Gateway Country Stores vs. Apple Stores
April 2nd, 2004

We reported earlier today that Gateway will be shuttering its fleet of retail stores on April 9th. The real question for Apple watchers, of course, is how does this reflect on Apple's own retail stores. After all, when Apple first announced its stores, the immediate comparison from many, especially the doomsayers, was to Gateway's stores. At the time, Gateway was in the process of shutting down as many of its stores as it could in order to cut costs.

Since then, Apple has shown that its strategy would be very different from Gateway's. For one thing, Apple now has some 77 stores, 106 fewer than Gateway has left. For another, Apple took the high-traffic, well-monied demographic approach, a strategy that differed from Gateway's corner-store angle. This, as much as anything, is one of the biggest reasons Apple's stores have done well.

Still, I was among those who felt that Gateway was going to be able to successfully retool its stores into consumer electronics stores. The company's plasma and LCD TVs have been a huge hit, and its other consumer electronic items have been well-received, too. Obviously, that wasn't enough, though I think the main reason behind the stores being shut down is eMachines.

When Gateway acquired eMachines, the company's focus was subtly altered. With eMachines' cheaper-than-Dell's cheap prices approach to the market, retail distribution became more important to Gateway. Stores like CompUSA, Best Buy, and Circuit City are all places where eMachines, as well as Gateway's own TVs, need to be, but the competition offered by the Gateway Country Stores was a big impediment to making that happen.

Indeed, it is my thought now that the eMachines acquisition became Gateway's final excuse to shut down its retail stores.

This contrasts with Apple, where the company has found that consumer electronic super stores end up being bad for Mac sales because the Macs on hand never get treated properly. The only moderate exception to that has been the CompUSA store-within-a-store, which Apple now has to staff with at least one Apple-trained and paid sales person.

To be honest, because of Apple's fleet of stores, I wouldn't be surprised to see the CompUSA partnership eventually go away, leaving iPods alone in CompUSA locations, at least in markets where Apple has an Apple Store.

With their needs clearly different, I think that Gateway's decision yesterday to cease its retail operations reflects very well on Apple. Some have accused Apple of cheating to make the Apple Stores appear more profitable than they would otherwise be; even if that is the case, however, the Apple Stores have done far better than anyone (besides Apple) predicted they would.

The Apple Stores have elevated Apple's exposure throughout the community, garnering enormous amounts of press in the process. Most recently, for instance, Apple's new store in San Francisco was pretty much national news -- in part because of the huge lines of people waiting to get in -- but when did you ever see a major news story about a new Gateway Country Store?

Apple's retail success contrasted with Gateway's decision to shut its brick and mortar doors shows that Apple knew what it was doing all along. When wannabe Apple Death Knellers rear their ugly heads to say that Gateway's store closures clearly indicate that the Apple Stores are next, you can safely ignore them.