Y2K FEARS COMPUTE IN GATEWAY COUNTRY'S NEW PROMO: FAST-GROWING UNIT OF PC SELLER HAS 'FUN' WITH BEETLE GIVEAWAY

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Gateway Country this week catches the Y2K "bug."

A giveaway of 10 Volkswagen Beetles painted in Gateway's signature b&w cowhide pattern is the centerpiece of a new Gateway promotion gently poking fun at fears of computer collapse at the dawn of the year 2000. Other prizes include Gateway computer gift certificates and sports hats.

"We thought we might have some fun with this thing," said Ed McPherson, VP-marketing for Gateway Country, the direct PC seller's retail store operation. The promotion also will be supported by newspaper and radio advertising in 100 markets, estimated at $2 million to $4 million, starting this week.

Gateway has long run ads to generate phone and more recently Web sales, and it's run ads locally inviting consumers to come to Gateway Country. But the new campaign is more akin to the marketing efforts of traditional retailers trying to drum up foot traffic and is targeted to college-bound students, a group Mr. McPherson estimates is 25 million strong.

AGGRESSIVE EXPANSION

McCann-Erickson, New York, Gateway's branding agency, is handling advertising for the promotion; Waylon Co., St. Louis, developed the promotion.

Wall Street analysts' initial skepticism of a successful direct seller moving into retail stores, haven't deterred Gateway, which aggressively continues to open new outlets.

Gateway operated 70 Gateway Country stores in October when Mr. McPherson, formerly VP-marketing at Tricon Global Restaurants' KFC unit, came aboard. Today, it has more than doubled that number to 161 stores in 100 metropolitan markets.

Few people are skeptical about Gateway today, given that its multiprong approach of selling over the phone, the Web and in its stores has translated into a booming business. Gateway's PC shipments from the combined venues soared 42% in the first quarter vs. the same period last year to 1.1 million units. Though its prices have fallen as a result of the PC price wars, Gateway has posted five consecutive quarters of year-over-year profit margin improvement.

NO INVENTORY IN STORES

Gateway stores, carrying the folksy imagery of the South Dakota-bred company, began as sites for consumers to try out computers. Orders were taken at the store and product delivered to the consumer's home or office.

The stores still carry no inventory, but the showrooms have evolved to include areas set aside for training customers on computers, service centers for repairs and small-business solutions centers, giving Gateway multiple opportunities to generate revenue from its investment in bricks and mortar.

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