Gateway: Implementing Innovative Strategies in the IT Industry

In order to capture a sizeable share of the consumer PC market, Waitt decided to establish retail stores that were named 'Gateway Country Stores' (GCS). These stores could cater to individual customers who were accustomed to looking at the physical products in a store and talking to sales people before making a purchase. In November 1996, Gateway opened its first GCS in New Haven, Connecticut. The store provided first time individual buyers hands-on experience on PCs while it provided the necessary sales and support services to small businesses. By the end of 1998, Gateway had established 144 GCS stores in the US and increased it to 350 by March 2000. The GCS were quite different from the traditional PC retail stores, since they carried no inventory and had low overhead costs...

Critics had felt that by moving away from its previous lean, low-cost business model and investing in higher overhead retail operations, the company would make losses. On the contrary, Gateway proved that by merging its online 'direct to customer' business model with physical assets, it was able to improve its profits significantly. During the period 1995-99, Gateway reported a compounded annual growth rate of 25 percent in its earnings per share while its market capitalization grew ten times, in spite of tough competition and decreasing profit margins in the PC market. In 1999, Gateway emerged as the largest seller of PCs in the consumer business segment (on the basis of revenue share) witnessing a 42% unit growth...