Office supply retailers see red ink, not green shoots at small businesses

Amid all the talk about economic green shoots, small businesses are still hurting, according to the suppliers that sell them paper and pens. "Customers are waiting [to place new orders] until the ink is not visible on paper anymore and buying one cartridge instead of three of four" says Sam Duncan, CEO of OfficeMax (OMX). Duncan went on to say that some companies are in a panic and one business customer told him that he planned to cut his office supply budget by 91 percent, although he wasn't exactly sure how.

In their presentations at the annual Goldman Sachs Global Retail Conference, held on Thursday, the three major office supply chains -- Staples (SPLS), Office Depot (ODP) and OfficeMax -- all agreed that the back to school season had been better-than-expected and those sales helped offset a continued weakness on contract sales to businesses.

One area that is seeing marked weakness has been sales to municipalities and local agencies, which are suffering from steep budget cutbacks, said Michael Newman, chief financial officer of Office Depot. "I'm not sure we've found the bottom on that business," he said.

Ron Sargent, CEO of Staples, was more optimistic saying that in his view, the panic that took place in November, December, January, now seems to be loosening up. Even so, Sargent acknowledged that Staples' existing contract customers spend about 15 percent less in office supplies this year than last year. That makes sense: Companies have have fewer employees that need paper and ink these days and cost conscious companies are also shifting away from more expensive items to cheaper ones. According to Sargent, Bic pens are in and the more expensive Uniball roller pens are out.

Most of the executives at the conference said they don't expect to see improvement until the second half of next year and that will mostly depend on whether the economy improves and if there is a drop in the unemployment rate. But given the latest unemployment report, and the increased fears of a "jobless recovery" in the offing, the retailers' forecast of a recovery late next year may turn out to be the right one.


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