy