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TWST: So in a slowing economy or a recession are these the stores that the Kmart or the Wal-Mart customer can trade down to?

Mr. Mandel: That's a good point. Yes, they can. That is one of the mitigating factors that would ease the impact of an economic contraction. Although their low-income customers would perhaps be more vulnerable to an economic downdraft than white-collar professionals, there are several mitigating factors, and trading down from Wal-Mart and Kmart is one. A minimum wage increase, which we think is likely, is another factor. The fact that the average purchase size is only $6 - $8 is yet a third factor. Finally, the non-discretionary nature of the typical purchase, which increasingly consists of basic necessities, would serve to lessen the impact of an economic contraction.

TWST: May we just have a few words about the office products companies, that you have followed closely for a long time? As we were talking you indicated that this is a sector that has done quite well.

Mr. Mandel: Yes, finally sentiment has improved for the office products stocks, and I think there are two explanations. First, valuations got to an extremely depressed level. Second, we are finally starting to see rationalization in terms of the store expansion programs by at least two of the three players. Both Office Depot (NYSE:ODP) and Office Max (NYSE:OMX) have announced a significant number of store closings, a slower rate of store openings, and a smaller store prototype. We believe the announced store closings are a precursor to further rationalization. A lot more needs to unfold in this regard to really improve the financial picture for the industry. But I think this is an important first step. Certainly the fundamentals of the business remain difficult. If you look at their business category by category, there are not many reasons for excitement, whether it’s their PC business or office furniture. Even in general office supplies, the bread and butter of this industry, there has been increased competition surrounding certain seasons, like back-to-school. The move into providing and offering business services, such as cellular phone service, etc., has met with fairly stiff competition from the consumer electronics players. So there are not many near-term fundamental reasons to get excited. But my view is this is still a business where the demand for the products and services will increase at least as fast as GDP.

TWST: How successful has the international business been for Staples and Office Depot?

Mr. Mandel: It varies. Staples (Nasdaq:SPLS) has opened a chain of stores in the UK and Germany. They have struggled to get the format up to their standards, but there are indications that their efforts are bearing fruit. They have also taken Quill, the direct marketer that they acquired in the United States, over to the United Kingdom, but so far they haven’t been very successful with it. Staples also made several strategic acquisitions in Europe last year, bringing their store base to about 140 units and extending their presence into the Netherlands and Portugal. Europe is a key to their future growth.