Oct 18 2008
Finding a downed bird; Office Depot
When I was a child I used the woods across from our home as my playland. Every so often I would find a downed bird, either dead or injured, and I would hold it in my hands. It seemed such a tragedy for a little one with so beautiful a voice to die or be hurt. Today when I went bottom fishing, I came across that same situation, feeling the same way.
I caught a USA piece that says that Warren Buffet is buying US stocks, and I agree. Grab now. But since most of my equity is tied up in the good stocks that I have, I decided to invest some of the dividends that have hit my money market into some stocks. I looked for a low P/E, a small cap, and suddenly came across Office Depot.
I love Office Depot. When I ran my own business and just needed some basic supplies, I could call in a big order and it would be dropped at our door. Very handy. They weren’t expensive. Later, when I moved to my new place, out in the middle of absolutely nowhere, I found that I could order things on the web for my office, and if I got enough of it, it came for fee. One year, I was so darned busy that I ordered all of my kids’ back to school items and it was all done without chasing around Walmart. This year I did a comparision of how much I saved at Walmart and discovered that I could have ordered it in at Home Depot and saved money on the gas and still come out about the same.
So it was to my sadness to find them at the bottom of the pile today. I poked through the financials and there was the culprit: too many cost of goods. Whether it’s staff salaries, or executives salaries, or even just insurance or electricity costs, the point is, there are rising expenses and not enough sales to offset them.
There are no insiders buying, which tells me that even the confidence of the upper management is not there for their own company. That’s a shame.
What could change all that? A new CEO is always one solution that boards consider. But the truth is that all too often a new CEO comes in with a hatchet, slashing jobs for people on the floor, or worse, slashing wages for the people who work the floor. Once you do that, you compromise consumer relations. This is a great way to save money and start digging the grave of your business.
A new CEO could think outside the box, however. These birds are rare, but they are usually pretty smart. A good CEO cuts down the mid level paperwork that can often bog down a company, thereby saving money inside the level of business that usually doesn’t affect the customer directly. A new person has to be careful there to trim without killing the good blood that courses through the veins of the business. Here you often find very creative people who are just as frustrated with meetings that are not needed, technology that could streamline the jobs but isn’t implemented, and double doing their work. A good CEO grabs that middle ground, asks for ideas to simplify their jobs, and then offers retirement to those who’ve contributed throughout the years. Then the restructuring begins.
Finally, retraining the floor staff is the one thing most new CEO’s do not do, and it’s a shame. Most incoming salespeople in the box stores are simply told to go out there and help the customer; some are just parked behind a cash register or told to unpack boxes. It’s a shame, because when customers walk into the door looking for what they need, that’s the time when a properly trained customer service representative who is unpacking boxes can not only show them the location of what they need, but also where other items are that they might need as well. A good customer service representative can find out if maybe they need more paper for their office, more folders, can volunteer to run back and grab them a cart if they forgot it, and so on. A good floor representative can increase the sales in the store, perhaps even a hundred percent, if they are given the proper training.
What does this have to do with you? Well, as an investor, it gives you some tools to analyze a business the next time you go shopping. I notice when store workers are trained to sell the product. I know, because I trained my own staff in such a manner. I see which stores have people on that just stand there, and ones that take action. Guess which ones make more money. Guess which ones are the better investments.
