OfficeMax

OfficeMax, Inc. is the second largest operator of high-volume, deep-discount office products superstores in the United States. In mid-1995, the company was operating more than 400 superstores in 41 states and Puerto Rico and was planning to open more than 150 additional stores within two years. The company was also experimenting with related business concepts, including a chain of furniture stores and a string of copy-service centers. OfficeMax started in 1988 as a simple idea. In little more than five years the company bolted to the forefront of the American business supplies industry, posting more than $2 billion in annual sales by 1995 and generating sound profits by 1993. The company achieved that stunning success despite intense competition and an economic recession that began in the late 1980s and lingered throughout the early 1990s. The company's savvy marketing, distribution, management, and financial systems and strategies became models for other superstore retailers in the 1990s. The OfficeMax idea was hatched by entrepreneurs Michael Feuer and Robert Hurwitz. Feuer, who became the driving force behind the chain's growth, had been nurturing the idea during more than 17 years of service with Fabri-Centers of America, a 600-store, Cleveland-based retailer. By his early 40s, Feuer had risen to the executive ranks. Still, he was frustrated by his inability to run the company as he believed it should be operated. "At age 42 ... I was bored, and like many executives, I also suffered from the Frank Sinatra syndrome--I wanted to do it my way," Feuer recalled in the September 1993 Corporate Cleveland. "I had always claimed that if we could just cut through all the nonsense--for example, the 20 to 25 percent of time most executives spend on CYB (covering your butt)--and do it my way, we could make millions," Feuer observed. Feuer finally jumped ship and, despite other excellent corporate job offers, decided to start his own enterprise. He and Hurwitz decided that they didn't want to fund the start-up with bank debt or venture capital, because they didn't want to forfeit control of the operation. So they scrambled to raise capital from friends and family. They eventually found 50 investors, including several doctors and lawyers, who were willing to contribute a total of $3 million. The sum was paltry compared to other retail start-up businesses at the time, but the pair thought that they could parlay the cash into a winning enterprise. Feuer and Hurwitz launched their enterprise on April Fool's Day in 1988. On that day, they laid out on a blank sheet of paper their concept for a new type of office products store. Their goal was to create a large business supplies discount store that was an exciting place to shop, proffered professional and friendly service, and offered prices between ten percent and 30 percent less that those found in more traditional office supply retailer shops. The main goal was to bypass all of the middlemen, such as wholesalers and distributors. Achieving that goal, they reasoned, would allow them to effectively replace mom-and-pop office supply stores, much as supermarkets had replaced small grocers years earlier. OfficeMax was fighting an uphill battle from the start. In May, an office supplies industry trade paper published a list of 15 start-up companies that were trying to crack into the business; OfficeMax was 14th on the list by asset size. The start-up team knew that it had to keep expenditures at an absolute minimum to compete. So Feuer and Hurwitz rented office space in a 500-square-foot brick warehouse that had barely any heat or air-conditioning. The space was equipped with a few pieces of cheap office furniture, a coffee machine, and a copier (the copier and coffee machine couldn't be operated at the same time, however, because the fuse would blow). They decided not to invest in a fax machine until it became absolutely necessary. OfficeMax started out with a skeletal staff of seven peopl