Gateway PC stores a surprise hit

Gateway is increasingly relying on company-owned retail stores to sustain its success in the consumer and small business market, racking up impressive sales figures at these single-brand storefronts.

The direct vendor opened its first Country Store in September of 1996, and now boasts some 68 retail outlets selling Gateway computers and related peripherals. The stores account for over $180 million in quarterly sales, according to analyst estimates from financial services firm Piper Jaffray.

While such sales represent about nine percent of overall revenues, Gateway more and more views its Country Stores as a way to increase unit shipments to its consumer and small-business market stronghold, company executives have said. In a conference call this week, Gateway CEO Ted Waitt told financial analysts the company has an underutilized asset in its Country Stores, and is looking to become more aggressive by expanding store hours.

Results from some recently opened stores are impressive, say analysts. According to a report from Associated Research Services, a market research firm covering the retail industry, a newly opened store in Mission Viejo, California, is now generating over $2 million a month in sales.

"The retail locations are significantly smaller than the computer superstores that dominate retail. However, early indications are that these smaller specialty stores are achieving sales figures only dreamed of by its competitors," the report's author, Matthew Red, said in his report.

Gateway executives were not available for comment.

Rival vendors such as Compaq, Hewlett-Packard, and Dell are also beginning to look to the small business sector as a way to grow sales because large corporate accounts are becoming relatively saturated, said Kevin Hause, a PC market analyst with International Data Corporation.

"It's interesting that Gateway is entering the realm of the office superstore," Hause said. "A lot of the success in [the small business market] had been taken by Gateway and Dell because of their aggressive pricing and the ease of ordering over the phone."

The PC industry as a whole has been searching for ways to increase manufacturing and sales efficiencies as a means to boost profitability. For instance, Compaq, HP, and IBM are looking to emulate the direct sales model by offering customized computers through kiosks located at computer superstores, in an effort to reduce inventory levels.

So far, Gateway's experiment in company-owned stores looks like a successful formula. The outlets highlight its products but don't worry about inventory or operating the expensive marketing programs that vendors often employ to gain shelf space or premium sales locations.

"Everyone is searching for ways to increase efficiencies and market presence. We are definitely seeing lots of experiments in one form or another," Hause noted.