Gateway Unveils Overhaul Plans

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Gateway will implement several new product development, pricing and retail strategies this year that will include "disruptive" pricing practices geared toward quickly gaining market share in new categories.

An entirely new Gateway should emerge from these changes — one that will see CE products gain almost equal stature with the company's traditional computer base, said Brad Williams, Gateway's corporate communications VP. The company is also banking on these changes, tied to a string of layoffs and stores closings earlier this year, to put Gateway back on a strong financial footing.

The high level of importance Gateway is placing on its new direction is obvious when compared to the speed at which it will implement the changes. Starting next month each of the chain's 200 remaining stores will be upgraded, to one degree or another, and five new concept stores will be developed and opened by the end of 2003. On the merchandise side, 50 new Gateway-branded products spanning 15 categories will be introduced and go on sale at Gateway Country Stores and online, said Williams.

"These moves are part of the company's Branded Integrator Strategy giving consumers a single point of contact for digital entertainment solutions, said Williams.

The concept stores will each have a different footprint and Gateway will draw from these ideas to develop a final store layout for new locations, Williams said.

Outside the physical changes being made, what should gain the most notice is Gateway's new pricing strategy. The company said it has adopted a four-tier system. Market pricing, which will place products within 5 percent of the going rate, competitive, very competitive and finally, disruptive. Disruptive will position a device's price as much as 50 percent below the market.

"This will drive us toward taking share in high-growth categories," said Williams.

Gateway has already tested the disruptive pricing waters with its introduction last year of a 42-inch plasma television at $2,999. Williams claimed that despite the low price a healthy margin was still retained. Williams said Gateway uses its established relationships with overseas manufacturers and direct marketing abilities to cut prices.

Gateway is keeping the details of the store alterations close to its vest at this point, but Williams said they will include altering the new stores to sell CE equipment and add warehouse space where needed. The current stores were designed as showrooms where customers would order products to be shipped directly to their homes. Support space will be added for Gateway's home theater and computer custom install A/V business.

The Country Stores already offer computer installation for customers, but the addition of high-end TV and home theater equipment, Williams said, necessitate offering installation.

The company was also vague on what CE products it would introduce and when they would be available. Williams would not be pinned down on specifics, but said three new LCD TVs with screen sizes between 17 inches and 25 inches, some with 16 by 9 aspect ratio, will be part of the lineup. In addition, a home theater in a box kit, a connected DVD player and a DLP projector along with a variety of software and accessories like flash memory, cables and USB hubs would soon be offered.

When completed these changes will greatly alter Gateway's financial base. Non-PC revenue will comprise 25 percent of all sales in 2003. This will increase to 23 percent in 2004 and 40 percent in 2005, the company said at an analyst meeting on May 8.


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