[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
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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