May 24, 2007 1:00 PM PDT

What Wal-Mart means to Dell

What Wal-Mart means to Dell
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Dell is adding a new dimension to its sales strategy, but it's unclear if this move can get the company back on track.

Since its beginning, Dell has prided itself on its direct-to-consumers sales model, but the company announced Thursday it will begin selling two of its Dimension desktop models in more than 3,000 Wal-Mart stores beginning June 10.

Though it's a significant change of strategy, it does not mean Dell is abandoning its direct sales model. "The direct model, we believe in it as much as we ever have," said company spokesman Bob Pearson.

It's not a completely unexpected move. Last month, founder and Chief Executive Michael Dell sent an e-mail memo to employees discussing the company's direction that said "the direct model has been a revolution, but is not a religion," according to The Wall Street Journal. And just last week, Dell made more waves in the retail community when he told Computer Reseller News in an interview that the company could be expanding into stores.

"I think that it is the equivalent of turning the Titanic around to avoid the iceberg."
--Stephen Baker, vice president, The NPD Group

Dell says it chose Wal-Mart because of how well it knows its customers. "Ninety percent of Americans shop in a Wal-Mart," said Pearson. "We're comfortable they know their customer experience."

The world's second-largest PC maker insists the Wal-Mart retail relationship is "not a pilot" program, calling it "part of a global retail strategy that you're going to hear a lot more about." Still, deciding to sell PCs retail is not a simple undertaking.

"I do think it's a very difficult cultural shift moving from selling direct to selling both direct and indirect," said Stephen Baker, vice president of industry analysis for The NPD Group. "I think that it is the equivalent of turning the Titanic around to avoid the iceberg. I'm not sure, it remains to be seen if that's the right way for them to revitalize their business, in my opinion."

Dell is under pressure to turn itself around. In the past year it lost its mantle as the world's No. 1 PC maker to Hewlett-Packard, and has seen a shake-up of management. Most notably, CEO Kevin Rollins was replaced by the company's founder in January.

Dell's worldwide PC shipments dipped by 6.9 percent in the first quarter of this year, which caused its market share to shrink from 18.2 percent to 15.2 percent, according to data collected by IDC.

Meanwhile, its main rival, HP, saw its PC shipments grow by 28.2 percent in the first quarter, compared with the same period a year ago. That lifted its market share from 16.5 percent worldwide to 19.1 percent, according to IDC.

The Wal-Mart factor
Selling through Wal-Mart is a good move for almost any company because of the exposure its products will get. It gives Dell a chance to reach a new customer base. Thus far, Dell has chosen to sell just two of its lower-end desktops, which isn't particularly risky. And Wal-Mart is a retailer that doesn't usually require an extended commitment.

"I think this is the proverbial putting your toe in the water without getting really, really wet," said Baker. "It's a way for them to test how they can really work with retail--how their organization is going to absorb selling through retail, how they can manage having products sold by outside third parties they can't control."

The dollar value of its new Wal-Mart sales won't be nearly as important or valuable as the experience it will give Dell as a retail newcomer. Altering its traditional business of selling desktops and notebooks directly to customers will require many changes, such as altering its supply chain and even how it advertises its products. A practice run will be likely be more valuable than the receipts it rings up, analysts agree.

"For Dell, it's not necessarily about the sales or sales volume. Even if they're shipping 10 of each SKU (stock-keeping unit) into all those Wal-Marts, you're only talking 50,000 units, which isn't a huge amount considering they sell a few million every quarter," said Baker.

The Wal-Mart relationship will also be a way to develop a retail track record. Once the first shipments sell through, Dell will be able to take the data--such as the rate at which units were sold--and go to retailers with which it does not have relationships and demonstrate Dell's ability to move products in the retail channel, which is what retailers care about, according to Richard Shim, an analyst with IDC.

Dell has flirted with retail before. In 2005, Dell laptops quietly showed up on the shelves of Costco. It also struck a similar deal with CompUSA in 1991. The Wal-Mart and Costco strategies are similar, since both retailers have wide distribution and like to move product very quickly, said Shim.

But Dell insists that the Wal-Mart relationship is different because the volume of product involved is significantly higher than it was with Costco, and the Costco deal wasn't part of a larger global strategy.

The challenge will be how quickly Dell can move. "They're getting a lot of pressure for this sort of thing to happen because their competitors are eating their lunch in the consumer retail space," said Shim. "It's definitely something they have to react to. The longer it takes them, the riskier it becomes."

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33 comments

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If the old way doesn't work try something different
Dell is smart.

When what is tried and true seems to fade try something different!
Posted by onlyauser (220 comments )
Reply Link Flag
Brand Image?
On the bricks-and-mortar side, I don't see how "Only Available At Wal-Mart" helps Dell's brand image. It just reinforces the notion that Dell is in the business of making cheap junk.
Posted by john55440 (1020 comments )
Reply Link Flag
True
It seems like they would have been better served allowing more
than just Wal-Mart to sell their products. If they opened up to large
scale electronics retailers such as CompUSA and Best Buy, they
might retain what little notion of quality they had.

