Sweet revenge: Office Depot CEO Bruce Nelson remembers the days when all brick-and-mortar companies were dinosaurs. Today his company is No. 2 on the Web. So who's laughing now? (Technology).

In the chronicles of office-supply powerhouse Office Depot, 1998 may well prove pivotal. It was then that the firm, still staggering from its failed sale two years earlier to rival Staples, acquired Viking Office Products. It was also the year its public Web site went live.

The two events hardly seemed linked at the time; after all, $3 billion Viking was a catalog concern purchased for its contract customers and international potency. The Web site, OfficeDepot.com allowed smaller clients the same online ordering the Delray, Fla.-based company had pioneered for its large customers several years earlier. But the Viking acquisition also brought in its top executive Bruce Nelson, who in July 2000 became Office Depot's CEO and, this past January, chairman.

In fewer than two years at the helm, Nelson, a man with a reputation for integrity and compassion, a hands-on management style and a comfort with technology, has largely turned around the $11 billion company, boosting sluggish store sales and raising employee morale, which had taken a hit following the collapsed Staples deal.

It has also been Nelson -- a former college track star -- who has taken the Internet baton passed to him by the early adopting company and run with it.

An online retailer now second in size only to Amazon -- and profitable from day one -- Office Depot moved $1.5 billion worth of goods over the Internet in 2001. That marked a hefty 40 percent increase over the year before and made it the fastest grower of any of the company's channels. In 2002, Nelson's goal is even more ambitious: $2 billion in online sales.

A crucial component of Office Depot's Web prowess was its early decision to view it as a core strategic initiative, a backbone of the company's supply chain. As was common to many companies at the time, Nelson recalls pressure within Office Depot to spin off the venture (as Staples did--although it brought it back to the mother-ship last year) to "get on the bandwagon of high-multiple Internet stocks," the 57-year-old CEO observes. But he and others insisted the integration was critical to the site's, and the company's, success.

"We have always been fully integrated; it's not a trick integration where you enter the order online but it's not really entered" into the company's internal systems, Nelson says. "It's seamless to the customer, who can pick up their item at a store the same day or have by a mutual friend that when I was going to corporate, I should always stop by and say hello to Bruce," says Jess Beim, senior vice president of Avery Dennison, a Torrance, Calif., office supplier.

After 22 years at Boise, Nelson left to run a small office-supply retailer, but exited five years later when the company broke its word on an agreement, according to Office Depot board member Irwin Helford. Helford promptly took him in at Viking, a company known for its laser-sharp people focus. Among the lessons Nelson learned from Helford: to give every staffer a holiday turkey to take home for Thanksgiving, a traclition he transported to the 40,000 employees of Office Depot last year.

At Viking, Nelson embraced technology. He pushed, for example, for the creation of an expensive data warehouse to better understand customers, Helford recalls.

Nelson is so comfortable with the Web that he purchased his last live cars online, in one case walking into the showroom only long enough to hand over the check and pick up the keys. "He recently showed me all the gadgets at his house that hook him up to the office so he can stay in touch," marvels Ron Shaw, a longtime industry friend and CEO of Pilot Pen in Trumbull, Conn.

A tech focus for employees

At Office Depot, Nelson's biggest challenge remains the American stores, which account for some 56 percent of revenues. Thanks to Nelson's closure of 70 underperforming stores and the complete remerchandising of more than 800 others, net income and operating profits have risen sharply in recent quarters. Even as the soft economy sent fourth-quarter sales down 8 percent, operating profit for the quarter improved to $76 million, compared with an operating loss of $191 million the prior year.

Analysts are hopeful an improving economy will beef up lagging sales in such big-ticket items as computers and office furniture, but concern remains. "There's so much uncertainty in this climate," says Peter McMullen, senior managing director and analyst at Ryan Beck & Co. in Boca Raton. "In the office-supply category, it doesn't take a lot to give a lot to the bottom line, but it can just as easily work in reverse.

Nelson believes the best strategy now is to stay the course, and for Office Depot that means deepening its embrace of online technology--this time internally. The company's intranet now boasts numerous financial and customer measurements, cast against objectives, available in real time to employees in varying detail depending on the staffer's level. Invoices, spending proposals and employee expense accounts are routed and approved online. The newest initiative: developing online employee training programs for everything from job skills to product demonstrations.

"We are clearly a Web-based company," says Luechtefeld. Such a statement might have brought titters in 1998, but one can almost imagine Bruce Nelson saying it then, even if few people would have believed him.

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