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The pandemic has turned millions of consumers around the country into office managers, fashioning workspaces out of portions of their homes and stocking them with all the things necessary to get their jobs done.

Under different circumstances, the work-from-home movement could have led (and might yet) to a renaissance for office supplies retailers. While large corporate buyers have long relied on commercial dealers — the largest of which also happen to be tied to the largest office supply store brands — consumers depend on retail for their home office needs.

But for years they have been buying less from the retail specialists, namely Staples and ODP Corp’s Office Depot and OfficeMax banners. Store numbers and sales have steadily been shrinking, only to run into the disruptions of the pandemic.

Along with traffic decines, the COVID-19 crisis brought with it both a remote work revolution and an accelerated shift in spending with e-commerce and generalist players, both of which offer convenience and highly competitive pricing.

As the category adjusts to new trends, Staples and ODP are having an existential moment. The former, owned by private equity firm Sycamore, has been in pursuit of ODP and its retail business. A deal would leave just one major player left to dominate a shrinking, changing, uncertain retail sector.

Ever-smaller sector

Office supply stores as a sector employ some 60,000 people and bring in $10.3 billion in revenue in the U.S., which is projected to decline roughly 2% a year through 2026, according to research firm IBISWorld.

The firm noted that office supplies stores as an industry have suffered “consistent revenue declines” every year going back to 2005, due both to competition and the digitization of work itself. The industry declined by an average annual rate of 6.7% since 2016. The rate of bleeding fell to 6% in 2020 and to 0.9% in 2021, according to IBISWorld.

Data from Euromonitor also shows a steep decline at office supply and stationary stores over the past five years, with the market contracting by 38% between 2016 and 2021.

Today, Staples controls the largest chunk of the sector, with more than 47% market share, according to IBISWorld. ODP, with its banners, is No. 2 with 36% share. They are the last two specialists with any substantial share of the market. Euromonitor also places Staples and ODP at No. 1 and No. 2 in market share, respectively.

At those banners, foot traffic was falling even before the pandemic. According to Creditntell data provided to Retail Dive, total annual visits fell by the millions across the Office Depot, OfficeMax and Staples banners in 2019.

Not surprisingly, traffic fell even more steeply in 2020 as the pandemic forced store closures and kept safety-conscious customers away. But in 2021, traffic rebounded, surpassing even 2019 levels at all three major office supplies box banners.

The office supplies category more broadly has performed much better than the specialist stores. Office supplies as a category jumped 11% in 2021 to $14.5 billion, according to the NPD Group. Paper and writing products were both up by double digits, and storage products were up 22%.

E-commerce office supplies sales grew 18% year over year in 2021, and are up 77% over 2019, according to NPD. Leen Nsouli, executive director and office supplies industry analyst for NPD, said that e-commerce’s share of core office supplies and stationary categories has stood around 27% to 28%, which is up about 11 points since pre-pandemic periods.

Sales for office staples such as printer ink and toner rose 129% in 2020 at mass merchants including Walmart, Sam’s Club, Target and Costco, according to analytics firm 1010data. That fell somewhat (15%) in 2021 but remains up 95% over 2019 levels.

All of that is partly a testament to the endurance of work-from-home arrangements through a second year of the pandemic. The new normal is expected by many to persist, and it could do much to reshape the category.

Inna Kuznetsova, CEO of 1010data, points to growth in office electronics categories, which rose 95% in 2021 compared to 2019. “For me, that signifies the fact that a lot of people have decided to invest in better equipment … with an intent to work from home for a long time,” Kuznetsova said in an interview.

Even the decline in some categories tracked by 1010data doesn’t negate the persistence of home office needs. It “may be explained not by the fact that people started returning to the offices but by the fact that people have equipped themselves,” Kuznetsova said. “How long does your laptop and screen and toner last? You stock up for a while.”

As ODP can attest, the pandemic and the work-from-home wave it brought has taken a toll on commercial sales of office supplies, for the simple fact that empty offices have fewer supply needs.

“Even if we were able to get the majority of the workforce back [in offices], it will be difficult to see the same levels of sales that we saw in 2019 within the commercial channel,” Nsouli said in an interview.

“But that leaves a very ripe opportunity for retail to meet the needs of the work-from-home and hybrid worker,” Nsouli added. “It also opens the door for commercial players to better understand how they can meet the needs of the hybrid or work-from-home worker.”

As other channels and retailers have experienced growth, revenue from office supplies in ODP’s retail segment declined during both years of the pandemic, and for 2021 was down more than 20% from 2019. Revenue for all retail categories (which includes things like print services) fell over the same period, as did revenue at ODP’s business-to-business segment.

Put simply, consumers have been spending more on office supplies during the pandemic, but not at Office Depot and OfficeMax. Even so, ODP CEO Gerry Smith in February called the performance of the retail division “simply terrific,” pointing to “stable” traffic trends, and the company estimates that top-line sales increased by low single digits when excluding the impact of stores that closed, according to a Seeking Alpha transcript of its Q4 and full-year earnings call.

‘A good time to rethink their business’

Store count can explain part of the sales decline in the sector, with both ODP and Staples rationalizing their footprint for a world that either wants or needs them less. According to Creditntell data, over the nearly four years between Q1 2018 and Q4 2021, Staples, Office Depot and OfficeMax each closed well over 100 stores in their respective footprints.

But the specialty retailers are closing their stores for a reason. For basic office supplies — paper products, writing utensils, printer ink, anything common and easy to ship — the specialists face a wide field of competition: Amazon, Walmart and online players. “Even supermarkets have an aisle for office supplies,” IBISWorld Lead Analyst Brigette Thomas said. “But I think the biggest is definitely Amazon.”