Gateway Closing Its Retail Stores Is A Good Thing For The Company's Future

I picked up the Yellow Pages and tried to find a General Electric store but couldn't locate one in the listings. Must be because GE doesn't advertise its stores in the Yellow Pages, I thought. So I decided to just get in the car and drive to the busiest shopping area in my general vicinity. Surely, I could find the GE store. Heck, GE, the largest manufacturer in the world, sells everything from jet engines to toasters; it must have stores to peddle their wares.

But no matter how much gas I burned, there wasn't a single one in sight.

If GE, a company with what arguably could be the biggest hard-goods product line in the world, doesn't believe it makes sense to have its own stores, why did Gateway believe the concept would work for it?

As you probably know by now, Gateway, which recently purchased privately held eMachines and is now being run by Wayne Inouye, the chief executive of the acquired company, said last week it will close all its Gateway retail stores.

Smart move, and Inouye, a former Best Buy executive, ought to be commended for doing it quickly.

But Inouye, who I've never interviewed but who seems to be unafraid to make hard decisions quickly, is anything but out of the woods yet.

Despite having some $1 billion in cash on its balance sheet as of the end of last year, Gateway has posted losses in 12 of the last 13 quarters.

Gateway had a huge opportunity to capture share in the white-box market, especially at the high end of that market, when it purchased ALR several years ago, but it let that opportunity slip away. Two distinctively different brands can be an advantage, allowing a company to use different channels with different brands, minimizing conflict.

My bet is Inouye is going to make a decision soon as to whether Gateway will remain in the value-added portion of the channel or merely stick to the retail side of the world.

Gateway does have a value-added channel program. While it has not invested heavily in that program, there is enough traction and interest for Inouye to build on, if he so chooses.

But he is going to have to come out soon and declare whether Gateway is in or out of the channel.

There are lots of questions surrounding the future of Gateway, and solution providers invested in pushing the company brand are going to be getting a lot of questions from their customers regarding the company's future in the business market. Solution providers need an answer so they can calm any fears their business customers may have.

Inouye and the eMachines-dominated management team have their work cut out for them. The good news for them is they also have some things going their way.

The value-added channel is most certainly ripe for an alternate, competitive, low-cost brand. Customers and solution providers both like choice.

Inouye and his team certainly have experience driving costs out and turning around a troubled PC company. Let's not forget that eMachines was in trouble before Inouye took it over back in 2001.

Getting rid of the drain in resources that the storefronts were costing can only help.

If Inouye can drive Gateway's costs down and build on the position it has in the value-added channel, he just might be able to make this whole thing work.

Make something happen. I can be reached at (516) 562-7812 or via e-mail at [email protected].