In its second-largest acquisition, Amazon buys the company for $970 million.
Office Depot Inc. is opening a store at Amazon.com hoping to sell office supplies to individual buyers of office supplies, a market estimated at $90 billion a year. Office Depot already has a successful web strategy that sells $2 billion in goods over a string of international sites.
The first deal Amazon.com Inc. made to host a retailer’s online store was for a merchant who clearly had been unable to figure out how to sell on the web. In the waning days of the dot-com frenzy in 2000, Amazon agreed to host the Toys R Us Inc. web site. Battered by the online toy sellers who weren’t afraid to pour money into building a national e-brand, Toys R Us decided it was the better part of valor to turn its web operations over to Amazon.
The latest retailer to turn to Amazon is just the opposite: It has one of the most successful web strategies in retailing and clearly knows how to use the Internet to serve a multi-channel customer. Office Depot Inc. in September launched an office products store at Amazon. It goal: Tap into Amazon’s 30 million customers to get individuals, as opposed to businesses, to buy office supplies at Office Depot. Individuals spend $90 billion a year on such purchases.
Tapping a destination site
“There is upside opportunity for us to introduce Office Depot to the Amazon market,” says Monica Luechtefeld, executive vice president for e-commerce of Delray Beach, Fla.-based Office Depot, which will do $2 billion in sales at OfficeDepot.com this year. “Personal shoppers may think of going to an office products site a few times a year. But Amazon is a destination site and people use it multiple times in a week or a month and so the Amazon traffic is of interest to us.”
Amazon will provide the store space at Amazon.com and handle all web interactions with the customer and process the payment. Office Depot will fulfill all orders from its 24 distribution centers and handle all product-related customer service, including returns. Office Depot will pay a commission on sales to Amazon. By the end of this month, Office Depot expects to offer Amazon customers the option to pick up the most popular items at Office Depot’s 820 stores, as OfficeDepot.com shoppers can do now.
The two companies hope eventually to make the arrangement reciprocal-not only will Office Depot products be available at Amazon.com, but Amazon business books and software will be promoted at OfficeDepot.com.
Office Depot and Amazon will promote the office products stores using Amazon’s marketing infrastructure, including e-mails and newsletters. The two later will promote the site around seasonal events, Luechtefeld says.
No brand risk
The deal could benefit both Amazon and Office Depot, says Duif Calvin, vice president in the retail practice of consultants Scient Inc. Not only does Amazon’s traffic benefit Office Depot, she says, but its e-commerce system is well suited to sale of commodity products. “Amazon’s platform is good at putting commodity products in front of consumers and suggesting additional sales,” she says.
Further, Calvin says, Office Depot runs little risk in terms of its brand perception by having a site at Amazon while it maintains its own operation at OfficeDe-pot.com. “Office Depot doesn’t need something unique on the web to maintain its brand,” she says. “Unlike Sharper Image or Nordstrom, where the site has to reflect the brand and feel very different from the competition, Office Depot can have more of a commodity brand. So there’s little risk of the Amazon deal hurting Office Depot from a brand point of view.”
And for Amazon, the deal is another way to make money without having to engage in expensive retailing activities. “Amazon needs to find a way to turn what they do well-providing a platform for high-volume sales-into something that makes money,” Calvin says. “This is a very good fit for Amazon in terms of what their platform can do.”
Besides Toys R Us, Amazon has e-commerce deals with Target Corp. and Circuit City Stores Inc.