Gateway To Close 80 Retail Stores With 1/3 The Revenues Of Apple's Retail Store Locations

by , 11:00 AM EST, March 19th, 2003

TheStreet.com has published a report looking at Gateway's current, or latest, plans for restructuring. Gateway has been struggling for the last couple of years, and has taken on the role of "beleaguered" that the press used to assign Apple. Gateway's two biggest problems have been being crushed by Dell in a price war that Dell has been able to handle much more deftly than Gateway, and being saddled with hundreds of under-performing retail stores.

To remind Observers, it was comparison to Gateway's retail stores that first made analysts, tech pundits, and armchair critics question Apple's own foray into the retail world in the fall of 2001. The differences between the two operations have been long debated and discussed since then, but we noticed a small tidbit in the article from TheStreet that offers a poignant example of exactly how different Apple and Gateway are in this arena.

The article notes that Gateway has announced that it will close 80 of its locations, 28 more than Apple's entire fleet of stores, that will still leave it with a total of 190 Gateway Country locations. Again, Apple has 52 stores open today. The poignant example we mentioned comes from Needham analyst Charles Wolf. From the article:

Gateway has said it will close 80 underperforming stores, reducing the total number of existing stores to about 190 from as many as 350 a few years ago. Wolf estimates the shuttered outlets generated an average of $4 million a year, far less than the $12 million annual average produced by Apple stores, for example.

In short, Gateway has at least 80 stores that regularly bring in a 1/3 of what Apple's stores average. To throw some gross numbers at that: Apple's 52 locations would bring in some US$624,000,000 in a year, whereas these 80 Gateway locations would bring in some US$320,000,000, a little more than half the revenue from 54.8% more locations. We want to stress that those numbers are extremely rough, and are not based on Apple or Gateway filings.

One of the things that has hampered Gateway's ability to whip its retail operations into shape has been long-term leases on many of its locations that prevented the company from being able to close down underperforming units.

There is more information on Gateway's struggles in the full article at TheStreet.com.

The Mac Observer Spin:

Apple's retail strategy has been tightly focused, and obviously was executed much better. Gateway's shotgun approach to retail that began when the economy was still flying high turned out to be a mistake, but it's one from which Apple was able to learn. Imagine the drain on Gateway's dwindling resources these 80 units represent, and then think about the fact that Apple's own retail locations number 65% as many units, but average 3 times as much in revenue. To repeat ourselves, it's a poignant example of everything that is right at Apple.

For those keeping score at home, we'll go on record as saying we expect Gateway to survive its current difficulties, though it may well not be in its current form. Ted Waitt is a very capable leader, and that the company is still functioning today is in large part a testament to how badly he wants to see the company he founded survive. Many have written off Gateway's ability to weather the price war that Dell is largely aiming specifically at Gateway, but that price war will not be sustainable forever, and we think Gateway will be able to outlast it, though again, it may not be in its current form.

TheStreet Article