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An OfficeMax, Office Depot merger could spell bad news for big-box stores

The stocks of both Office Depot and OfficeMax were up following reports the two companies are in advanced talks to merge.

While many market analysts have been touting the recent spate of mergers and acquisitions as a sign of business confidence, Juli Niemann, analyst with Smith Moore & Company, thinks the trend is more out of necessity.

"We're going to be seeing a lot of shotgun marriages right now, simply because they must survive. You've got weak profit margins, huge competition out in the industry, and way too many retailers out there," says Niemann.

Direct industry alternatives such as Staples, online retailers like Amazon, and discount stores Costco and Walmart all count as competition, according to Niemann.

"It's hard to be a specialty retailer and a huge big-box when all the competition is coming out of the woodwork," says Niemann, who also adds that roadside strip-malls which depend upon big-box chains may also soon feel the squeeze on profits.

About the author

Juli Niemann is executive vice-president for research and portfolio management with Smith, Moore and Company.
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