External and Internal Environments
By Sarah Bruce
Professor Ira Poladeen
April 28, 2015
An organization’s environment includes factors that it can easily change as well as factors that it cannot easily change. The factors that it cannot easily change are said to be the general environment (Faye, T. 2011). It is this environment that I will discuss as it relates to a struggling, once thriving industry: office-supply stores. Office supply retailers are finding themselves in quite a conundrum as they fight increased competition and technological shifts that are reducing demand for traditional supplies such as pens, paper clips, and paper. Because of the tremendous strides in technology, profitability among office supply, stationery and gift retailers are on the decline. Office supply companies are typically one of the least profitable retail industries anyway, but in 2013 they saw overhead expenses and costs of goods sold increase relative to sales. The large online presence from Amazon and Staples.com is also making it difficult for other office retailers to find market share. Office supply, stationary and gift retailers operated with a net loss, on average, of 1.2% of sales in 2013, compared with a net profit margin of 3.7% in 2012, according to Sageworks’ industry data (Crawford, M. 2015). The margin of earnings before interest, taxes, depreciation and amortization was 0.2% of sales, on average, in 2013, compared with 5.1% in 2012. Gross profit margin, meanwhile, decreased to 41.8% from around 44% to 45% from 2009 to 2012 as costs of the goods sold increased (Crawford, M. 2015). The biggest U.S. office-supply chains are also trying to contain costs. They report customers are buying fewer binders and software as more workers distribute reports via tablet computers and the internet rather than hard copies. Plus all office supply stores are facing intense competition from a variety of retailers, including Amazon, big-box discounters and even corner drug and personal care stores. Office Depot is an office supply store that is facing tremendous obstacles in light of its general environment. Sales have been falling year after and even with its merger with Office Max, Office Depot has still posted its third full year net loss, according to a filing with the Securities and Exchange Commission.
The five forces of competition are: 1) competition in the industry, 2) potential of new entrants into the industry, 3) bargaining power of suppliers, 4) bargaining power of customers, 5) threat of substitute products. This model is named after Michael E. Porter and identifies and analyzes 5 competitive forces that shape every industry, and helps determine an industry’s weaknesses and strengths (Porter, P 2015). The two forces of competition that I estimate to be the most significant for Office Max is number 4: bargaining power of customers, and 5: threat of substitute products. I say this because, for starters, an increasing amount of office supplies are gradually becoming obsolete. For example, with a large amount of reports and corporate communications being transmitted electronically, things like paper clips, binders, and padfolios are not being used as much. This reality affects both customers’ power and the threat of substitute products. Companies such as Apple and Microsoft that manufacture tablets are the substitute products that are causing many office supply stores to experience a continued decrease in sales. Office Depot has failed to properly address these challenges to its business. In order to succeed in business Office Depot needs to adopt more technology to stay innovative. Perhaps they cannot change their actual products, but they can change the methods in which customer buy their products. Office Depot needs to take lessons from online leader Amazon.com and offer customers...
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