I sure hope they have a model with Dura- at the begininng.

The Duraspiron... for only $299!
Posted by jelloburn (252 comments )
Link Flag
john55440

I don't agree with you. For your information, in the near future Apple will sell computers in Sam's and Walmart. To give you a clue, Apple is testing the new strategy in Mexico, 8 stores are selling Apple laptops.
Posted by palveald (1 comment )
Link Flag
Dell is smart, I'll tell you why...
For Dell, this is the smartest thing they can possibly do--Wal*Mart wasn't too good for HP and look where they're sitting.

Speaking as a Mac-toting, iPod-listening, anti-Windows type of user, I can tell you that not everyone can afford a Mac, let alone a moderate-to-high-end Windows PC. However, a lot more people can afford a $300-$600 computer.

Also, how much do you want to bet that 51% or more of Dell's annual sales are in the sub-$1000 range, and even more than that is in the sub $600 range?

You're going to sell a LOT more $300 computers at Wal*Mart than you will $800-$1200 computers at Best Buy or CompUSA.

On the flip-side, I think this only helps Wal*Mart position itself against other retailers...what can you NOT get at Wal*Mart these days?

Viva WallyWorld.
Posted by close5828 (230 comments )
Reply Link Flag
Dell in Wallow Mart
As another Mac type, I would suggest that selling a computer is one thing, having the user understand how to use it or even set it up is quite another. Where will the store find enough staff for their long hours of open doors. Considering the pay scale of WM, it seems a huge hurdle.


duke
Posted by bigduke (78 comments )
Link Flag
Valid point
I agree.

People buy Dell for 1 reason, and 1 reason only; price.

Anyone who can AFFORD a $1,000+ computer would be a lot wiser buying either a Mac, or decent PC for gaming.

Dell's are great for a sub $600 budget.
Posted by Neville Bartos (34 comments )
Link Flag
Dell Lost Too Many Customers
I owned a Dell P4 with RAMBUS DRAM. Had problems with the memory, HDD and, finally, the motherboard. Customer Service was atrocious. I won't be buying Dell again, in the future. Last year I bought an HP Pavilion m7463w Pentium D Media Center PC at..., you guessed it..., Wal-Mart. It's been ON for 376 days (24/7) without a problem and without a glitch. Why buy Dell? My HP may be ugly, but at least it works, and works REAL good!
Posted by Des Alba (68 comments )
Reply Link Flag
PC users have no right to whinge.
If you buy a PC, then you should EXPECT problems. Furthermore, if you buy a Dell then you can GUARANTEE you'll have problems.

When you buy an item which has little to none quality control, compiled from parts made from several different manufacturers, then there's a good chance you're gonna have issues. Not only that, finding a solution will be tricky.

A PC may cost you less upfront, but in the long run, it'll probably cost you more in time, maintenance, and just general stress and grey hairs.
Posted by Neville Bartos (34 comments )
Link Flag
Is Dell flying "high"?
Evidently, their spokesman isn't the only one getting high.

Who in the world would think that the way to change Dell's "cheap PC" image is to sell bargain basement PCs at WalMart?!

Do they really think brand recognition is a problem for Dell? EVERYBODY knows Dell is a PC company - the "cheap PC" company. And, this will forever cast that image in stone.

Geez....if this is all it takes to be a company CEO, where do I sign up?
Posted by Jim Hubbard (326 comments )
Reply Link Flag
Dell's slowing down
Just like everything else in the economy computer sales are
slowing. Dell with just have to face facts that not everyone will buy
a computer! Just like cell phones the market is too full.
If anything Apple has helped proffit margins. The days of $300
computers for many people are over. Technology has forced
consumer's to buy a better computer. But people still are not
replacing computers as fast as computer maker's had thought.
Posted by jesmac418 (35 comments )
Reply Link Flag
What?!?!?!
What is "whinge"? I can't find that word in any dictionary. You're typical of the iZombies. I've owned five Dells over the years. Three LTs and two DTs. Guess how many times I've called CS? None! I had a PS die in one of the DTs, that's it! They've been running like clocks for years. Stop trying to rationalize your blind iZombie beliefs.
Posted by locoHost (25 comments )
Reply Link Flag
Good Idea, Wrong Retailer....
"I think that it is the equivalent of turning the Titanic around to avoid the iceberg."
--Stephen Baker, vice president, The NPD Group

