OfficeMax Leasing PC Business To Gateway

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OfficeMax is handing over its PC business to Gateway.

Under terms of a five-year strategic alliance, the nation's number-three office supply chain will supplant its computer departments -- and scattered IBM kiosks -- with in-store Gateway shops beginning late next month. The shops will be manned by Gateway employees, and will be rolled out to all 950 OfficeMax superstores by the first quarter of 2001.

The deal enables OfficeMax to exit its underperforming PC business while still maintaining a presence in the category, and will allow it to focus on its more profitable core operations including office supplies, furniture and printing. In turn, Gateway, which operates about 240 freestanding Gateway Country stores, will gain a dramatically expanded retail presence. Said Gateway CEO Jeff Weitzen, "This alliance will allow us to talk with millions of new potential customers each year."

The pact also provides cross-marketing opportunities in cyberspace. For example, each partner will enjoy category exclusivity and prominently displayed advertising on the other's e-commerce site, while OfficeMax.com's icon and hot link will appear on the desktop of all Gateway PCs.

Terms call for Gateway to invest $50 million in OfficeMax convertible preferred stock, with $30 million earmarked for OfficeMax and the balance designated for OfficeMax.com. In addition, OfficeMax will collect rent from Gateway for the leased in-store shops, and both partners will participate in an e-commerce revenue sharing plan.

OfficeMax is terminating a current, and comparable, in-store arrangement with IBM, which was the model for its latest alliance. "This whole concept was born our out of our test with IBM," an OfficeMax spokesman conceded. "IBM was a great partner, but their strategy is to not pursue a retail model, while Gateway is looking to expand its retail presence."

IBM's 34 stores-within-a-store will be converted to Gateway shops next month as part of the first wave of new installations. Gateway added that it will integrate the operations of its freestanding Country stores and its OfficeMax shops into one unit to achieve greater economies of scale.

OfficeMax chairman Michael Feuer said that the relationship "will enable us to better serve our small- and medium-size business customers and individual consumers by giving them the opportunity to buy build-to-order computers from the country's premier computer maker and marketer." He added that his company's change in PC strategy will be a "major vehicle for us to differentiate our stores from other office superstore operators, and will enable OfficeMax to continue to focus on our more productive, core categories."

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