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Gateway closing its stores; 2,500 workers to lose jobs

By Elliot Spagat
The Associated Press

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POWAY, Calif. — Troubled computer maker Gateway announced yesterday that it will shutter all of its retail stores next week, eliminating 2,500 jobs, or nearly 40 percent of its work force.

The company, based in the San Diego suburb of Poway, said its 188 stores will close on April 9 and workers will be dismissed as the store operations wind down.

The move affects Gateway stores in Lynnwood, Redmond and Tacoma. The company also closed its store in downtown Seattle in 2002.

The company, which recently posted its 12th loss in 13 quarters, said it is exploring other ways to sell its wares in United States and abroad but declined to elaborate. It said it would provide details when it releases first-quarter results on April 29.

The move comes three weeks after Gateway completed its acquisition of eMachines for $290 million and named Wayne Inouye its new chief executive, the same job he held at eMachines. Inouye replaced Gateway founder Ted Waitt, who remains the company's chairman.

Inouye turned around privately held eMachines in 2001 and led the low-cost PC maker to nine straight quarters of profits on a lean operation of only 138 employees.

He has wasted no time making his mark at Gateway.

On Tuesday, Gateway said it will move its headquarters north to Orange County, closer to home for many of the executives who worked at Irvine, Calif.-based eMachines.

The decision to close the money-losing stores came as no surprise to industry watchers.
 
"It is an absolute positive," said Robert Cihra, an analyst at Fulcrum Global Partners, a securities firm in New York. "As long as those stores were there, it was going to be very difficult for them to become profitable."

Gateway has gradually cut its store count from a peak of 322 and slashed its work force from nearly 25,000 in 2000. In an effort to halt its slide against industry heavyweights Dell and Hewlett-Packard, it rapidly expanded into consumer electronics last year, but that effort has yet to pay off.

In what turned out to be a last-ditch effort to save the stores, Gateway spent $35 million last year to remodel them.

"From day one, they never properly used the stores," said Stephen Baker, an analyst at NPD Group in Port Washington, N.Y. "They always approached it halfheartedly and treated the stores like a stepchild. It came back to bite them."

Gateway said it will continue to sell online and over the phone. It has not said whether it will pursue sales through third-party distributors. Baker said he expected Gateway's strong name recognition would entice some chains to carry its products.

Gateway's purchase of eMachines troubled some chains that sell eMachines' gear, notably Best Buy, the nation's largest consumer electronics retailer. Brad Anderson, Best Buy's chief executive, said last month that he worried about the link between eMachines and Gateway, whose stores competed against Best Buy's.

In January, when it announced plans to buy eMachines, Gateway said it would keep both brands but declined to say where the products would be sold.

Last year, Gateway's PC shipments fell 24 percent to about 2.1 million units. EMachines shipped 1.9 million PCs last year, meaning the acquisition effectively doubles Gateway's PC business.

Gateway and eMachines each had about 3.4 percent of the U.S. market in the fourth quarter of last year, according to research firm IDC. By comparison, Dell and HP commanded more than half.

Still, Gateway ended last year with $1.09 billion, giving it some cushion against future losses.

"They have plenty of cash," Cihra said. "I was not a fan of a lot of Gateway's previous restructurings, but eMachines is a completely different move. Instead of focusing on getting smaller and smaller, they are doubling down on the PC business and getting back into international markets."

Gateway was founded by Waitt in 1985 in an Iowa farmhouse and evolved into one of the world's biggest and most influential computer makers over the next decade. The company is known for its distinctive cow-spotted boxes, a tribute to its farm heritage.

About 550 of its 6,500 workers are based at its headquarters.

The Gateway stores will all close on the same day. Spokesman David Hallisey said the company will sell its inventory in a sale beginning tomorrow.

Copyright © 2004 The Seattle Times Company