July 31 (Bloomberg) -- Staples Inc. and Wal-Mart Stores Inc. are slashing laptop prices and expanding their selections for the back-to-school shopping season, banking on the computer demand to sell more profitable accessories and services.

Staples, the largest office-supplies retailer, boosted its portable computer selection by 50 percent, while Wal-Mart, the world’s largest retailer, is selling out of a $298 Compaq Presario model in some stores.

Those retailers, along with Best Buy Co., are looking to cheaper laptops to entice customers to buy the external hard drives and bags that are three times as profitable as the computers, according to Stephen Baker, an analyst at NPD Group. Consumers spend almost as much on the extras as they do on the hardware; last year, people bought 89 cents’ worth of accessories for every $1 spent on PCs, said Bob O’Donnell, an analyst with research firm IDC.

“The retailers have done a great job of layering items onto that purchase,” said Lauri Brunner, a Minneapolis-based analyst at Thrivent Asset Management, which owns Wal-Mart, Staples and Best Buy shares among the $67 billion in assets it manages.

Laptop shipments are expected to climb 4.1 percent this year, tempering a 16 percent decline in demand for desktop PCs, according to market researcher Gartner Inc. Revenue may total $113 billion. By Bloomberg calculations, retailers could get an $11.3 billion slice of that, assuming profit margins of 10 percent. That compares with $30.3 billion they could make on accessories.

Gross Margins

“In this kind of environment, retailers are willing to go after just about any category that’s doing well,” Bradley Thomas, an analyst with KeyBanc Capital Markets in New York, said in an interview. “If it comes at the detriment of gross margin, so be it. Hopefully they can sell accessories and service plans.”

Best Buy, the largest electronics retailer, and Bentonville, Arkansas-based Wal-Mart stand to gain the most customers, Brunner said. Wal-Mart has expanded its consumer electronics sections to lift sales among its weekly grocery shoppers. Best Buy has gained 2 percentage points of market share in the three months ended April 30, helped by laptop sales, the Richfield, Minnesota-based company said on a conference call last month.

Best Buy rose 64 cents to $37.37 at 4 p.m. in New York Stock Exchange composite trading. It has gained 33 percent this year. Wal-Mart fell 10 cents to $49.88 and has lost 11 percent this year. Staples rose 7 cents to $21.02 on the Nasdaq Stock Market. It has gained 17 percent this year.

Back to School

Staples, based in Framingham, Massachusetts, has about 4 percent of the personal computer market and wants to expand that, Mike Miles, chief operating officer, said in an interview this month.

“We can double or triple our share of the PC market relatively easily,” he said. “It’s a matter of advertising and investing in the stock. The challenge is we still struggle to break even on the sales of the hardware.”

The back-to-school shopping season, which runs from mid- July to mid-September in the U.S., makes this quarter Staples’s busiest by sales, accounting for 30 percent of annual revenue in 2008.

$298 Laptop

The chain is raising the number of laptop models it carries to as many as 20 in its busiest stores, said Jevin Eagle, executive vice president of merchandising and marketing. It is also expanding its services group, EasyTech, to provide PC tune- ups and home wireless network setup, competing with Best Buy’s Geek Squad.

Research firm IDC, also based in Framingham, expects 2009 notebook shipments in the U.S. to rise 7 percent while desktop shipments may decline by about 13 percent, said Loren Loverde, a PC analyst with the firm.

Wal-Mart has been expanding its electronics department in recent years and is carrying 40 percent more laptops this season, said Melissa O’Brien, a spokeswoman. The company doesn’t break out its electronics sales. It began carrying a $298 Compaq Presario laptop from Hewlett-Packard Co. with 3 gigabytes of memory on July 26, and some stores have already sold out, O’Brien said.

Best Buy will carry more than 45 different laptops, similar to last year, Paula Baldwin, a spokeswoman, said in an e-mail. The company offers some bundled packages that combine a laptop with Geek Squad services, and it is testing an unlimited monthly service plan in the U.K., said Robert Stephens, founder and chief inspector of Geek Squad.

While hardware profit margins are shrinking as prices fall, margins on services “will always be higher,” Stephens said. The company got about 7 percent of first-quarter sales, or about $179.9 million, from services, which includes the Geek Squad and other plans.

“It’s like the movie theater: They don’t make money on the tickets; they make it on concessions,” Stephens said in a July 28 interview. “Services are the final frontier against margin erosion.”

To contact the reporters on this story: Courtney Dentch in New York at cdentch1@bloomberg.net; Mark Clothier in Atlanta at mclothier@bloomberg.net

Last Updated: July 31, 2009 16:23 EDT