A couple of decades ago, upon commencing a week-long data review with a sister publication, the magazine’s highly esteemed executive editor entered the project’s data room with an enormous grin.  When asked why the obvious glee, he answered that he had received advanced word that a top retailer which he had covered for years, was about to close down operations.  Why the grin?  He responded that he now had a rich source of stories to write which should keep him very busy for the next six months.

The natural response to this was to question the value of losing a major source of fare beyond that half year.  Upon hearing this, the editor’s grin was immediately gone.  Then comments were tossed around as to the loss of jobs, competition and the effects on national and local economies.  Suddenly happiness turned into a pre wake-like gloom.

Now we learn that Staples has entered into an agreement to acquire Office Depot, in a deal valued at $6.3 billion in cash and stock.  Apparently discussions for this acquisition began last September.  Thus, these negotiations commenced less than one year after Office Depot’s mega-acquisition of OfficeMax became official.

During the time between the announcement of the Depot/Max merger and its official closing, it was generally anticipated that this would be a deal to end the ills of these two specialty retail market giants.  In fact, since the actual closing in November 2013, there has been relatively little time to allow the expected benefits of the acquisition to totally unfold.  During the time leading up to completion of the deal, it was widely anticipated that it would require at least three years before all adjustments necessitated by combining the assets of two giant retailers could be completed and measured.

Post-merger real estate dealings alone required the newly emerging company to make judgments as to market saturation and intra-market store redundancies.  A vital part of this process is anticipating termination dates of key store leases and using time to determine individual store viabilities.  The resulting merged company continues to strongly advertise both Office Depot and OfficeMax in single promotions, even in child friendly themes such as back to school and the all-important end-of-year holiday season.  Why then another acquisition/merger now?

Should the proposed Staples deal go through, which retailers would likely then provide the steepest competition for the emerging giant?  At first glance that would likely be Amazon and Walmart on a national level.  On local and regional levels, non-traditional market players would likely play up their offerings within their respective communities.

Of course, these include general merchandisers such as discount big boxes, which already feature retail space and web designs capable of accommodating additional product.  While dollar stores will not get into office equipment or furniture, they are masters at adjusting local store’s abilities to compete through product-mix adjustments and additions.  They already attract price conscious businesses, and who isn’t price conscious these days?  Competitive product pricing has generally been viewed as a weakness of these top office product retailers.  In fact losing to competitors on general pricing perceptions is likely a major factor behind the need for these well-financed retail giants to merge and eliminate intra-market competition.

As far as specialty retailing goes, retailers representing other focused industries already have made significant inroads into this market.  Western-based Fry’s Electronics, whose truly big box store imprints well-exceed 100,000 sq. ft.  has long featured wide aisles full of office products and has the space to significantly increase its offerings as individual markets change.  Fry’s office products lineup includes cash registers and electronic time and attendance systems alongside office furniture and reams of paper products.

Currently there is a bit of a competitive lull among specialty consumer electronics retailers.  Chains such as Best Buy and hhgregg have actively been seeking new product lines while substantially altering product mixes to meet the challenges of a rapidly changing consumer electronics industry, as new-age products rapidly become outmoded.  Product lines such as CDs, DVDs, desktop computers and compact digital cameras have been on the decline for some time, as technologies rapidly advance.

Years ago office supply retailers increased sales by competing with consumer electronics retailers on computer and camera type offerings. Now it seems equally opportunistic for CE retailers to reverse that trend.  Thus the new Staples/Office Depot/OfficeMax may face competition on more fronts than ever, as their consolidation weeds out many of their own locations, deemed as weak or redundant.

Home Depot, with its boldly expanding distribution platform combined with a greatly enhanced and growing web presence, promises to offer products never before associated with the company.  Home Depot already offers a significant selection of office furniture, machines and a relatively rudimentary selection of office supplies.

Depot was one of the first retailers to enter the 3-D printer competition, shortly after Staples became the first major retailer to test out selling this new age product.  With the Home Depot’s advertising resources and buying power, combined with its aggressive new outlook on offering nontraditional product lines, they could eventually be seen as a Home ‘Office’ Depot, with a potentially enormous, ancillary niche market.

That a Staples/Depot/Max deal may so soon follow the Depot/Max acquisition, it makes one wonder if there is still a genuine need for this type of specialty retailer.  The current and potential competition is considerable and likely to grow in strength and numbers.  In that regard, it is expected that the FTC will closely examine the many trade issues which such a deal strongly suggests.

Some expect that the acquisition may well be blocked.  However, in the early days after the announcement, there has been relatively little mention of this from the parties involved or even the press, especially considering the contentious arguments surrounding the Family Dollar/Dollar Tree/Dollar General negotiations. Of course, the dollar store market has been one of the best recent growth retail segments, expanding aggressively even during the recession.  That there is less initial concern involving possible FCC action regarding the Staple’s acquisition may indicate the current dysfunctional state of this market.

As noted in several previous CSG Insights, the current wisdom at these office supply giants seems to be leading toward converting to smaller, more compact locations while relying on web-based, in-store kiosks to increase product offerings.  The problem here is that the web doesn’t induce product browsing, and valuable impulse purchases, as a well-stocked store does.  Similarly, incremental purchases likely suffer as well.  If big box CE stores and discounters explore more of this market, whatever remains of a Staples acquisition could be even more negatively impacted by the resulting competition.