Gateway Moves To Reinvent Web, Store Operations

POWAY, CALIF.— With a new reorganization underway, Gateway is bent on reinventing itself as something akin to a scaled down CompUSA, said several industry watchers.

Gateway reported that it would close 76 stores and slash about 1,900 jobs in an attempt to generate $200 million in savings and get the PC vendor and retailer back on a healthy financial footing. In addition, the company hopes to save another $200 million through component cost reductions, supplychain efficiencies, manufacturing productivity and end-to-end warranty costs. Most of the positions cut will come from the company's retail sector.

"We're taking the tough but necessary steps to continue our transformation and back to healthy growth," said Gateway chairman Ted Waitt in a statement.

The end result of this transformation should be a markedly different Gateway Country Store chain, one that resembles CompUSA with its recent trend of adding CE products.

"We will see a hybrid store that will try and out-CompUSA CompUSA," said Steve Baker, IT research director for The NPD Group.

Gateway announced plans to expand its consumer electronics and computer product lines and make additional alterations to its Country Store chain.

Gateway, which introduced a branded 42-inch LCD TV last year, will flesh out its consumer electronics merchandise mix with the addition of more digital displays, audio products and video gear. In its core computer products segment Gateway said it will focus less on hitting low price points and instead deliver higher margin PC systems. The company plans to enhance its mobile computing category by adding PC Tablets and handheld computers to the mix.

Baker said making this change will not be easy for Gateway, but the company has the potential to be successful. "It will need to manage its footprint to sell to both consumers and the business-to-business market," Baker said, "The CE business has never fully embraced nor been successful selling direct, so Gateway has an opportunity to do this."

Other challenges Gateway's retail plan faces include dealing with industry leader Best Buy and selling PCs in a saturated market. Several analysts said Best Buy is simply too strong for Gateway to handle, although Baker said the company could take on a spoiler role by coming in with very aggressive pricing for its new CE products. Gateway managed to grab a healthy share of the flat-panel market with its 42-inch model and this strategy could again work in its favor, he said.

Despite eliminating about 29 percent of its Country Store chain, Gateway intends to upgrade the layout of its remaining stores to better handle its newly diversified product mix. While the company did not discount shedding more non-profitable stores, Waitt said in a written release that he is looking into several new retail concepts that would be unveiled this spring. There are now about 200 Gateway Country Stores operating.

Gateway did not return phone calls for this story.