Gateway will close its retail stores
Computer maker plans to lay off 2,500 workers; Austin location will close April 9
By Bob Keefe

WEST COAST BUREAU

Friday, April 2, 2004

SAN DIEGO -- Struggling computer maker Gateway Inc. said Thursday that it will shut down its 188 retail stores and lay off 2,500 employees as it once again fundamentally changes the way it sells computers and consumer electronics.

The stores, including Gateway's lone Austin location at 11150 Research Blvd., will close April 9, and workers will be dismissed as the store's operations wind down. The company, which recently posted its 12th loss in 13 quarters, will trim its payroll by 38 percent through the move.

The store closures come after Gateway just finished spending about $35 million to remodel the stores and reposition them as one-stop shops for consumer electronics, including PCs, digital music players and flat-screen televisions. Gateway will continue to sell its goods on the Internet and through mail-order catalogs.

But the move was not completely unexpected. That's because Gateway last month completed its purchase of budget PC maker eMachines Inc., which already has a presence in many major retail chains such as Wal-Mart Stores Inc., Best Buy Co. and Circuit City Stores Inc.

Part of the reason Gateway agreed to buy eMachines, in fact, was to expand its retail presence. But since the purchase, Gateway has been getting heat from retailers who complained that the Gateway stores could cut into their own sales.

"Before they were going to acquire eMachines, the only way they could get into retail was through their own stores," independent technology industry analyst Rob Enderle said.

"But after the merger, the stores became redundant -- and redundant in the worse possible way because they threatened to cost them (relationships) with some retailers."

The move is the boldest so far since money-losing Gateway bought eMachines, but also the latest in a string of changes that suggests that former eMachines executives are taking control over the combined company's transformation.

As part of the merger, Gateway co-founder Ted Waitt stepped down as the company's chief executive officer and turned the job over to eMachines CEO Wayne Inouye.

And earlier this week, Gateway announced it was moving its headquarters from the San Diego suburb of Poway to Orange County, Calif., closer to eMachine's former headquarters.

The stores had been a personal sense of pride for Waitt, even though they have lost money for years and contributed heavily to the company's dismal financial performance in recent years. Gateway opened its first store in North Carolina in 1996 and at one point had more than 320 across the country.

Despite Waitt's push to revamp and reposition the stores, customer traffic in most of them remained slow.

"The stores have been sort of an albatross around Ted Waitt's neck for a very, very long time," said Toni Duboise, an analyst at ARS Inc., a La Jolla, Calif., technology research firm. "This is a bold move, but it's a necessary move that will eventually be applauded." "

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Dell Computers, long ago shipped manufaturing overseas, and tech support to India. They still have "campuses" (buildings) in Round Rock Texas...but the guts of the operation has been outsourced, and all that's left is an ugly , leering husk off IH 35 North.

lol..me and my typos..."manufaturing"....sounds like an unpleasant observation one might make to an overweight rock star on tour..

I meant...manufacturing...
gotta infuse my vessels with caffeine..stat

lol..too many typos to fix...so please excuse all my typos wherever they appear.

Oh yeah, Sun Micorsystems if laying off a bunch too...

Note to the Last one human working in the US...turn the lights off .

Gateway loosing money so they bought a company that makes crappy computers. haha. all they know how to do is make things cheap, not quality. I'm loving this, certinly will help my computer store.

But outsourcing isn't a problem. Remember that rich senetor told me so.

You know whats funny, when they say "Free Trade", they never mean truly free trade. The same guys that rant "free trade" are the guys inserting region codes in the dvds to prevent trade, and saying drugs purchased in Canada are "not as safe".

Nevermind the huge subsidies given to American Agrobusiness and the tariffs imposed on finished products coming from lesser-developed countries.

Free-Trade means to lessen restrictions of trade according to the terms of the big lobbyists in DC. It doesnt actually mean the elimination of trade-barriers uniformly.

Maybe Gateway should have stuck with making and selling computers and not plasma TVs.

i don't understand why its good for american corporations to outsource

it's not good for them to outsource, except for the bottom line of the business and their profit margin...they pay less to the people generating their goods or services.

Outsourcing is NOT good for a company. Outsourcing is only good for the porfolios of those few fat cats who own majority stock in the company.

When they say the "economy is doing good" on the news that usually means the rich are getting richer and the poor are getting poorer.

We should care less about how well our "economy" is doing and more about how well our people are doing.

Shmoo

Somebody correct me if I am wrong but if I am not mistaken I read somewhere a while ago that Dell did bring some of its tech support back to the states. Is this right? or am I just getting confused with some other story.

