Gateway to Close All Retail Locations
Money-losing Gateway Inc. said Thursday that it would close all its retail stores in a week and lay off 2,500 employees, or 38% of its workforce.
Analysts have long said that the computer maker’s retail network incurs overhead costs the struggling company can’t afford. Some store closures have been widely expected in the wake of Gateway’s purchase of low-end computer maker EMachines Inc. last month.
“I think this is absolutely the right strategy for them,” said Charles Smulders, an analyst in San Jose with technology market research firm Gartner Inc.
“The stores were very expensive, and not getting the traffic they needed,” said Smulders, who predicted in a February report that the Poway, Calif.-based company would shutter at least 75% of its 188 retail locations. “They had no choice. The margins in the PC market were so thin they couldn’t justify the stores’ presence.”
Most of Gateway’s stores underwent a $15-million makeover last year overseen by Arthur Rubinfeld, the designer of Starbucks’ coffeehouses. But the remodel, intended to draw in customers for its expanding line of consumer electronics items, failed to provide the revenue boost that had been envisioned.
“We’ve been reviewing the strategic operations of our stores for some time, and the goal had been to get them to profitability,” Gateway spokesman David Hallisey said.
Gateway’s decision to close the stores April 9 was “no big surprise at all,” said Craig Mathias, an analyst with Farpoint Group, a technology strategy firm in Ashland, Mass.
“Streamlining operations is a way to improve the bottom line,” he said. “In retail, anything you can do to get your distribution costs down is a good thing.”
EMachines sells PCs through retailers like Best Buy Co. and Circuit City Stores Inc. Hallisey hinted that Gateway-branded merchandise would soon appear on store shelves, though he declined to offer specifics.
“We think we’re going to be able to focus more heavily on third-party retail distribution, making our products more readily available to consumers and businesses,” he said, adding that Gateway is in talks with potential retail partners.
Further details will come when Gateway announces its next quarterly earnings April 29.
Analysts said they expected Gateway to position EMachines computers as entry-level products and Gateway computers and consumer electronics devices as a premium brand.
“You might see them side by side, but I think that’s a bad idea,” Mathias said.
The announcement came after the close of stock markets Thursday. Gateway shares rose 12 cents to $5.30 in regular trading on the New York Stock Exchange, and gained an additional 10 cents in after-hours trading.
Gateway lost $526 million last year on sales of $3.4 billion and has turned in eight consecutive quarters without profit.
After the stores are shut, consumers will continue to be able to purchase Gateway PCs, DVD players, digital cameras and music players online and over the telephone. Gateway will take care of customers who currently have items being serviced in stores, and future repairs will be handled over the Internet and phone. When necessary, owners will be able to ship devices in need of repair to Gateway service centers, Hallisey said.
Employees had been expecting layoffs since Wayne Inouye, chief executive of EMachines, was named CEO of Gateway. Inouye, a 51-year-old retailing veteran, is known as a tenacious cost-cutter who limits business lunches to $5 a head.
Nevertheless, the move darkened the mood of workers at Gateway’s headquarters, who this week were told that the home office would be transferred to an as-yet-undecided location in Orange County.
“People are of two minds,” said one employee, who spoke on the condition of anonymity. “This is something to get the company back to sustained long-term profitability, and that’s a good thing.
“On the other hand, the stores were part of what made Gateway special, a great differentiator and a brilliant idea. But they were no longer right for the times, and that’s a bitter pill to swallow.”
