Gateway to Close All Retail Shops

Gateway plans to close its entire network of 188 retail stores next week and lay off about 2500 staffers, the PC maker has announced.

The stores will be closed April 9, Gateway says in a statement issued Thursday. The vendor plans to continue selling products directly to customers over the Web and by phone, and will seek to expand its presence in other retail outlets.

EMachines' Influence

The move comes less than a month after Gateway completed its acquisition of PC vendor EMachines and installed a new chief executive officer, Wayne Inouye, who previously was EMachines' CEO.

Part of Gateway's motivation for buying EMachines was to have access to its retail channels, which include most of the big electronics stores in the United States, says Rob Enderle, principal analyst with The Enderle Group. Those electronics stores provide a better outlet for Gateway to sell its products, particularly as it tries to expand beyond PCs and into consumer fare such as flat-screen TVs, Enderle says.

Maintaining its own network of stores would have put Gateway into conflict with the other retail outlets, so a decision to close its own properties was an obvious one to make, Enderle says.

"Gateway made a strategic decision: Either the [Gateway] stores had to go, or the retail channel had to go," he adds.

Gateway's Perspective

A Gateway representative calls Enderle's assessment an oversimplification, but acknowledges that the concerns of its channel partners were a factor in the decision.

"It's indicative of where we're heading--we'll be putting a greater reliance on the retail channel and working to reduce our operating costs," says Brad Williams, a Gateway spokesperson.

The job cuts amount to a 38 percent reduction in Gateway's total head count, leaving it with about 4000 employees. The vast majority of those to be laid off worked in the stores themselves, with the rest involved in their operation, Williams says.

Gateway will offer more details about its branding and channel strategy, and discuss any cost implications of the closures, when it announces its first-quarter financial results on April 29, the company says in a statement.

Year of Change

Ted Waitt, Gateway's outgoing CEO, remains its chair and its largest stockholder.

The company's revenue took a dramatic dive in the fourth quarter, which ended December 31, as its PC business slowed. Gateway has worked to reinvent itself as a provider of more-general electronics gear. Revenue for the period dropped to $875 million, from $1.1 billion a year earlier, the company said in January.

Gateway's purchase of EMachines was valued at more than $234 million in cash and stock when the deal was announced early this year. With the buy, Gateway said it hoped to become the third-largest PC company in the U.S. and the eighth-largest PC vendor in the world.

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