Webs Early Arrival

Office Depot site picks up speed

In the sleepy seaside resort town of Delray Beach, Fla., Office Depot has been quietly building an online empire that rivals those of Dell Computer, Gateway — and even Amazon.com.

Forget about dying dot-coms and the economic slump; the office supplies giant expects sales from its Web site to nearly double this year to $1.5 billion, up from $850 million in 2000. Whats more, the companys online operations, launched in 1995, have been profitable from the start, says Monica Luechtefeld, executive vice president of e-commerce at Office Depot.

"Were part of a publicly traded company. We dont have any venture money behind us, and, at the end of the day, we have to make money," Luechtefeld says.

Amazingly, Office Depots Web site operates with only 115 full-time people in the companys e-commerce group. Unlike many traditional retailers that spun off their online operations into tracking stocks or separate public companies, Office Depot never had plans to spin off its Web business. As a result, the online division can lean on the assets of the parent company, which has 824 retail stores in North America, operations in 16 additional countries and 48,000 employees worldwide.

Its a strategy that other retailers are beginning to emulate. "Most companies are realizing now the Internet is simply another channel for doing business," says Robert Labatt, director of research at Gartner. "Its complementary to their business, and it makes more sense financially to operate them together."

Keeping the Web operations inside the company has helped Office Depot save money on marketing and advertising, as well as computer databases, since the Web site and company share many of the same applications. The e-commerce group also shares many of its technical people, as well as its sales force, with other divisions.

"Sometimes folks feel like they are an island inside a company begging for resources," Luechtefeld says. "Its not that way with us." Office Depots information technology group and sales force receive bonuses tied to the Internet sites ability to reach its goals.

Office Depots Web site has grown into one of the largest online retailers, eclipsing Barnesandnoble.com, Buy.com and even arch rival Staples. In fact, Office Depot is doing more than twice the volume of Staples, its closest competitor online, and more than five times the volume of OfficeMax, says Andrew Bartels, research leader for e-business at Giga Information Group.

"They started really early, and theyve had time to work out the kinks and bugs," Bartels says. Before launching its online operations, Office Depot had a very successful mail-order catalog business, which helped the company establish a strong infrastructure for its Internet business, Bartels notes.

Much of the credit for the Web sites success can be traced to Luechtefeld. When she joined Office Depot in 1993, the 52-year-old native of Los Angeles ran the companys massive operations in Southern California, overseeing distribution, warehousing and sales. When she moved to headquarters, she began to push Office Depot into the Internet age because she saw how the Web could not only boost sales, but cut costs.

Online sales are half as expensive to process as orders received via fax or phone. When most companies were just using the Web as an advertising vehicle, Luechtefeld convinced her superiors to give her a shot at making Office Depot the largest online retailer of office supplies. It worked. "We spent a little bit more time and put in the sweat equity in the beginning to create a profitable Web business," she says.

Today, Luechtefeld is regarded as one of the top movers and shakers on the Internet. She has an eye for detail and takes a hands-on approach to monitoring the Web site. Each day, she checks the sites sales, performance and customer service feedback. She makes changes immediately to the Web site, such as adding keywords to the companys search engine for products upon a customers request. She firmly believes quick reaction to customer feedback is a key factor in propelling the company to the top.

The sites next big push is to concentrate on better serving the 13 million small businesses that regularly shop in Office Depots brick-and-mortar outlets. Luechtefeld has teamed up with Microsoft to offer more than office supplies. In May, Office Depot and Microsofts bCentral small-business service launched a pilot program in 20 outlets, setting up in-store boutiques, known as Business Solutions Centers. The venture offers kiosks to help small-business owners learn how to integrate technology into their businesses. Services offered include domain name registration, building a Web site and selling products online.

Unlike some Internet operations that have been dragging their brick-and-mortar parent companies down with unprofitable operations, Office Depots Web site has been a positive contributor. The company does not disclose profits, but says the site has always been profitable. And while Office Depot saw its overall profit decline 48 percent in its first quarter — largely because of a 10 percent drop in sales at North American stores — the sites profits continue to rise, Luechtefeld says. "As the economy has slowed, companies are watching every penny," she says. "They are being very cautious. Doing business on the Internet helps them save money."

Analysts believe that, despite the slump in its brick-and- mortar business, Office Depot has plenty of opportunity for growth, through its Internet business and internationally. In May, the company bought the Web site, customer list and business operations of Officesupplies.com. The acquisition allowed Office Depots Web site to increase its market position and leverage its infrastructure.

Strong growth of its internal Internet business, combined with possible future acquisitions, set the stage for Office Depot to one day challenge Amazon as the worlds largest retailer on the Internet. "We think there are some terrific opportunities for acquisitions out there," Luechtefeld says.