WRONG....This is heading straight for the iceberg in my opininion not because they won't sell but because of the audience they will sell to.
Dell already has problems with end-user customer support and most of the people that will buy a computer from Wal-Mart are going to be those that need "hand holding" and Dell already has problems supporting more fluent users.
Dell made a mistake some years back when Michael Dell was at the helm and that was to try and join in the "cheap machine" fight against eMachines, etc. I knew as soon as they did that that we were going to start seeing some of that "cost-cutting" in their Enterprise (OptiPlex) line and sure enough we did.
SX280's with failing capacitors on the motherboards, cheap hard drives that fail in a couple of years, and remember the "clam shell" cases on the OptiPlex line? Those things were a direct result of going cheap and were horrible.
Their current line of OptiPlex looks good but I can't help but think that this move too will move up the chain once again.
If Dell really wanted to "test the waters" in retail they would do it at Best Buy, Circuit City, or the likes since their people at least know what a computer is and both have service desks.
Posted by fred dunn (793 comments )
Reply Link Flag
Retailing with Wal-Mart
I'd argue that this is exactly who they are trying to reach. Dell has built it's empire being cheap. While it's true that they aren't going to like all of the support calls, but honestly, for the low-end PC market who do you think was buying in the first place? Tech-savvy users?
With this Deal Dell will find out exactly what the impact of their relationship with Wal-Mart is in a limited setting.
If things go well Wal-mart has the capability of selling Dell's low-end PCs at the pace that may make this worthwhile for Dell.
Posted by Fireweaver (105 comments )
Link Flag
Dell Direct... or not..
This move by Michael Dell echoes his displeasure with the progress HP has been making overall. He knows that the direct model is best, but in order to slow down HP and steal some of their sales base, he needs to attack the retail channels. The question is, will this be enough to thwart HP?

HP is in an enviable position. They topped Dell for most pc's sold, they are reigning supreme over printer sales, jointly develop Itanium cpu's with Intel, and are a massive leader in laptops- the hottest growing market.

One thing to look at though, is Wal-Mart. Notoriously known as the low price leader, Dell's already razor thin margins will be even thinner; HP also has a stronger and much longer relationship with the retailer. How much shelf space will be devoted to HP's systems over Dell's?
Not to mention customers- customers "know" HP printers, and most bundles include one. Dell? I doubt there will be a printer with their bundles and if so, it'll be a Dell branded one- with which most customers don't have an established history.

What does Dell hope to take away from this change in direction anyway? Two models? You cannot stop your competitor from stomping on you with only two models. They are doing this retail channel thing half as*ed if you ask me. They aren't attacking HP as strong as they can. Proper leverage of the direct and retail models is key- sell the pc's at Wal-Mart, use the direct model to send printers, etc. That way they can place more PC's on shelves, minimize shipping and keep higher margin printers in a somewhat direct model.

Also, they should be tearing down the ties HP has created with Wal-Mart. Give cash incentives if the systems sell well against HP, train the staff about Vista especially for Dell systems, etc. They must not be able to come in the market and do it as if they are a startup. Come on Dell, I know you can do it.
Posted by naterandrews (256 comments )
Reply Link Flag
Errm, History w/ Packard Bell?
Dell might avoid the same trap due to name recognition, but a
whole lot of people in the '90s learned the hard way to avoid
Wal-Mart for computer systems, thanks to that pile of crap
labelled "Packard Bell" they sold.

Just a thought...

/P
Posted by Penguinisto (5042 comments )
Reply Link Flag
Ask Vlasic, Master Lock, or Levi about working with walfart
All saw their profits drop, along with the number of American employees. In the case of Levis, getting into bed with the lowest quality retailer around hurt their image, as well as their sales.

Master Lock ended up having to close all or most of their domestic factories.

Was-fart totally squeezed the profit out of pickles.

Wake up! Wal-Mart is bad for corporations, bad for its employees, and bad for its customers.

They leave a trail of destruction and sorry in their march for profits.
Posted by MSSlayer (1074 comments )
Reply Link Flag
I couldn't agree more!!!
I am one of those rare who have not bought HP because of the lack of GOOD support and cheapening of the brand and I have been in IT for over 20 years.
Dell needs to pitch Walmart on its ear....it is only going to cause problems for the brand.
On its high end it has been good but I can see it taking the slippery slope and all of it going down to CR_P.
Posted by goodfriends43235 (7 comments )
Reply Link Flag
Walmart Is Not Dell's First Retailer Dell Has Partnered With! Costco Is!
Maybe, I'll make it clear! Well, Costco is the first retailer Dell has partnered with! Walmart is the first non-membership retailer Dell has partnered with! Well, I like Staples, Dell's most recent retail partner, which is really better than Walmart! So, That Was Easy, An Easy Choice!

Kevin - NYC, NY.
Posted by Citroen Tech (2 comments )
Reply Link Flag
Why by a Dell PC at Walmart. No software not even Windows 7 disc. It works pretty well but for 899 plus tax and get this the virus software ran out the 1st month. I called Wally World and they said that's the deal that I had no other choice. I had to resubscribe to the McAfee software which I am not crazy about but I know Dell they make their machines so that if you take anything off what it came with then things go crazy. My XPS is still running good but the new one was for my wife. Monitor is great but the machine lacks a lot. I just hope it doesn't die like the expensive XPS like mine that had died in multiple way. Anyone need some Dell spare parts?
Posted by Dellcrazy (1 comment )
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