Gateway: The Explanation

Recently, I posted a short essay and posed the question: what happened to Gateway Computers. The company seems to have disappeared.

I found the answers on Gateway's website.

Gateway acquired e-Machines, a competing PC manufacturer, in early 2004. It paid $262 million, including $41 million in cash. (Surprising to me was the fact that eMachines was the #2 ranked PC manufacturer in the U.S. desktop PC market and #5 in laptops.)

Gateway closed all of its retail stores in April 2004, opting to sell through major retail department stores. Gateway's own retail stores generated $1.2B in revenue in 2003. This action also resulted in the layoff of some 1,500 former store employees. New retail partners include Wal-Mart, Sams Club, Circuit City, Office Depot, CompUSA and Best Buy.

Gateway has cut its sales, general and administrative expenses by 30%, or $240 million per year. Its stated goal is to keep SG&A expenses below 10% of total revenues.

This information in aggregate pretty much explains Gateway's lack of visibility.

The 10% benchmark, incidentally, is equivalent to what Dell spends on SG&A. However, Dell employs a drastically different marketing strategy--it sells direct to consumers.

Another point worth considering, in my opinion, is what value did the former Gateway retail stores provide in terms of visibility. The stores, at the very least, served as a visual reminder of Gateway, almost like a billboard or a bricks-and-mortar ad.

How visible will Gateway computers be in department stores like Circuit City or Wal-Mart?

How actively and aggressively will its retail partners advertise and promote Gateway products?

Stay tuned. We'll have to wait and see if the company's new marketing strategy works.