It's the night before Father's Day, and the electronics stores along New York City's 57th Street are rustling up business. Radio Shack is staying open late, and down the block, a CompUSA ( CPU) employee wearing a red-and-white uniform waves customers into the 50,000-square-foot superstore with flyers announcing current sale items. But he keeps a close eye on the black-and-white sign across the street that boldly proclaims "Gateway Country." "I really like it in there," says the CompUSA employee, who naturally wants his name kept secret. "They do one thing, and they do it well." Gateway's ( GTW) spotted cow motif has spread far and wide from Sioux City, Iowa, where the company started as a direct seller of fast PCs 14 years ago. Since then, the company, which recently moved its headquarters to San Diego, Calif., has developed a number of different strategies for selling its computers. Gateway's 164 down-home Country stores have been quietly spreading into cities across the nation, often right across the street or across the mall from the local CompUSA or Circuit City ( CC). The barn-like stores, complete with a silo and cedar wood paneling that would make Bob Vila proud, display Gateway's full line of PCs and peripherals. In the PC market lately, it seems as if a company needs a multitude of models to compete in the consumer and corporate arenas. In just three years, Gateway has become a major player in the hardware industry by finding imaginative ways to sell what is essentially a commodity object -- the PC box. Even Apple ( AAPL), the onetime icon of cool, is rumored to be eyeing Gateway's success. Gateway provides Internet access and has its own portal site offering software, computer peripherals, service and training. Gateway also offers financing for consumers wanting to purchase a company PC. "We have to go after the entire puzzle," says Gateway CFO John Todd. And the stores are a big hit. "This place is definitely better than CompUSA," says Jay Seitz, a psychology professor trying out a Gateway PC with a flat-panel display that costs $2,600 (or $59 a month in 48 payments). Seitz is impressed that the staff knows what it's selling, and he appreciates it. "We're ready to lay down some gold plastic." Those words must be music to CEO Ted Waitt's ears. No wonder that, in contrast to the rest of the PC industry, Gateway's gross margins have actually risen over the past year, climbing to 21.4% in the first quarter of 1999 from 19.5% in the year-earlier period. The company earned $100 million, or 62 cents a share, in the first quarter this year, generating revenue of $2.1 billion on 1.1 million PCs sold.
|Gateway's Country Stores Keep Stock Price Afloat |
The company's "beyond the box" sales initiatives are winning over Wall Street.
Thinking Outside the BoxGateway's strategy over the past three years has been to think beyond the PC box. After Gateway introduced the Country store concept in 1996, it developed gateway.net, the company's own ISP service, in 1997. In 1998, Gateway launched its YourWare program, a financing plan that allows customers to upgrade to a new PC and return the old unit to the company. The triple strategy is winning plaudits everywhere. "Of all the PC guys, Gateway has this business best figured out," says Jeff Matthews, a money manager with Ram Partners. Matthews, who doesn't have a Gateway position because of valuation concerns, points out that Gateway's Country stores are built to sell computers and that's it. "I had only planned on buying one PC when I went there, but I ended up buying two," says Matthews.
|Gateway's Country Stores|
|Selling PCs out of the barn|