It's Back To Basics For Retooled Gateway

By Doug Olenick On Feb 12 2001 - 8:00am




SAN DIEGO -Gateway may not relocate its headquarters back to the South Dakota prairie, but industry analysts believe the company will likely return to its direct-mail roots after the major shakeup it underwent late last month.

Heads rolled at Gateway, with a slew of senior executives, including the CEO, being unceremoniously pushed out by company founder Ted Waitt, who reclaimed the CEO slot. In the wake of Waitt's decision to replace most of the company's upper management team, analysts said that Waitt's first move should be to go back to Gateway's core business of selling PCs.

Waitt, who remains chairman of the board, replaced Jeff Weitzen, who handed in his resignation upon word of Waitt's move. Weitzen held the post for just over one year and oversaw the continued expansion of Gateway's Country Store chain and the inclusion of mini- stores inside OfficeMax facilities.

Industry analysts believe Waitt will try to bring Gateway back to its roots.

"With his [Waitt's] history you'll see more of a concentration on the PC and not the other stuff [beyond the box, connected devices etc.], and less emphasis on selling through other channels than Gateway only. More focus on direct, Internet and through the stores," said Steve Baker, director of hardware analysis at PC Data, Reston, Va.

Michael Flink, a VP with Levin Consulting, Beechwood, Ohio, called Weitzen's beyond-the-PC services and retail expansion initiatives questionable and unimaginative. "The OfficeMax deal makes more sense. They get real estate at a lower cost, and it's potentially a home run for Gateway, but that still needs a focus," he said. "The [Gateway] salespeople in the OfficeMax stores need to be more retail oriented and not behave as if they are taking orders over the phone."

The company's market share suffered during the past year, with International Data Corp. and Dataquest's fourth-quarter 2000 sales reports indicating that Gateway lost about 1 percentage point of share for the quarter, compared with the same period in 1999. The company also missed its profit target for the fourth quarter.

Getting back to the basics may not be that simple for Gateway because much of its business now depends on non-PC sales. The company reported that beyond-the-box sales of products and services were the lone bright spot in the fourth quarter, accounting for 24 percent of revenue and 100 percent of operating income.

ARS desktop PC analyst Toni DuBois, said Gateway has simply not taken advantage of its inherent advantages and will start making aggressive price moves.

"Dell's 12 percent competitive edge [in pricing] is huge, especially in a time of escalated opposition, and clearly establishes that Dell is benefiting from its direct model strategy, allowing for the best price per performance through aggressive and timely component pricing," DuBois said. "Gateway has the same crucial advantages in its direct model, but is not effectively implementing them."

While noting that retaining Mike Hammond as VP of global manufacturing was a smart move, Flink said that Waitt should be on the lookout for a top-notch retail executive. Such a person could help plug the huge holes that still remain in Gateway's retail operation, he said. "They have a hard time getting traffic into the Gateway Country Stores, and the fact that people have to pay shipping and tax even when buying through a store is a flaw."

The other changes instituted by Waitt had Joe Burke replacing John Todd as senior VP and chief financial officer. Previously, Burke was senior VP of global business development. Todd will leave Gateway to pursue other interests.

Bart Brown was named senior VP of Gateway's consumer division, replacing Cliff Holtz, who will leave the company. Brown had been serving as VP in charge of the company's beyond-the-box sales strategy that focuses on selling services. Dave Russell will become senior VP of supply chain management.

In addition to Hammond, Sue Parks retained her job and title of senior VP, Gateway business.

Several additional senior management positions are expected to be eliminated.

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