Best Buy CEO ‘Troubled’ by Gateway’s EMachines

Best Buy Co. Chief Executive Brad Anderson said Thursday that he was troubled by Gateway Inc.’s purchase of EMachines, because Best Buy sells EMachines computers in its stores, but also sees Gateway as a rival retailer.

Gateway sells PCs both through the Internet and in its own boutique consumer electronics stores -- pitting it in some markets against Best Buy.

“I think we will continue to sell EMachines, but we are troubled with the connection there,” Anderson said.

In January, Gateway bought EMachines Inc., the fourth-largest PC maker in the U.S., behind Hewlett-Packard Co., Dell Inc., and IBM Corp. The deal was worth $290 million.

Gateway, based in Poway, Calif., said the EMachines deal would double its flagging share of the PC market and give it a distribution line into major retailers such as Best Buy and CompUSA.

Gateway’s 190 stores are dwarfed by Best Buy’s more than 500 locations, but many operate in the same cities as Best Buy. So with EMachines, Best Buy is selling a competitor’s merchandise.

“In this case, Gateway is a retailer, in addition to a manufacturer, and they retail in physical presence as well as online,” Anderson said. “So that makes it not impossible, but more challenging for our business.”

EMachines, which was privately held, has carved out a niche in the low-end PC market, where machines cost $500 or less, an area where Gateway has struggled.

Analysts have speculated that once Gateway digests EMachines, it will probably close most, if not all of its stores, depending in part on how they fare with shelf space and sales at “big box” electronics retailers.