Gateway Pulls Plug on Retail Operations

As the shakeout of its acquisition of eMachines continues, Gateway officials said the company will shut down its remaining 188 retail stores.

Gateway Inc. is closing its 188 retail stores and laying off 2,500 employees as the shakeout of the acquisition of eMachines Inc. continues.

Executives with the Poway, Calif., company announced Thursday they will continue to expand its retail distribution options both in the United States and around the world as they close down their own stores, which should occur by the end of the month.

The move, which most industry observers expected to occur as soon as the $290 million purchase was announced Jan. 30, comes a week after an executive shake-up that saw most of the high-level management positions assumed by former eMachines executives.

As part of the acquisition, Gateway founder and CEO Ted Waitt stepped aside and let eMachines CEO Wayne Inouye assume the post. Waitt will remain as chairman.

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Last week, Gateway announced a new management team populated primarily by eMachines executives. At the same time, the company announced that several of the executives brought in by Waitt over the past year would leave Gateway.

Earlier this week, the company announced it was moving its headquarters from Poway, in suburban San Diego, to Orange Country, near eMachines former Irvine, Calif., base.

Industry observers had said even before the acquisition that Gateways stores were a double-edged sword for the company. While they offered a place for Gateway to demonstrate its wares, they also represented an expense that many competitors, such as Dell Inc. didnt have to carry.

Analyst Rob Enderle took at close look at the closure of Gateways retail operations and its implications. Click here to read his analysis.

Gateway had closed about 90 stores over the past couple of years as it struggled to return to profitability, but last fall it unveiled the first of its refurbished stores.

Gateway executives at the time said the stores played a critical role in the companys push to move beyond its PC making routes and into the role of a systems integrator, offering a wide array of consumer electronics, from digital cameras and personal digital assistants to plasma TVs. The stores also represented a way of displaying its growing list of enterprise products, such as servers and storage devices.

In December 2002, Gateway started a program in which the combined computing resources of the thousands of PCs displayed in the stores—most of which sat on shelves unused—were pooled together to create a grid. Customers could access the compute power to run data-intensive applications.

The American Diabetes Assoc. took advantage of Gateways grid computing project. Click here to read more about it.

At the time of Gateways purchase of eMachines, both Waitt and Inouye touted the synergies that would be realized by combining Gateways direct sales model with the indirect model of eMachines, which sells its products though such retail outlets as BestBuy and Circuit City. Following the announcement, many retailers that sold eMachines products reacted negatively, complaining that they would have to compete against the Gateway stores.

However, at the January briefing with reporters and analysts on the deal, Waitt was questioned repeatedly on that indirect models impact on Gateways own retail stores. There were no plans to start selling eMachines products in Gateways stores, he said. "Were going to try to minimize any conflict between those two" sales channels, Waitt said at the time.

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