There’s a small problem that might just cut the billion dollar-plus valuation Coles expects to get for its Officeworks chain of business supplies. It’s called Office1, and even though it has just four stores in Sydney Officeworks management and Coles’ advisers have already identified it as the biggest threat to the chain.

Woolworths would know about it because its latest outlet is in the Northwest Business Park in Sydney’s Hills District where Woolies’ new corporate offices are located.

Office1 is the fastest growing retail office products in the world, according to its website.

It’s a master franchise/sub franchise arrangement, which is similar in some respects to the way Harvey Norman operates (which is based on Harvey Norman being the master franchise operator and a long list of sub franchiser businesses in Harvey Norman and Domayne stores).

Office1 has a master franchise for each country (outside the US) and then a series of subfranchises.

Coles has around 104 Officeworks outlets for the chain which started around 16 years ago and is the most successful new retail launch in the country. Its major competitor is Corporate Express, a Dutch-owned listed company operating a combination of online and smaller storesdo across the county.

Officeworks and Corporate Express have roughly the same turnover (around $1.2 billion this year) and roughly similar profits: around $66-$72 million after tax. The rest of the industry consists of smaller businesses, many single owner outlets, and chains like Kwik Copy in some areas of business.

Harvey Norman is also a competitor in office equipment and IT products aimed at the small to medium business and home office operator. But the new competition has emerged through its local business.

Office1 only started late last year and has so far opened just four outlets in Sydney. Its website promises more will come in NSW and then in other states but already Officeworks management have identified it as the major threat because of the large size of the outlet and its US roots.

Peter Fray

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