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Gateway aims for retail shelves

With fewer customers buying directly from the hardware maker, Gateway looks to a host of retail outlets to push its lineup of computers and home electronics.

Gateway is changing its spots.

With fewer customers buying directly from Gateway, the company is looking to a host of retail outlets to push its lineup of computers and home electronics.

In recent months, Poway, Calif.-based Gateway has quietly started selling its PCs through a variety of new outlets including Costco warehouse clubs, the Home Shopping Network and U.S. military stores. Gateway is hoping the new channels will augment rather than replace its traditional methods of selling over the Web, the phone and at Gateway-owned stores.

"We're exploring these channels that are complementary to our existing channels," said Steve McAllister, general manager of alternate channels for Gateway. Costco began selling Gateway products earlier this year, and the products have been available through HSN for over a year.

Although Gateway did not quantify the amount of PCs it has sold through Costco, it said the membership club has become important to Gateway.

"It's a meaningful channel," McAllister said. "It's not like it's 10 percent of our business or even approaching that, but it's a material part of our business."

McAllister said that selling through Costco does not hurt the company's direct business.

"What they do is not disruptive to our direct-marketing and advertising campaigns," he said. "You have to actually go into a Costco to know that Gateway is there."

But analysts are not so sure. Stephen Baker, who covers the retail PC market for NPDTechworld, said that most of the new moves make sense, but because those who buy Gateway's PCs tend to be the same people that shop at Costco, selling through Costco could cannibalize existing sales.

"Costco shoppers tend to be very affluent and very knowledgeable," Baker said. "Those would tend to be the same customers (Gateway) would go after with their stores and their Web site."

Many of Gateway's key rivals, including Dell and Hewlett-Packard, also sell computers through Costco.

Baker questioned whether Gateway's new efforts were attracting new customers or "just moving sales around."

If Gateway is adding new customers, that's good, Baker said. But it would also indicate that "their traditional sales methods are working less efficiently than they have in the past," he said.

The company's market share has continued to decline despite a number of strategies aimed at turning the business around. In the third quarter the company saw its share of the U.S. market dip to 3.3 percent amid a 28 percent year-over-year drop in unit shipments, according to market researcher Gartner.

There is also the possibility that the new outlets could serve as outlets for Gateway's crop of digital gadgets and home electronics. McAllister said that some products could show up on Costco shelves, though for now it is just desktop and notebook PCs. The company is trying to sign up audio/visual dealers to sell products such as Gateway's plasma TVs and digital projectors.

Gateway, which pulled out of most overseas markets months ago, has also been quietly expanding its sales in both Mexico and Canada. In Canada, Gateway's PCs are sold at RadioShack Canada and at Best Buy-owned Future Shop outlets. In Mexico, Gateway machines are sold at Wal-Mart, Costco and stores operated by Telefono de Mexico.

"We're quickly gaining market share in both Mexico and Canada," McAllister said.