Staff writer

For Office Depot, size matters.

The U.S. office supplies company has 800 stores in 17 countries that stock about 10,000 items each and average around 2,500 sq. meters.

When it moved into Japan, however, the size issue took on new dimensions.

The company opened its first two outlets here in Ginza and Gotanda, both in Tokyo, last year. And while these are closer to its U.S. models -- both are over 1,500 sq. meters -- the size of the three others opened in central Tokyo last month average around one-fifth of its U.S. outlets.

"You just can't find quality real estate in the heart of Tokyo and 2,000 sq. meters," Bruce Nelson, president of Office Depot's international division, said during his recent visit in Japan. "It requires a different approach."

The three new outlets opened in Ichigaya, Nishi-Shinjuku and Shibuya on Aug. 31.

Japan, Nelson said, is Office Depot's guinea pig for a "new concept" -- spaces of 400 to 500 sq. meters stocking 80 percent of the items found in the company's stores in the U.S.

"Outside the U.S., this concept of a category-killer for office supplies has not been proven, tested, refined," he said. "It's really a model that we're in the process of tinkering with to see if we can get it right.

"It's very high-risk."

Adding to that risk is the high rent and labor costs here and a "complex and costly distribution system" for office suppliers in Japan, Nelson said.

"There are no clear lines between the manufacturer, the distributor, the wholesaler and the end user," Nelson said.

"It's a very costly supply chain, and I think the globalization of manufacturers ... is going to force that chain to become more efficient," he said.

Although he would prefer to buy products manufactured by Japanese companies, he said, should the chain fail to become more efficient, the company will have to consider another option: "It's called imports."

Office Depot stores in the U.S., Nelson said, boast average annual revenues of $8 million to $10 million after four years of doing business -- the equivalent of around 9 percent profit at the store level. In Japan, however, high rent and labor costs, which Nelson says are twice that of the U.S., mean "by definition you need twice the revenue."

"Or, you have to get Japanese landlords to lower rent -- and I really doubt that's going to happen."

Despite the higher overheads, Nelson said Office Depot is still able to live up to its "low prices everyday" catch phrase and that prices are on average only 15 percent higher than in the U.S.

Frustrations have been felt in other, less tangible, areas.

Nelson said he was "surprised" at what he called the "self-contained" mentality of competitors in the office supplies business here, and their perception of Office Depot as a "threat."

"(Companies) that have probably competed against each other before ... have a marvelous ability to come together when faced with what they see as a common new threat," he said.

"(They) want to have it all to themselves. It sets up a very different kind of competitive nature," he added.

"I've never experienced this in any other country we've set up in. Japan is difficult to penetrate. ... The question always is, are Japanese laws protective to keep foreign competition out?"

Nelson added that of Office Depot's 400 employees in its five Tokyo outlets, only one is an expatriate.

"We hire Japanese people, we buy Japanese products, we are going to pay Japanese taxes. But we're still viewed as an outsider," he said.

Despite Japan's economic crisis, Nelson still sees the nation, and Asia as a whole, as "a huge potential market."

"Economies more affect companies when they've got a major presence in a country and growth slows down," Nelson said.

"The real issue in Asia has been stability of currency and by degrees the stability of government, and that sets up an environment about your desire to invest long-term.

"But in the short term, I don't think economic crisis means a lot to an office supplier who wants to start out. I'd argue it's a benefit as opposed to a risk," he said.