Office Depot admits it hasn't been taking care of business when it comes to its retail store customers.
The big-box retail concept offering thousands of office-supply products was no longer working. "Our model was broken," said Kevin Peters, head of the retail division for Boca Raton, Fla.-based Office Depot.
So when Peters was given the job a year ago, he donned a baseball cap and became a "mystery shopper" in more than 70 Office Depot retail stores around the country. "I didn't tell anyone I was coming. It was important to experience the store the way our customers were experiencing it," he said.
"The experience was disappointing," Peters said in a recent interview.
Peters' mea culpa was a few days before Office Depot had a startling announcement: The company would restate its 2010 financials, due to a tax error. That restatement, which turned a $33 million profit into a $46 million loss, is likely to be among shareholder concerns at Office Depot's annual meeting Thursday in Boca Raton.
As restated, retail sales fell 2 percent for the fourth quarter compared with the same period in 2009. Office Depot has suffered the economic impact felt by small businesses and consumers during the recession. And Office Depot is not only competing with Staples, the market-share leader, and Of-ficeMax, but also discount retailers Walmart, Costco and Amazon.com.
On his retail store tour, Peters spent time in store parking lots to see how many customers walked away without bags. When he asked customers about it, he would get answers such as, "I don't get the help I need" and, "It's not easy to shop."
The experience led Peters to recommend an overhaul of Office Depot's retail stores that includes reducing the size of stores; shrinking the inventory to the best-selling products; emphasizing its technology, print and copy services; and hiring more full-time employees. Previously, Office Depot hired mostly part-time workers.
"We're talking to customers more today than we ever have been," Peters said. "We need our customers a lot more than they need us."
Time-stressed small-business owners represent 65 percent of Office Depot's customers. That has prompted the retail chain to reduce confusing signage and to train employees to escort customers directly to the item they're trying to find.
More technology vendors are being asked to spend time at the store, and employees are being trained to help customers choose laptops and printers and even learn software.
The small-store format is "a good strategy," said Joscelyn MacKay, analyst at Morning-star, adding, "It's nothing that Staples and OfficeMax aren't doing."
Peters said Office Depot's new retail business model is still taking shape. The company has 15 employees focusing solely on retail store changes and hired a consultant to lead them through the change process.
Office Depot says one result is it has eliminated most employee tasks not related to customer service. Delray Beach store manager Christine Boss said the new edict is, "We drop everything and help the customer."
Peters thinks the smaller store format is paying off and hopes to roll it out to about 100 stores a year as leases expire. Stores will range as small as Delray Beach's 5,000 square feet to 17,000 square feet.
Other changes, to improve the shopping experience, will be rolled out to as many as 300 stores by year's end, Peters said.