Office Depot Inc (ODP), OfficeMax Inc (OMX), Amazon.com, Inc. (AMZN): Shaking Up the Office Supply Space

The electronic commerce giant changes the dynamic in every sector that it enters, including online marketplaces, publishing, video streaming, and web hosting services.  Founded in 1995, Amazon.com, Inc.(NASDAQ:AMZN)’s mission is to provide the world’s greatest selection of merchandise at the lowest prices through easy to use websites.  Unfortunately for the office supply superstores, Amazon.com, Inc.(NASDAQ:AMZN)’s product mix increasingly includes office supplies.

In FY2012, the company continued to grow at a solid pace, with a 27.1% increase in total revenues.  Despite economic headwinds in various international markets, Amazon.com, Inc.(NASDAQ:AMZN)’s international segment grew 23% and came close to accounting for half of the company’s total sales.  However, Amazon.com, Inc.(NASDAQ:AMZN)’s operating income declined again due to the high technology and personnel costs of building leading positions in so many segments.

Amazon.com, Inc.(NASDAQ:AMZN)’s goal is fund investments that will create long-term, sustainable growth in its free cash flow.  For years, the company has foregone near-term operating profits in the hopes of creating an online business with massive scale and massive profitability.  While management’s investment activities have pushed Amazon’s operating profits into future years, investors believe the story and have bid the shares up over 200% in the past five years.

The OfficeMax Inc(NYSE:OMX)/Office Depot tie-up should improve the surviving competitors’ profitability, but it is unlikely to change the underlying sales trends.  While the office supply superstores previously offered unbeatable selections, online merchants now offer virtually unlimited merchandise.  The superstores likely need to continue downsizing their retail store bases and focus on their higher margin business and government distribution channels.  As for investors that want to play in the retail office supply space, they need to stick with the e-commerce king, Amazon.

The article Shaking Up the Office Supply Space originally appeared on Fool.com and is written by Robert Hanley.

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