With 2017 sales down 7%, the merchant is banking on a mix of online and in-store business and technology services to drive revenue.

Office Depot is evolving from “big box” to BizBox.

The office supplies company, which finished a down year in 2017 as sales fell 7.1%, is known as an operator of “big box” category-killer retail stores. But that image isn’t quite right, CEO Gerry Smith says. He points to a future more focused on its main source of revenue: business products and services.

Gerry Smith, CEO, Office Depot Inc.

“We’re known as a retailer, but really … 60% of our business is already B2B,” he said on a call with stock analysts last week covering the fourth quarter and fiscal year ended Dec. 30, according to a transcript from Seeking Alpha.

Smith elaborated on how Office Depot, No. 65 in the B2B E-Commerce 300, is transitioning the company into a more focused provider of business services. “We will continue to shift from primarily products to a services-led business platform,” he said.

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One key part of that strategy is CompuCom, a provider of I.T. services that Office Depot acquired in the fourth quarter of 2017. With some 6,000 certified technicians, CompuCom helps small and mid-sized business clients procure, install and manage I.T. hardware and software.

Office Depot is building out CompuCom’s subscription services for tech support that customers can arrange online or by calling a service rep. The CompuCom Division reported sales of $156 million in the fourth quarter of 2017, with operating income of $8 million, or 4.8% of sales, Office Depot said.

Another core element is BizBox, which Office Depot launched late last year as a “one-stop services platform for small businesses.” BizBox, available via MyBizBox.com, provides such services as website design and hosting, digital marketing, and online applications for managing such operations as finance, accounting, HR, CRM and payroll—“and potentially in the future, more and more services as well,” Smith said.

Smith added that BizBox is a key part of Office Depot’s ongoing efforts to look for ways to disrupt the business-services market for small and mid-sized businesses. “BizBox is an excellent example of this disruptive thinking and changing the way we interface with our customers. In a matter of months, we created this first-of-its-kind one-stop business services and subscriptions platform.”

Office Depot is also working to develop more ways to interact with business customers across integrated online and offline channels, Smith said. For example, he noted a pilot project across 14 Office Depot stores in the Austin, Texas, area, where it’s testing such things as an in-store 3D printing service and a BizBox Consulting Hub.

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“Over a period time, we’ll stabilize the retail business as well,” Smith added. “But I’m very, very pleased that we’re looking at a positive trend in BSD,” the Business Solutions Division.

For the fourth quarter ended Dec. 30, 2017, Office Depot reported:

  • Total sales dropped 5.3% to $2.581 billion from $2.725 billion the prior year;
  • Business Solutions Division sales fell 7.2% to $1.257 billion from $1.355 billion, as the division’s operating income declined 9.3% to $68 million from $75 million; (The prior-year figures include $56 million in sales and $4 million in operating income from a 53rd week not included in the 2017 figures.)
  • Retail Division sales fell 14.8% to $1.164 billion from $1.366 billion, as same store sales fell 4%, and the division’s operating income declined 35.5% to $40 million from $62 million; (The prior-year figures include $87 million in sales and $14 million in operating income not included in the 2017 figures.)
  • A net loss from continuing operations of $48 million, compared with net income of $55 million; the swing to a net loss included an expense of approximately $68 million related to the new U.S. tax law.

For the full year ended Dec. 30, 2017, Office Depot reported:

  • Total sales fell 7.1% to $10.24 billion from $11.02 billion a year earlier;
  • Business Solutions Division sales fell 5.4% to $5.11 billion from $5.40 billion, as the division’s operating income dipped 1.1% to $262 million from $265 million;
  • Retail Division sales dropped 11.4% to $4.962 billion from $5.603 billion, as same store sales fell 5%, and the division’s operating income fell 15.1% to $254 million from $299 million;
  • Net income of $146 million, down 78.5% from $679 million.

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