As Yogi Berra said, “It’s déjà vu all over again.”

Office Depot announced the $1 billion acquisition of CompuCom yesterday, which is a strong pivot into IT services for the 31-year-old retailer. The deal adds 11,500 employees — including 6,000 licensed technicians — and a database of millions of end clients to Office Depot’s 1,400 stores and roughly 38,000 employees.

Both organizations have been going through significant financial challenges. Office Depot is still adjusting from the failed takeover by Staples in 2016, lowering its 2017 outlook, and has shuttered more than 700 stores since 2014. CompuCom has struggled with falling revenues, multiple drops in credit rating, and four CEOs since 2014.

Big-box retailers have unsuccessfully tried to buy into IT services twice before. Staples acquired Thrive Networks on January 12, 2007, and dumped it on September 9, 2014, and Best Buy acquired mindSHIFT on November 7, 2011, and unloaded it on January 21, 2014. The scale of these acquisitions was much different as Thrive had 60 employees and mindSHIFT had 500 at time of acquisition. Even so, the promises of complementary services, omnichannel integration, and downstream recurring revenues from existing customers were never realized.

But Is The Third Time The Charm?


Office Depot is taking a different approach from Staples and Best Buy. This is a full company pivot into IT services as opposed to an ancillary revenue and margin play. Here is why it may just work:

  1. Office Depot has leadership with serious channel religion. In February 2017, Gerry Smith was appointed CEO. Gerry is widely recognized as one of the global leaders in technology supply chain and operations. With decades of technology industry background at Lenovo and Dell, he has built an impressive résumé working with suppliers that will benefit Office Depot and CompuCom. In July 2017, Janet Schijns joined and was recently promoted to chief merchant and services officer. She is one of the most visible and forward-thinking channel chiefs in the industry coming from Verizon and Motorola.
  2. Office Depot can scale in a highly decentralized, fragmented market. Office Depot reports that it is within a 3-mile radius of more than 6 million small and medium-size businesses (SMBs) in the US. With the addition of 6,000 licensed technicians and a new in-store business center strategy, this combination will be the most robust localized SMB force ever assembled. Think of a fusion between Geek Squad (Best Buy) and Genius Bar (Apple).
  3. Office Depot can build an omnichannel and supply chain. Winning in SMB is a numbers game. With 297 subindustries purchasing thousands of different kinds of software and hardware solutions, building an efficient order and delivery model is critical to succeeding in this market. Gerry Smith is a very strong leader in this area and, with the addition of the CompuCom service delivery capability, may just pull it off.
  4. Technology is the new battleground. Every business is transforming into a technology business. With disruption happening in every industry, SMBs are rapidly shifting into digital businesses to survive and are looking for localized partners that have specialized skills to take advantage of cloud, software-as-a-service, mobility, internet of things (IoT), data, and a host of other future technologies.
  5. This is not a managed services play. Both Staples and Best Buy bet on a future where SMBs outsource their IT to a services firm and pay them a recurring monthly bill. While CompuCom drives some revenue with this model, the majority of its business comes from more traditional procurement and project-based services. Office Depot can make this a choice for customers and drive a better customer experience in the process.
  6. Firms need new thinking to take on Amazon. With Amazon purchasing Whole Foods earlier in 2017, it obviously recognizes the value of localized physical retail. If Office Depot can get the business center concept right and motivate enough local influencers and connectors to draw their tribes into the environment, it will be an effective counter to frictionless eCommerce and quick delivery.
  7. Office Depot has clarified that this is only a first step. The Office Depot press release was very clear about this being a first step in its transformation to a technology services company. In fact, it mentions it three times above the fold. In addition to more investments in services capabilities, I expect some pure technology acquisitions in the future. Targets would include horizontal opportunities such as security, mobility, and IoT.

A combination of market breadth, depth, and proprietary intellectual capital could transform Office Depot into a powerhouse technology company with a unique omnichannel delivery model. Given the significant industry, structural, and financial headwinds, it will be interesting to watch.