(c) 2013, The Washington Post.
(c) 2013, The Washington Post.
Circa 1997, fewer than half of the country's states had a Costco, Amazon was an unproven retail wannabe, and if you wanted a box of sticky notes, thumbtacks or not-yet-obsolete floppy disks, the logical choices were three: Office Max, Office Depot or Staples.
In an era when shopping still meant going to a store, before warehouse outlets put the printer ink in the same spot as the beer and bulk underwear, the three companies had such a presence in the office supply market that the Federal Trade Commission blocked Office Depot and Staples from merging for fear of the potential monopoly impact on prices.
Faced now with a similar deal between Office Max and Office Depot, however, the agency has an answer updated for the 21st century: Who cares?
Between the takeoff in online retailing and the expansion of supply and furniture offerings from such companies as Wal-Mart and Costco, the "office supply superstores" are battling to hold on, the FTC said Friday in a decision clearing the way for Office Depot's proposed billion-dollar purchase of Office Max.
In a news release, the commission said that "the current competitive dynamics are very different" than when the deal between Office Depot and Staples was blocked through a high-profile court action that spoke to the prime position that "big box" retailers held at the time. "Fewer consumers today shop [office supply superstores] as a destination."
The two companies announced the merger earlier this year and expect it to close next week, creating a combined company that will have annual sales of about $17 billion — and be in a stronger position to navigate the competition from the larger Staples, online sellers like Amazon and the Wal-Marts and Costcos of the world.
The companies have not announced details about possible store closures or other changes.
It's been a central theme in the past decade or so of U.S. retailing, with such companies as Sears — a mail-order innovator during America's westward expansion in the 19th century — struggling to retain a toehold and once-familiar chains like Circuit City and Borders now gone altogether.
The office supply market, according to the FTC decision, has been upended not just by the major Internet shopping sites but also by companies that have brought a new spin to brick-and-mortar shopping, such as Costco, and by smaller firms that have stitched together competitive regional businesses. East Coast-based W.B. Mason, which is active in the Washington region, was cited among the smaller upstarts that the FTC said "are growing in number and strength" and have been particularly adept at landing contracts to provide office supplies to large companies.
The big-box approach that Office Depot, Office Max and Staples exemplified was, in its heyday, a disruptive force of its own — not only driving smaller, less-efficient competitors out of business but literally reshaping the landscape of suburban areas where retail development was oriented around such stores.
Their market hold, according to court documents from the 1997 case against the Office Depot-Staples merger, wasn't a matter of outright dominance. Using the broadest definition of the office supply market, a combined Office Depot-Staples company would have captured less than 6 percent of it. But in the areas where their presence was concentrated, they had pricing power — and influence over each other.
FTC studies from the day, for example, found that prices at Staples could be as much as 13 percent higher in markets where it did not face competition from Office Depot or Office Max. It didn't matter, the FTC found, whether another general retailer like Wal-Mart offered the same products. The three office giants seemed to only pay attention to and compete with one another.
The flaw in that logic surfaced in the recession, when retail sales of all sorts took a plunge and companies and consumers went into retreat. To the extent that consumer spending has recovered, it has not been at those once-dominant chains. Total sales at each of the three have been flat or falling for the past three years.
As the commission said in its 4 to 0 decision to allow the merger to proceed, "yesterday's market dynamics may be very different from the market dynamics of today."