Office Depot Is Secretly Testing a Coworking Space

Close your eyes and imagine yourself in a prototypical coworking space. Mellow alternative music is playing in the background, a distant printer hums near a fridge packed with free seltzers and infused fruit water, a row of creatives in bluetooth headphones tap on their MacBooks, surrounded by blonde wood and exposed brick. Or maybe you’ve splashed out to join The Wing, and you’re perched on a velvet banquette while a stream of like-minded women browse the female-author-focused library and pick up grain bowls in the cafe.

Now transport yourself to the suburbs, where big box stores still dot most major throughfares. “Calling all remote workers, freelancers and small businesses,” a purple sign read at the entrance to the Office Depot on Green Bay Road in Evanston. “Our new coworking space is coming soon.” Once inside, on a recent Saturday afternoon, approximately two customers and a handful of staffers milled about; the store had the desolate feeling that makes you want to check twice to make sure it was actually open. About one-third of the store’s footprint had a new wall closing it off, and was in the ‘pardon our dust’ construction phase. From the looks of it, the coworking side of the store will have a separate entrance, and a salesperson estimated it would be open in “about a month.”

Coworking spaces are among the fastest growing (and most dynamic) categories of commercial real estate. Now, Fortune has learned, Office Depot is testing the waters. The company is in the process of quietly opening three coworking locations housed within existing stores, offering “hot desks,” conference rooms, and private offices at a steep discount compared to industry leaders like WeWork and Workbar. At the Evanston location, unlimited drop-in access will be $100 (the cheapest unlimited monthly membership at any of the other six coworking spaces in the tony Chicago suburb was $229 as of May 15).

It’s worth a try. Office Depot, which currently trades in the low single digits, has managed to keep afloat after an acquisition by rival Staples was blocked by federal regulators in 2017 (shortly thereafter, Staples was taken private in a leveraged buyout), but the glory days of a stock in the $40s are more than a decade in the past. According to the May 8 first quarter earnings release, same store sales were down four percent over last year; revenue from IT services division CompuCom, acquired in 2017, was also down four percent. CEO Gerry Smith admitted in the release that the Q1 results were “disappointing,” and said they were driven “primarily by poor performance at our CompuCom division.” He added that a “Business Acceleration Program” approved by the board that week will aim to cut costs and streamline various facets of the business, which according to the Q1 SEC filing, translates to layoffs and closing at least 50 stores by the end of 2019.

“They’re trying to see what sticks,” says Liz Suzuki, lead hardline retail analyst at Bank of America Merrill Lynch. She references the recent replacement of the management team with experimentation-friendly newcomers from the tech industry who are tasked with turning around a famously struggling business. And co-working, she says, would be one way to drive traffic into the stores—“it demonstrates that they’re taking a creative approach to utilizing their [real estate] assets.”

In the Amazon era, business solutions—services, versus traditional retail—do seem to be the way forward for Office Depot, with double digit service revenue increases in its Business Solutions Division (BSD), and retail division in the first quarter. “They are definitely turning their attention towards services,” says Suzuki, referencing a slide from the company’s 2018 Investor Day presentation that aimed for 20% of sales coming from services by 2020 (that number is currently around 15%). “You have to to use your retail operations to sell some of those services—tech support, copy and print, and so forth—so you want a physical location to have that personal touch.”

While much of the company’s current focus appears to be on BSD, which provides B2B office supplies and services to enterprise customers, a year-old push on something the company calls “Workonomy”—an “umbrella brand” of small business services ranging from tech and printing to shipping kiosks, and now the coworking spaces—could let Office Depot integrate itself into the everyday operations of scores of small businesses. A series of 15 second ads invites small business owners to “meet your marketing/printing/shipping/copy/shredding/tech support department” through 24/7 Workonomy support.

But according to Suzuki, the big question remains: “If they’re not seeing strength in either of their core businesses [North American retail and business solutions], how confident can investors be that performance can improve before the next recession? The first quarter definitely shook our confidence a lot in this recovery.” She downgraded the stock from Buy to Underperform on May 9, and lowered her price objective from $4 to $2.

Which brings us back to those hot desks. With more than 1300 stores in the U.S., Puerto Rico, and the U.S. Virgin Islands encompassing 30.2 million square feet of real estate, a serious move into coworking by Office Depot could be huge. (For what it’s worth, Staples recently ended a trial partnership with WorkBar that put coworking spaces in three Boston-area Staples locations; the company is rebranding them as Staples Studio and continuing the experiment as an in-house brand; an additional location is already open in Toronto.) But for now, Office Depot is taking a “a test and learn approach,” according to a spokesperson, who wouldn’t share any concrete plans for expansion in the near future.

“Ultimately some of what they’re testing may work and some may not,” says Suzuki, “and in turnaround stories there may be bumps in the road.” Whether that road ends up paving the way to an office supply utopia humming with entrepreneurs or just to more empty parking lots remains to be seen.

Perhaps they should consider grain bowls?