OfficeMax And Office Depot Can Do Better Than Each Other

Feb.19.13 | About: OfficeMax Incorporated (OMX)

Office Depot (NASDAQ:ODP) and OfficeMax (NYSE:OMX) appear to be headed to the alter in a match that will only make a few of the selling company's shareholders happy.

Both can do better.

The problem, as is the case with their larger rival Staples (NASDAQ:SPLS), is that the niche they serve is circling the drain. Thanks to devices and the cloud, we're not using as much paper as before. We're not using as many pens, either, or as many staples. Industries that had previously been the big drivers of office supply demand -- like the law and medicine -- are finally converting to the use of computers. And what computers -- not the old clunky PCs of yesterday, which cost about $1,000, including software, and required constant maintenance until they were eventually replaced. Devices like the iPad cost just $500 -- and oftentimes less -- they're updated centrally, and they're designed for wireless access to clouds of infinite capacity.

None of this is news, but you would certainly think it was if you walked through the aisles of any of these "office supercenters." What they're selling, companies don't need.

What do offices need? They need logistics. They need services. They need the kinds of things companies like FedEx (NYSE:FDX) and UPS (NYSE:UPS) supply. They need the kinds of services that Square provides. They need what Google (NASDAQ:GOOG) provides. We keep hearing reports that Google is thinking about building retail stores. It could pick up either of these store networks for sofa cushion money and be up and operating within months, just as FDX was when it bought Kinko's and UPS when it bought Mail Boxes Etc.

An ODP/OMX deal is one of those 1+1=1 deals, and if you add Staples to the mix it's 1+1+1=2. It's not providing lasting value.

Think again. If you have one of these dogs, you have a great shot at getting out with your shirt on.

Disclosure: I am long GOOG. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.