Gateway closing all of its stores, cutting 2,500 jobs

Friday, April 2, 2004

SAN DIEGO -- Computer maker Gateway Inc. announced Thursday that it will shutter all of its stores next week, eliminating nearly 40 percent of its work force in a move aimed at breaking out of a three-year slump. The company said it will eliminate 2,500 jobs as it closes all 188 stores. The businesses will close April 9 and workers will be dismissed by the end of the month.

Gateway, known for its distinctive cow-spotted boxes, has experienced a series of problems in recent years.

The company has posted only one profitable quarter over the past three-plus years and has gradually cut its store count from a peak of 322. Gateway has slashed its work force from nearly 25,000 in 2000, and will have about 4,000 employees after the cuts take effect.

In an effort to halt its slide against industry heavyweights Dell Inc. and Hewlett-Packard Co., Gateway rapidly expanded into consumer electronics last year, but that effort has yet to pay off.

The decision to close the money-losing stores came as no surprise to industry watchers.

"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."

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.

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.

Spokesman David Hallisey said the company will sell its store inventory in a sale beginning Saturday.

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

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. Its cow-spotted boxes are a tribute to its farm heritage.

The company moved its headquarters to the San Diego area six years ago.


On the Net:

http://www.gateway.com

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