One of Officeworks' first stores, at Ringwood in 1994, the year the chain was launched.
One of Officeworks' first stores, at Ringwood in 1994, the year the chain was launched.

Officeworks facing unexpected new threat

IT ALL started with a single store in Melbourne, now Officeworks is being billed as a "mini Bunnings" worth up to $1.5 billion.

The office supplies chain owned by Wesfarmers looks set for what promises to be the biggest IPO of 2017.

It's a far cry from the humble Richmond store that opened its doors in 1994, with the retailer now dubbed a "category killer" thanks to its broad product range across office supplies, electronic gadgets, furniture and more.

Officeworks has 163 stores and 7000 employees across Australia, and retail analysts say it's at the top of its game after a decade of Wesfarmers management. The retail giant took over the chain in 2007 when it acquired Coles Myer.

Its early growth had been boosted by the acquisition of Viking Office Supplies and Harris Technology in the early 2000s, and by the time Wesfarmers took over it was about to open its 100th store.

But Wesfarmers is credited with transforming Officeworks into something much larger than just an office supplies chain, by overhauling its pricing strategy and expanding its range.

It introduced Officeworks' lowest price guarantee and has averaged six to nine new store openings each year over the past decade.

The chain now dominates Australia's $12 billion stationery and office supplies sector, as well as staking its claim on a number of other categories.

Not just a place to buy office supplies like pens, notepads, printer paper, ink and toners, Officeworks sells more than 30,000 different products.

Walking through the doors each day are people looking to print photos or flyers, buy a new mobile phone or a desk and chair for the home office.

The retailer has become a destination for a whole range of shoppers - including mums and even artists.

Puzzles, toys, games, educational products and art supplies have been added to its range in recent years, along with catering products and cleaning supplies.

Back-to-school time is one of the retailer's busiest periods as parents stock up on pencil cases, exercise books, lunch boxes and pens.

In the technology category, drones have been flying out the doors along with educational robots, digital cameras and home security systems.

It's this eclectic product range that has secured Officeworks' rise, but could also make it vulnerable when Amazon launches its Australian operations later this year - a development some say is the reason Wesfarmers is seeking to offload the venture.

Wesfarmers managing director Richard Goyder first flagged the potential share market float while unveiling the company's half-yearly results in February, when he praised Officeworks' turnaround while touting its prospects.

Improvement in merchandise layouts, price cuts and new product ranges had boosted half-yearly earning by five per cent to $62 million, he said at the time, and the chain had doubled its earnings since 2007, making it "well positioned for future growth".

"In light of its performance, options to monetise the value created for shareholders, including via an initial public offering, are being evaluated," Mr Goyder said in a statement to the ASX.

More recently, Officeworks' third-quarter results revealed a seven per cent increase in sales to $1.48 billion.

But analysts are divided over how much the company is worth, with leading estimates ranging from $1.33 billion to $1.52 billion.

A major concern is what impact the arrival of Amazon will have. Officeworks has the highest online sales of any major Australian retailer, about 17 per cent.

Opinions are divided over whether this makes it more vulnerable to, or well placed to deal with, the e-commerce giant's threat.

OFFICEWORKS 'VULNERABLE' TO AMAZON

Barry Urquhart of Marketing Focus said Wesfarmers had opted to spin off Officeworks when it was at its peak, and was wary of the company's future without the retail giant's backing.

"Officeworks is the most vulnerable to the intrusion of Amazon, because a large percentage of its products are consumables with no brand loyalty," Mr Urquhart told news.com.au.

He said a large number of its customers were small business owners who prized convenience and accessibility above all else, meaning that Amazon's "astute" approach to delivery and customer service would leave Officeworks exposed.

"Anyone with experience in business would see that vulnerability," he said.

And without the backing of "strong corporate support with deeps pockets like Wesfarmers", he feared Officeworks would struggle to compete with Amazon on price.

"As an independent trading organisation with less resources, it would have to stand on its own two feet - and with the intrusion of a major force like Amazon, which has brought about the closure of thousands of retail stores in the United States."

He also queried how Officeworks would fare under a new management team, predicting that Wesfarmers' star recruits would be unlikely to stay on after a share market float.

Geoff Dart of DGC Advisory said while Officeworks was "a great business", the $1.5 billion valuation seemed high, and that the retailer would be vulnerable to competition from JB Hifi in the electronics space.

'PHENOMENAL OPPORTUNITY'

One person who has been talking up Officeworks' prospects is former managing director Launa Inman, who pushed sales past the $1 billion mark while running the company from 2004 to 2005.

"It's a very ­successful business - it has phenomenal opportunities,'' Ms Inman told The Australian.

"It's got a good long-term ­future, so they will get a good price for it. It's well run, it's stable and it is very consistent as to what it delivers to the consumer - it never changes, and that is actually what consumers love about it."

She said the retailer could thrive as a stand-alone business, saying it had a strong customer base of small and medium-sized businesses and entrepreneurs.

Officeworks' chief executive Mark Ward declined a request for comment.

News Corp Australia

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