On a different note some people are always griping how American owned companies are going out to foriegn countries. How come hardly anyone ever mentions the fact of all the foriegn countries that come in and setup business in our country. For example in my town Toyutesu which is owend by Toyota came in and setup a frame manufacturing plant for a line of trucks. Which provided jobs and benefited the local economy. We shouldn't forget that outsourcing is a two way street and foriegn companies do come to the States to setup shop as well. Outsourcing can benefit a company if done properly.

owned even

Independent is correct IMHO. Even if a company increases profits, thereby raising stock price, doesn't mean they will hire more americans, they could just increase outsourcing.

bnpayne, your argument seems logical, until those same foreign companies move on to locations with cheaper labor. I experienced this first hand when a Japanese firm setup shop in California, after NAFTA, they moved all manufacturing to Mexico.

Thanks Capt-N-Jack I usally try to use logic whenever I make an arguement or a decision. I agree with you that some companies did exactly that but I am sure some decided to keep busines here anyway. Also sorry you had to experience that first hand.

For the company I mentioned we don't have to worry about them moving down to Mexico because about 50-80 miles away is the factory that produces the chasis that the frame goes on.

gateway has been going bankrupt and out of business for at least the last 7 or so years. I'm glad. They sell what is known as "craputers." You buy a computer and it comes with crap/spyware/blah blah on it.

Good riddence.

bnpayne78 - I worked at Dell years ago. I would never buy one of their products...they shipped their manufacturing to China and tech support mostly to India. They treated their employees horribly.

Not to overstate it...but working there was the closest thing I've ever experienced which reminded me of what working for the Third Reich must have been like.

Now, at last, we are starting to get some serious studies with good numbers. They paint a very different picture of the outsourcing phenomenon.

A new report from the Commerce Department shows that the U.S. runs a large trade surplus in information technology (IT) services. This is precisely the area where most of the job loss from outsourcing is supposed to be taking place. In 2002, the U.S. exported $3 billion worth of computer and data processing services and $2.4 billion in database and other information services, while importing just $1 billion of the former and $200 million of the latter.

A new study from the respected economic forecasting firm, Global Insight, found that the total number of jobs lost to IT outsourcing last year was only 104,000. This amounts to just 2.8 percent of IT jobs in the U.S. A much larger number were lost due to unrelated factors, including the collapse of the dot-com boom in 2000, the recession, and rising productivity.

The most important finding of the Global Insight study is that the cost savings from outsourcing don't just flow into higher corporate profits. They contribute significantly to higher output in the U.S., which leads to job increases elsewhere in the economy. The study estimates that the gross domestic product was $34 billion higher last year because of outsourcing and that this created over 90,000 net new jobs. These figures will continue to rise in future years. By 2008, GDP will be $124 billion higher and the number of new jobs created by outsourcing will rise to 317,000.

It's important to recognize that these new jobs are almost entirely outside IT. According to Global Insight, the largest beneficiary is construction, which will gain 75,757 net new jobs due to outsourcing. Other industrial gainers are transportation and utilities (63,513), education and health services (47,260), and wholesale trade (43,359).

Additional benefits of outsourcing are lower inflation, lower interest rates and higher real wages, which flow to all Americans. Global Insight gets these results because it looks at the ripple effects of outsourcing throughout the entire U.S. economy and not just on IT, as other studies often do.

Federal Reserve Governor Ben Bernanke also emphasizes the broader economic benefits of trade and outsourcing. The narrow focus on jobs tends to be misleading, he says, because much of the payoff accrues to consumers in the form of lower prices. Moreover, careful economic analysis has shown no relationship between jobs and trade in the aggregate. "There is little basis for blaming the recent poor employment performance on import competition," Bernanke concludes.

Faced with the reality that there was nothing they could do about outsourcing even if they wanted to, Republicans are slowly going on the offensive. Greg Mankiw was once again allowed to speak publicly. His colleague on the CEA, Kristin Forbes, made a forceful defense of free trade. And Treasury Secretary John Snow even spoke out in defense of outsourcing. It may not be enough to reverse the tide of public opinion, but it's a start.

Well, buying computers from companies like Gateway is a waste of money in my opinion. My mom bought a Dell, and the parts inside are *special*. There is no way to replace memory cards or video cards, unless you buy it from Dell of course!

I don't like the computers put together by these companies. Why pay more money for a pre-made pc that still has errors and is not easily upgradeable. I just build my own. By Gateway doing this, it seems that there are many like me I guess.

Question: If more big companies are outsourcing to other areas, are laws being more or less restrictive on starting your own company in the US?

I ask because it makes no sense to look at the portfolio of Microsoft if you can't start your own computer company (Hall of Winters merchandising) that specifically competes with the giants that decide who goes and who stays.

"We should care less about how well our "economy" is doing and more about how well our people are doing."

That was a very awesome statement. If only everyone felt that way.

The gov wants to reclassify the jobs of people working a fast food joints as "manufacturing jobs"....hmmm...

Wonder Why?