Office Depot, OfficeMax, or 'Dunder Mifflin'

NEW YORK (TheStreet) -- One of my favorite television shows, "The Office" on NBC, goes off the air tonight following a nine-year run. Nine years is a pretty long time to be on the air.

However, as a fan of the show, I want to say it's ending on a high note. But this wouldn't be accurate. The numbers don't currently support the statement. Besides, when bad boss Steve Carrel left in season seven, I knew it wasn't going to end well.

It seems fitting to use this as a point of analysis for some of today's retailers that deal in office supplies: Office Depot ( ODP) and OfficeMax ( OMX).

We've heard many times retailers are that not all the same. Issues that may be affecting one company are not necessarily the problems of another. It sounds logical. But that's not entirely true in all cases. In fact, in the office retail sector, aside from their names you can hardly tell these two apart. Even Staples ( SPLS), which is seen as the best of the "Big Three," is posting negative earnings per share. It's not a coincidence.

The slowdown in the housing market, which has lead to poor consumer spending, has all but diminished the importance these stores once possessed, to put it nicely. Ask yourself, when was the last time you walked into one of these stores and felt you didn't have the store all to yourself? It's been at least 10 years for me, one year longer than "The Office."

While it can be argued that consumer spending and poor business climate have hurt these office retailers, to be perfectly honest it seems a stretch to suggest the economic slowdown is the only reason they've struggled. They are today's Blockbuster Video. The fact they still exist is a wonder. New retail/ecommerce concepts from eBay ( EBAY) and, more notably, Amazon ( AMZN) changed the game for them. Office Depot and OfficeMax have not played well since.

It wasn't just the traditional book stores that were endangered when Amazon caught steam. Circuit City and Media Play were killed off as soon as Amazon decided to expand and enter the realm of electronics. Today even Best Buy ( BBBY), which has been a dominant name in retail, is hanging on for dear life. But as Best Buy tries to price-match Amazon, the company is suffering from eroding margins and poor comps.

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So, the economic slowdown, while significant, only accelerated the pace of the decline Office Depot and OfficeMax are seeing today -- it was not the cause. The idea they would have thrived otherwise, absent a comprehensive and strategic online presence, is far-fetched. Once Office Depot and OfficeMax failed to adapt to the new retail standards Amazon set, their fates were sealed. Everything they've done up until this point was just buying time.

Speaking of buying time, Office Depot recently announced it would buy OfficeMax. Basically, Office Depot, the No. 2 company in the sector, which generated $10.5 billion in annual revenue, is buying OfficeMax, third on the list with roughly $7 billion in annual sales. Combined, they would still be $7 billion short of Staples' annual revenue of $24 billion. Will it make a difference?

If their earnings results served as indication, it will prove to be a waste of time and energy. Office Depot's first-quarter results revealed a 5% decline in sales and a net loss of $17 million. Meanwhile OfficeMax missed on both top and bottom lines as sales and earnings declined by 6% and 52%, respectively.

Frankly, I just don't see the point in joining forces. What's the goal? These two companies can do badly by themselves. Instead, it seems as if they want to offer customers "paper or plastic" when their store traffic has already moved online.

The "big box" concept is dead. Circuit City and CompUSA proved that. But Office Depot and Office Max somehow think they can escape the tide. It's just like when Dunder Mifflin bought out Michael Scott's paper company, which was only profitable on paper.

Making matters worse, both Wal-Mart ( WMT) and Target ( TGT) are now encroaching on this territory. Granted, neither has the wide selection or furniture of the "Big Three," but they don't have to. If you're on a tight budget and are already at a Wal-Mart or Target shopping for household goods, why would you not consider some basic office supplies while you're there? Plus, their comps are growing.

Bottom Line

"Paper or Plastic" no longer qualifies as differentiation. The office retailers no longer offer anything people want -- not even paper. The cloud, mobile devices and other forms of online storage have all but reduced that demand.

Guess what? Less paper use also diminishes the need for paper clips and staples, much less plastic.

As noted, "The Office" officially ends tonight on NBC. But the workplace inefficiencies on which Dunder Mifflin was built live on at your local office retailers. Thank goodness for syndicated reruns, right?

At the time of publication the author had no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

Richard Saintvilus is a private investor with an information technology and engineering background and the founder and producer of the investor Web site Saint's Sense. He has been investing and trading for over 15 years. He employs conservative strategies in assessing equities and appraising value while minimizing downside risk. His decisions are based in part on management, growth prospects, return on equity and price-to-earnings as well as macroeconomic factors. He is an investor who seeks opportunities whether on the long or short side and believes in changing positions as information changes.

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