In July, Office Depot's board asked David Fuente, its chief executive for the last 13 years, to step aside; he remains chairman. Bruce Nelson, the president of Viking who had come over to head Office Depot's international unit, was Fuente's obvious replacement. And an integral behind-the-scenes player is Irwin Helford, the former Viking chairman who became Office Depot's vice chairman and is its biggest individual shareholder. Helford was Nelson's mentor at Viking and among those on the board who supported him for the CEO's job at Office Depot. "It was clear Bruce was ready and wanted it badly and had the experience," says Helford.
Tall and earnest, Nelson, 55, appears direct and honest, couching his enthusiasm for his new job in a casual, folksy style. "Man, we've got a world of opportunity," he told analysts this summer. "Man, I'm grateful for the opportunity to do it," he says of being CEO.
A Utah native, he ran track at Idaho State University in Pocatello, where he met his wife, LaVaun. His circle of industry friends is striking for its durable marriages -- 40-plus years for several; the Nelsons themselves have been married for 35 years. "Good citizens," says longtime friend Jess Beim, a senior vice president with office supply company Avery Dennison. Helford goes even further: "Integrity, character and honesty come before everything else with Bruce. To this day, he is the highest integrity person I ever met -- besides my wife."
Bold moves
However nice, Nelson isn't bashful. The exit sign at headquarters has been lit since he took over. Nelson reorganized the company's No. 2, Shawn McGhee, president for North America, out of a job. The company also announced that 57-year-old Chief Financial Officer Barry J. Goldstein wanted to retire. Nelson named another Viking veteran, Rolf Van Kaldekerken, as European president -- one of several Viking alumni in senior positions -- and moved up heads of other units. "I had my own impressions about leadership at Office Depot," Nelson says. "I knew what I had to do." The price tag for all the severance: $17.4 million in the third quarter.
Nelson has good cause to move boldly. Office Depot has struggled since 1997, when the Federal Trade Commission used an antitrust suit to kill its $4.5-billion deal with Staples. Office Depot has plenty of strengths: It is the largest U.S. office products retailer with operations abroad, and Internet sales and business services (including Viking) are healthy as well. Internet revenues for the year, for example, increased by 162% to $574 million through the third quarter, with a projected $800 million in sales this year.
Overall, however, the picture is bleaker. With 989 stores and $10 billion in annual revenues, Office Depot continues to outslug Massachusetts-based Staples ($8.9 billion) as the No. 1 office products retailer. But Office Depot lags Staples in operating profit ($519 million to Staples' $528 million) thanks to Staples' superior marketing and cost-saving strategy of clustering stores. Staples' same-store sales increased 10% last quarter, while Office Depot's North American same-store sales declined by 1%. "The company seemed to have lost focus back from the failed merger with Staples four years ago," says Philip Emma, a credit analyst with Moody's Investors Service in New York.
Well-armed, but ...
In most respects, Nelson comes well-armed to turn Office Depot around. He spent 22 years with the office products unit of Boise Cascade, where he started as an internal auditor. In 1990, he became the U.S. president of what was then called BT Office Products USA; there, he bought 11 companies and learned how to integrate different operations and cultures -- good experience for managing Office Depot's business mix.
Hired by Helford as executive vice president of Viking in 1995 and named president within a year, Nelson saw how Helford's ethos of "fanatical customer service" had built Viking into a $1.3-billion-revenue company -- without being the low-cost provider. After Office Depot's acquisition of Viking, Nelson helped make Office Depot's international unit a powerhouse.
The area in which Nelson has the least experience -- retail stores -- may be the most problematic for Office Depot, however. When the company missed its earnings targets in October -- reporting a drop in earnings per share for the first nine months -- the primary cause was slow sales at its domestic stores. Nelson doesn't see his relative lack of experience with retail as a deficiency; he says it allows him to judge the effectiveness of a store as a whole, rather than being distracted by individual merchandising issues. "The value I bring to the company (is) I haven't been trained in the retail industry. I look at the whole store and say, 'man, do I want to come in here or not?' This has to be a compelling place to shop," Nelson says.
With an internal review to be completed this month, Nelson promises a detailed turnaround plan that will likely include closing some underperforming stores and cutting warehouse costs. A major focus, he says, will be to transplant Viking's customer service culture to Office Depot's 48,000 employees.
A focus on service
How will he get hourly workers to care about customer service as much as he thinks they should? Nelson's short on specifics, making his desire to imbue Office Depot with Viking's customer service culture more a goal than a plan. He says he can do it through the "power of numbers." He believes his own passion will catch fire among senior executives, who will pass it all the way down to Office Depot's store clerks -- just as Helford did at Viking. There, Helford instituted tangible customer service policies such as same-day delivery in key markets, and, more important, succeeded at breathing the intangibles of customer service down through Viking's ranks. For a description of those, Helford credits his secretary: "People will forget what you say and customers will forget what you do, but they will never forget how you made them feel."
Nelson has asked Helford for a plan to provide upscale service in an Office Depot superstore setting, where, as Helford acknowledges, "service ain't so good."
It won't be easy. And Staples and others -- from Best Buy in computers to Costco and Wal-Mart in paper -- will keep the pressure on. Part of Office Depot's poor showing in October came from having to slash prices on ink, toner and paper 6% to 12% to compete with discounters. "I still go to Office Depot occasionally but not like I used to, and that's what worries me," says Jon Goebel, chief investment officer at SouthTrust Bank's trusts and investment unit. A SouthTrust fund sold its significant stake in Office Depot this year for a tax loss.
Goebel says as long as there's no fundamental customer shift away from superstores to other outlets -- his chief concern -- Office Depot could become an "exciting" story by capitalizing on the strength of Viking, international and the Internet. The stock trades at nine times earnings compared with historic levels in the 30s. The low multiple suggests that investors have overreacted -- as if an earnings disaster were afoot, says John Thompson, president of a Wisconsin investment advisory firm, Thompson, Plumb & Associates, that has a sizable Office Depot holding. "I don't see how it could get a whole lot worse."