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Computer maker opens Gateway to retail

By JON SPRINGER

Gateway 2000, the personal computer vendor known for pioneering direct-market growth in the PC industry, is giving old-fashioned bricks-and-mortar retailing a whirl, at least to some extent.

Gateway 2000 Country Stores Inc., a subsidiary of the North Sioux City, S.D.-based computer giant, opened 35 U.S. locations in 1997 and plans some 35 more by the end of this year, a company spokesman said. The stores, which essentially act as catalog showrooms for Gateway products, hope to lure first-time computer shoppers and those who remain wary of sight-unseen purchases.

"We look at [the stores] as a natural extension of the direct model," said Greg Lund, a Gateway spokesman. "It gives customers the opportunity to use all the technology, and test out all the different systems that Gateway sells. If they like what they see, they can order it right then and there."

As of March, there were 40 Gateway Country Stores in 21 states. The 8,000-square-foot stores include 12-13 computer stations, display various Gateway products, and offer classes and instruction in software use. Some locations also have a service department. However, in an unusual twist, customers cannot buy computers at the store -- they can only order them from the store for home delivery. The only goods sold on site are Gateway branded apparel such as sweatshirts, Mr. Lund said.

Gateway is the fifth-largest seller of computers in the United States, and second to Austin, Texas-based Dell in direct sales, according to International Data Corp., a Framingham, Mass.-based market research firm. Gateway believes it can increase its market share by snagging a portion of those shoppers who might otherwise shop in department or electronic specialty stores.

"[Gateway] did some market study and came to the conclusion that there are buyers who want to touch the PC and look at it before buying it," said Biagio Maniero, an analyst who follows Gateway for Goldman Sachs, New York.

"They have a sales force for major accounts and small businesses, plus they have the literate PC user who calls them," he said. "These Country Stores give Gateway one more channel for customers."

Much of Gateway's success can be attributed to its unusual brand personality, said Mr. Lund. Gateway product boxes and mousepads are speckled with Holstein spots, while Gateway television ads and catalogs portray a "farm" motif drawn from the company's rural roots. Gateway founder and COO Ted Waitt is a fourth-generation cattleman who started the company in 1985 on his family's Sioux City, Iowa, cattle farm.

"We put those spots on the boxes and --voilà -- we had a trademark," said Mr. Lund, though he admits maintaining that identity is not quite as simple.

"Brand is very important to us. The cow-spotted brand has a lot of legs, and it means a great deal to not only our customers, but those who know us and aren't our customers," he said. "It's a challenge to maintain that image and make sure it works the way it should for us."

Gateway Country Stores, designed by Minneapolis-based Haas Multiples Environmental Marketing & Design, also portrays that rural image. This makes customers -- particularly first-time computer buyers -- feel comfortable with the high-tech equipment on display, according to Haas account manager Jeffrey Birch.

"It begins with a recognition that Gateway comes from the Midwest, and as part of their brand and image development they have capitalized on those roots," said Mr. Birch. "It speaks to value, trustworthiness and good down-home business practice. They take those concepts and embody them in imagery that speaks to the environment they come from. When we designed the stores, we looked at those images and themes which express their corporate culture and introduced them to the store."

Workstations at Gateway Stores feature stools designed as tractor seats; and the systems sit in front of a curved wall which evokes a corrugated metal grain bin. Pitchforks, weathered barn doors and grain silos are also incorporated into the design, and farm scene murals cover the walls. Displaying high-tech equipment in a low-key environment is a tricky balance, Mr. Birch said, but one that sets Gateway apart from its competitors.

"The elements feel very literal, but when you look at them you'd see they are very abstracted -- that contemporizes the whole presentation so that it doesn't become hokey. That's really key," said Mr. Birch. "When customers come into the store, there's definitely a theme that sets it apart from a store like CompUSA, which has a totally different feel. Here, you're invited to browse in an environment that contributes to people staying longer, and where the novice computer user isn't intimidated by the idea of confronting a computer."

Gateway's first catalog showrooms appeared in Europe in 1994 as part of the company's strategy to expand its international presence. Gateway has showroom stores in France, Germany, the United Kingdom, Australia, Sweden and Japan.

In November 1996, Gateway Country Stores debuted in New Haven, Conn., and Charlotte, N.C. The stores have since expanded throughout Eastern and Midwest states. Mr. Lund would not divulge specific information about the stores' performance, but said the company is encouraged enough to continue expansion throughout 1998.

"There's still a lot of information that they're gleaning. Pretty much all of 1997 was a test phase for the stores, to see how they will do," he said. "The company has been pleased with the response and the public likes them."

Mr. Manieri of Goldman Sachs said the stores are a money-maker for Gateway, partially because as a showroom, it doesn't have inventory issues that plague other computer retailers.

"It's better than a traditional retail store, since they don't have to worry about excess inventory and other problems that traditional retailers like CompUSA would have," said Mr. Manieri.

Once the firm has recovered its initial costs, he added, everything else is a bonus.

"Gateway is happy with the way things are going," Mr. Manieri said.

Most stores are in freestanding locations or in community centers. There are no stores in regional malls, though Mr. Lund said, "We're still new in it, so I wouldn't shut the door to anything yet."

Retailers such as Starbucks Coffee and Barnes & Noble make good co-tenants, Mr. Lund said. Gateway, with a large and eclectic customer base, can be a major draw itself, he added.

"We bring traffic to the area. We have a very well-installed consumer base -- we sold more than 2 million computers just last year -- so we have a base that is usually interested in visiting the stores even if they're not in the market for a computer," he said.

"Also, computer shoppers are an eclectic bunch; our consumers range from the very young to older people, and women. And I think people who buy computers are also attractive to other business owners, and they would like to have our customers drawn to their area."