Dell turns to retail - PCs could soon be in UK shops

 

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By Reuters and Simon Aughton

Posted on 25 May 2007 at 09:04

Dell is to break with its 23-year direct sales tradition next month and start selling personal computers in North America through Wal-Mart.

And it may not be long before its PCs appear on the shelves at Asda or Tesco. Dell spokesman Bob Pearson said the company plans to add additional retailers in its top 10 to 15 markets, which include the UK as well as Germany, France, Japan, China, Brazil and Japan.

'In the coming quarters, there will be additional activity in support of this move into global retail,' Pearson said while declining to give further details. 'Today's announcement with Wal-Mart represents our first step. Stay tuned.'

Dell will start selling the computers bundled with accessories for under $700 from 10 June.

The PCs will be available in about 3,500 Wal-Mart and Sam's Club stores in the United States, Canada and Puerto Rico, a spokesman said. Dell and Wal-Mart declined to provide details on how the packages will be equipped.

The world's largest retailer will sell two models of Dell's Dimension multimedia desktop computer, which are currently available directly from the computer maker.

Shaw Wu, an analyst with American Technology Research, said that Dell had little choice but to abandon its reliance on direct sales.

'They need to go retail and they are finally doing it,' Wu said.

Dell is expanding in retail stores to compete better with HP, which has overtaken Dell as the world's number one PC maker, partly through a strategy of selling in the United States through major retailers such as Wal-Mart, Circuit City and Best Buy.

J P Gownder, an industry analyst at market researcher Forrester, said that he combination of Wal-Mart, famous for low prices, and Dell's Dimension desktops, the company's lowest-priced consumer models, may deter some potential buyers.

'This is a first foray into the world of retail,' he said. 'It's not a bad move. But in the long run, they'll want to establish a more-sophisticated retail strategy.'

Since its founding in 1984, Dell has sold computers directly to customers through the mail, phone orders or the Internet. But founder Michael Dell, who retook the CEO job in January after sales growth slumped under predecessor Kevin Rollins, last month signalled that a retail push was in the works when he told employees in a memo that the direct-sales model was 'not a religion'.

Wal-Mart spokeswoman Melissa O'Brien said adding Dell computers is 'part of a number of additions and enhancements that Wal-Mart is making in its electronics area.' Wal-Mart plans to improve its brand selection in electronics, she added. She added that the retailer has no 'definitive strategy' at this time to sell Dell computers outside the US, Canada and Puerto Rico, which may rule out Asda in the UK.

Dell's alliance with Wal-Mart may put pressure on computer component makers to cut prices because both companies are known for extracting the lowest prices from suppliers, squeezing profit margins, analysts said. Dell itself, which historically boasted some of the highest profit margins in an industry known for thin profits, will lose some of that advantage by embracing retail.

'Wal-Mart is known for its very tight supply chain, and Dell is also very good at that,' said Wu, 'margins are going to be tough.'

Shares of both Dell and semiconductor makers including Intel and AMD fell sharply following the news that the Dell systems would be priced below $700, less than Dell laptop computers and high-end systems that range from around $1,000 to more than $6,000 when fully configured.