1 Company That's Way Off the Mark

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I know this sounds weird, and that I shouldn't be admitting it in writing, but there's something about office products that really appeals to me. In fact, I would go so far as to say that the mere possession of new pens and fresh legal pads makes me feel more productive than my fellow man.

It's for this reason that I couldn't resist a recent Harvard Business Review headline: "Office Depot's (NYS: ODP) President on How 'Mystery Shopping' Helped Spark a Turnaround."

The last time I was in an Office Depot, which wasn't long ago, I was certain that the company was on the verge of bankruptcy. Its inventory was down, and its sales staff virtually nonexistent.

And yet, none other than the Harvard Business Review was literarily underwriting Office Depot's future success. And so, like a 10-pound trout latching onto a fisherman's line, I unwittingly took the bait.

A classic bait-and-switch
When I started the article, I was certain it would outline how Office Depot is leveraging the cash flow from its brick-and-mortar business to grow its online presence. Its main competitor, Staples (NYS: SPLS) , did so and is now the second-largest online retailer in America, behind only Amazon.com (NAS: AMZN) . Heck, even Barnes & Noble (NYS: BKS) got the memo. In a recent press release, its CEO alluded to their strategy of maximizing cash flow from their retail operations to support the company's investments in the "significant growth areas" of their business (i.e., BN.com).

I was thus surprised to discover that Office Depot's strategy appears to be the exact opposite. And while we here at The Motley Fool respect a good contrarian, there is such a thing as taking it too far. And that's what Office Depot has done.

The article -- written by Office Depot's newly promoted president for North America, Kevin Peters -- laid the blame for the retailer's plummeting sales squarely at the feet of the company's secret shopper form. According to Peters, the form asked questions like: Are the floors clean? Are the shelves full of inventory? Have the bathrooms been cleaned recently? Notably absent were any questions about customer service -- which Peters found to be lacking, to put it mildly.

With this seemingly obvious information in hand, Peters set out to "transform the business." Among other things, he confronted and "promised to keep in touch" with a store manager whom he had observed smoking within feet of a location's front door. He also "altered the way [its] supply chain operates so that [stores] could accept deliveries from vendors even when no one was in the store." My absolute favorite move? He made every one of the company's 22,500 associates take a Myers-Briggs Type Indicator test to help the company "understand their skills, behaviors, and attributes as they relate to serving customers." Peters was evidently surprised to discover that Office Depot associates were more comfortable with their "backs, rather than their bellies, to the aisle" (his words, not mine).

While there's no question that Peter's heart is in the right place, his strategy is way off the mark. If I were an Office Depot shareholder, I would be absolutely livid to discover that the company's newly promoted president not only made its 22,500 employees take a personality test, but then took the time to write a multi-page, self-congratulatory article detailing such a profligate waste of company assets. An executive's duty is to allocate resources in the most profitable manner possible -- which, in this case, means away from the brick-and-mortar business and toward its e-commerce site. In my opinion, Peters' article evidences a fundamental misapprehension about the best future for his company and the safety of its shareholders' principle.

There are other fish in the sea
If you invest in retail stocks, you shouldn't waste your capital on a company like Office Depot. Admittedly, the company has a reasonable online presence now and ranks ahead of competitor Office Max (NYS: OMX) . But to see their president issue an article like this, which fails to mention the importance of a strong online presence, worries me. Other companies like Wal-Mart (NYS: WMT) have done just the opposite, and are focusing on their online presence with upcoming Black Friday deals and promotions. They could be a safer play for online retailing going forward.

If you'd like to learn more about the changing face of retail, I urge you to check out our free report: "The Death of Wal-Mart: The Real Cash Kings Changing the Face of Retail." It details a handful of retailers that, unlike Office Depot, have demonstrated unmatched resilience by growing their revenues in spite of the economy. To get your free copy today while it's still available, click here now.

At the time this article was published Fool contributor John Maxfield, J.D., does not own any shares in any of the companies mentioned in this article. The Motley Fool owns shares of Wal-Mart. Motley Fool newsletter services have recommended buying shares of Amazon.com, Wal-Mart, and Staples, as well as creating a diagonal call position in Wal-Mart. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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