Updated from April 1 Gateway ( GTW) has decided to shutter all 188 of its remaining retail stores, effective April 9. The company will continue to sell its computers and consumer gadgets over the Internet and by phone. The downsizing will cut about 2,500 retail jobs out of a staff of 7,400 at year-end 2003. The announcement comes shortly after the ascension of a new CEO, Wayne Inouye, who replaced Gateway Founder Ted Waitt. Inouye was head of privately held eMachines, which Gateway
announced it would acquire on Jan. 30. As further evidence of the increasing sway of eMachines at the new company, Gateway last week announced a management team slate made up largely of executives from eMachines. The move was favorably received on Wall Street; Gateway shares were recently up 59 cents, or 10.9%, early Friday. The sweeping store closure marks a wholesale retreat from the most recent in a string of unsuccessful turnaround plans at Gateway. Last spring the company outlined a plan to remodel its folksy retail stores into sleek emporiums where it could upsell PC buyers on expensive fare like flat-panel TVs and home theater systems. Gateway became the first PC outfit to mount an aggressive push into high-end consumer electronics, paving the way for Dell ( DELL) and Hewlett-Packard ( HPQ). But though the strategy met with some success on the consumer gadgets side, sales in Gateway's core PC business have continued to flag amid a rebound in the broader market. Spokesman David Hallisey said Gateway plans to offset the closure of its stores by lining up new retail partners. "Third-party retail distribution is going to be more of our focus. Through that we hope to have expanded retail availability of both PCs and consumer electronics products," he said.
New CEO Inouye brings strong retail credentials to the task, as a onetime senior executive at Best Buy ( BBY). Analysts have remained skeptical of Gateway's repeated pledges that it will return to profitability, in part due to the high fixed cost of operating its stores. In March of 2003, bowing to such pressures, Gateway said it would shut down 70 stores out of a total of 280 at the time. In January, when it acquired eMachines, Gateway said it should return to profitability for 2005, helped by increased sales volumes and cost savings. But analysts have remained doubtful, as reflected in the consensus estimate for a loss of 39 cents in 2005. The company will offer a more comprehensive update of its strategy when it delivers earnings on April 29, Hallisey said.