After news leaked on Monday of an OfficeMax and Office Depot merger, shares of the two companies surged. As of press time, OfficeMax (OMX) shares are up 25.4 percent and Office Depot (ODP) shares are up 17.65 percent. While this is good news for shareholders, the first thing I thought of when I heard about the merger was that there are going to be hundreds of vacant commercial buildings spread out across the country when competing stores close.
When two companies merge, it’s logical to close a competing location but when the nation’s real estate market, both commercial and residential, is still in the recovery stages adding new inventory doesn’t help. Just look at what happened to the Borders stores. About a year after the Borders chain closed its doors, one-third were still vacant.
To make matters worse, when other merchants filled empty Borders stores, the leasing rate was about 30 percent lower than what Borders was paying. Lower monthly leases means lower revenues for commercial property owners, which also impacts a community’s economic recovery.
Looking back even further, when Blockbuster began to face a financial crunch after the Great Recession, it started to close retail stores. One of the stores it closed was located in a community called Gold Canyon, Arizona. The store closed in late 2009 and it still sits empty, despite its location in an otherwise busy small commercial center. I used to live in Gold Canyon and I frequented this store. While I understand the reasons that Blockbuster closed this location, the large empty space in this complex is an eyesore.
So what does this potential OfficeMax and Office Depot merger mean? It means that shareholders will be in for a nice bonus and consumers will likely benefit with lower prices and a wider selection of goods. However, when stores close in communities that already have a large inventory of vacant commercial buildings, the news is anything but good.