There’s a small problem that might just cut the billion dollar-plus valuation Coles expects to get for its Officeworks chain of business supplies.
It’s a new competitor called Office1: it only has just four stores in Sydney but already Officeworks management and Coles’ advisers have identified it as the biggest threat to the chain.
Why? Well Office1 is the fastest growing retail office products in the world, according to its website.
It’s a Master franchise/sub franchise arrangement, which is similar in some respects to the way Harvey Norman operates.
Office1 has a master franchise for each country and then a series of sub franchises.
Coles has around 104 Officeworks outlets for the chain which started around 16 years ago and is the most successful new retail launch in the country.
Its major competitor is Corporate Express, a Dutch-owned locally listed company operating a combination of online and smaller stores across the county.
Officeworks and Corporate Express have roughly the same turnover (around $1.2 billion this year) and roughly similar profits: around $66-$72 million after tax.
The rest of the industry consists of smaller businesses, many single owner outlets, and chains like Kwik Copy in some area of business.
Harvey Norman is also a competitor in office equipment and IT products aimed at the small to medium business and Home Office operator.
But now there’s new competition (http://www.office1international.com/) through its local business ( http://www.office1superstore.com.au/).
Office1 only started late last year and has so far opened just four outlets in Sydney.
Its website promises more will come in NSW and then in other states, but already Officeworks management have identified it as the major threat because of the large size of the outlets and its US roots.
The website has this to say about its history
“Office 1 International was founded in 1989 in the USA with the first Office1Superstore opening in Spain.
“In 1994 the chain become global and currently is operating in more that thirty countries including: Bulgaria, Greece, Holland, Iceland, Indonesia, Ireland, Italy, Kazakhstan, Kuwait, Lithuania, Macedonia, Montenegro, Morocco, Portugal, Russia, Romania, Saudi Arabia, Slovakia, Serbia, Spain, Trinidad & Tobago, Turkey and Ukraine.
“Currently worldwide there are more than 600 stores. With new stores opening every week, Office1Superstore is the fastest growing retail office products business in the world.
“First Office Australia Pty Ltd was founded in 2005 as the Master Franchisee of Office 1 International for Australia.”
Its presence is certainly mentioned in the Officeworks due diligence material that KKR will be seeing today for the first time, and perhaps Wesfarmers later in the week.
The concept was described on the parent’s website like this:
“The sale of a complete range of office products, small business machines and office furniture through self-service superstores, direct mail and telemarketing.
“Under this system, the Master Franchisee purchases cooperatively at the lowest available prices for his stores and his sub franchises, and sells under the umbrella of a well known name, in an attractive self service environment, assisted by a colorful promotional brochure, his main advertising and selling vehicle.
“Retail sales take place in large superstores owned by the master franchisee and mini-superstores owned by his sub-franchisees.”
The business has a big buying operation in China, based in Shanghai.
Coles shares rose 12c yesterday to hit an all time high of $17.89 on the news that KKR had been let into the sale data room.
