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Office Depot Scaling Back CE

9/11/2009 10:41:16 AM Eastern

New York - Office Depot is reducing its commitment to consumer electronics as part of an effort to increase margins and improve profitability.

 The office-supply chain's CE offering represents about 25 percent of its sales mix and is comprised largely of notebook computers, a traditionally low-margin category.

Its pullback from that business has already cost it sales, acknowledged Michael Newman, Office Depot's executive VP and chief financial officer, which it was willing to sacrifice for the bottom line.

"We mixed away from consumer electronics [to] drive profitability and margin improvement," he told investors here yesterday during a Goldman Sachs retail conference. "We want to remain relevant in CE, but don't want to overly rely on it."

As a result, Office Depot's sales have lagged those of channel rivals Staples and OfficeMax, Newman noted, while its decision to not be "overly promotional" in CE contributed to the category's underperformance during the back-to-school period.

As part of its plan to boost margins, the company will focus instead on services, including its Tech Depot IT support program. It has also increased its assortment of private-label and direct-import products, and is testing a new, smaller format for its stores.

The new format, which ranges from 15,000 square feet to 16,000 square feet, is proving as productive as the current average store footprint of 24,000 square feet, Newman said, and could help the company reduce the half-billion dollars it spends annually in rent.

Newman joined Office Depot in August 2008 and had previously served as chief financial officer of RadioShack from 2001 to 2004.

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