[FoRK] GATEWAY stores gone, APPLE stores turn it on

Ian Andrew Bell fork at ianbell.com
Tue Apr 13 17:26:24 PDT 2004

I never thought there was much of a business in selling clones with cow  
spots on 'em at the local strip mall.  Consumers buy on price ...  
unless of course they're buying an Apple product, it seems.



Gateway closes stores, future strong for Apple retail
By Jim Dalrymple MacCentral

Gateway Inc. plans to close its entire network of 188 retail stores  
next week and lay off about 2,500 staff, the PC maker announced  
Thursday. Despite the downturn for Gateway, analysts believe the  
problems are associated with the company and not the larger retail  
market. Through its branding efforts, store locations and unique  
products, analysts feel Apple is well positioned in the retail market.

  "I don't see any correlation between Gateway's shutdown and Apple's  
retail expansion," Jupiter Research Senior Analyst, Joe Wilcox, told  
MacCentral. "For Apple, its stores are as much about expanding brand  
awareness, offering a good Mac buying experience and building a  
stronger Mac community as they are about making money. For a number of  
reasons, including the locations chosen, Gateway wasn't seeing the same  

  The importance of store location is not something that has been  
underestimated by Apple. In a speech last month at the Morgan Stanley  
Semiconductor & System Conference, Apple Chief Financial Officer, Fred  
Anderson told the crowd that Apple had a different strategy then  
Gateway in the retail space.

  "We do not have a Gateway strategy," said Anderson. "We're only  
interested in profitable stores" -- Apple's goal is not to saturate the  
market, he said. Anderson also indicated that Apple wants each retail  
location to be profitable within the first year of operation.

  The Gateway stores will be closed April 9, Gateway said in a  
statement. It will continue to sell products directly to customers over  
the Web and by phone, and will seek to expand its presence in other  
retail outlets, the company said.

  The move comes less than a month after Gateway completed its  
acquisition of PC vendor eMachines Inc. and installed a new chief  
executive officer, Wayne Inouye, who was previously eMachines' CEO.

  For Apple, being different helps to easily differentiate the  
computer-maker's products from anything else on the market -- a problem  
that many Windows-based manufacturers have a hard time doing. Despite  
the fact that Gateway and Apple may have had similar in-store retail  
strategies, Gateway may not have been able to sufficiently  
differentiate itself from the competition to make a difference.

  "Gateway sold few products at the stores, which were more technology  
showcases than cash-and-carry operations," said Jupiter's Wilcox.  
"Interestingly, like Apple, Gateway organized its stores around  
functions, like music and movies. But, like many of its competitors,  
Gateway faced a differentiation problem. Commoditization of hardware  
and use of Windows make many PCs look pretty much the same. By  
contrast, Apple products are easily identifiably as being different,  
whether by computer design or the operating system."

  A spokesman for Gateway acknowledged that the concerns of its channel  
partners were a factor in its decision. "It's indicative of where we're  
heading -- we'll be putting a greater reliance on the retail channel  
and working to reduce our operating costs," said Gateway spokesman Brad  

  The job cuts amount to a 38 percent reduction in Gateway's total  
headcount, leaving it with about 4,000 employees. The vast majority of  
those to be laid off worked in the stores themselves, with the rest  
involved in their operation, Williams said.

  Gateway will offer more details about its branding and channel  
strategy, and discuss any cost implications of the closures, when it  
announces its first-quarter financial results on April 29, the Poway,  
California-based company said.

  Ted Waitt, Gateway's outgoing CEO, remains its chairman and its  
largest stockholder.

  Gateway's revenue took a dramatic dive in the fourth quarter, ended  
Dec. 31, 2003, as its PC business slowed and it worked to reinvent  
itself as a provider of more general electronics gear. Revenue for the  
period dropped to US$875 million, from $1.1 billion a year earlier, the  
company said in January.

  When Apple reported its results for the first quarter of its fiscal  
year 2004, which ended Dec. 27, 2003, the company recorded a net profit  
of $63 million. Apple noted that revenue for the quarter jumped 36  
percent year over year to $2.006 billion -- a four year high.

  For that quarter, Apple reported $273 million in revenue from their  
retail efforts, up 33 percent on the quarter and up 39 percent year to  
year. Apple's retail stores were responsible for moving 73,000 of the  
829,000 CPU units sold in the first quarter.

  "Apple seems to have found the magic touch with respect to retailing,"  
said Wilcox. "The experience shopping at an Apple Store is remarkably  
different than all other computer stores and many operations selling  
other wares. Store design, employee training and experiential selling  
-- meaning let people try the stuff out as long as they need to mill  
about the store -- are all major differentiators. Apple's long-term  
challenge will be gauging the appropriate level of expansion. In some  
ways, Gateway over expanded and ended up more in the real estate  
business than retailing."

James Niccolai contributed to this story.

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