Drumbeat for Dell's move into retail intensifies

Summary:Updated below: Dell's potential move into the retail channel has been growing every since Michael Dell said in a memo that the direct model "is not a religion."If (more likely when) Dell moves into retail it frankly won't be much of a surprise.

Updated below: Dell's potential move into the retail channel has been growing every since Michael Dell said in a memo that the direct model "is not a religion."

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If (more likely when) Dell moves into retail it frankly won't be much of a surprise. Dell recently talked up the channel in a Computer Reseller News May 16. Since Dell's memo, which surfaced at the end of April in the Wall Street Journal, there was even some chatter about the PC maker buying Radio Shack.

With a Dell retailing move likely, analysts are putting some hard metrics on what such a move would mean. Pacific Crest analyst Brent Bracelin said that Dell's retail "augmentation" of its direct model could result in an incremental $800 million in annual revenue, or 1.5 million more PC units.

"We believe it is highly probable that Dell will supplement its direct model with a new retail partner to expand its reach, slow share losses in the consumer segment and help reignite growth. Augmentation of the direct model is overdue considering that we estimate the consumer segment has fallen to less than 10 percent of Dell’s sales, down from 16 percent in 2004."

For those following Dell for a few years this channel-as-Dell-savior line of thinking is ironic to say the least. I remember folks laughing out loud when Hewlett-Packard said years ago it believed in multiple sales channels. Now Michael Dell is talking about how "aggressive" the company will be in the channel.

Now Dell may be hot and heavy for retail partnerships. Bracelin said his $800 million opportunity estimate is based on Dell forging ties with just one leading retailers. He mentioned Target, Kmart, Best Buy or Circuit City as potential retailing partners.

What remains to be seen is whether Dell has the chops to secure retail partnerships. Bracelin adds:

"The more pressing issue is not whether Dell’s direct model is broken, but whether Dell can successfully secure new partnerships with retailers to further penetrate consumer and emerging market segments. Without a retail presence, Dell would remain at a disadvantage because the fastest-growing segments of the PC industry are consumer and emerging markets, which was demonstrated by Dell’s share losses to HP and Acer in the past year. We estimate that Dell’s consumer sales declined by $1.7 billion last year, which suggests a new approach to the consumer segment is warranted. We doubt that corporate America will alter its PC procurement process and start buying fleets of PCs at Best Buy, Circuit City or Apple outlets, but we think Dell is wise to extend its reach into retail."

In other words, mall kiosks aren't going to cut it for Dell. However, Dell could move preconfigured PCs through retail partners. The big question is what retailer will be Dell's dance partner. Here's a look at some likely suspects:

  • Best Buy: An obvious choice for Dell since it's the big dog in electronics retailing. The challenge for Dell: All of Dell's rivals want shelf space at Best Buy and the retailer holds all the cards. HP, the incumbent, sounded confident about its channel partnerships.
  • Circuit City: Could be a Dell partner, but the company is struggling. Dell could probably dictate better terms, but could Circuit City deliver the consumer sales?
  • Target: A perfect match for Dell if it could build a mini-store within Target. Target would also help Dell's brand, which has taken its lumps of late.
  • Kmart/Sears: These two could also be a fit for Dell. However, when I think of Sears I think appliances. When I think Kmart I don't think PCs.
  • Radio Shack: Dell could have mini-stores in Radio Shack and probably get a pretty good deal. Radio Shack already has these mini-store formats with wireless providers.

So when does this dance begin? Dell reports its first quarter earnings of 26 cents a share May 31 and may need a retail partnership or two to distract Wall Street.

Update: News.com is reporting that Wal-Mart will begin selling Dell desktops  June 10. Add another dance partner to the list.

Topics: Dell

About

Larry Dignan is Editor in Chief of ZDNet and SmartPlanet as well as Editorial Director of ZDNet's sister site TechRepublic. He was most recently Executive Editor of News and Blogs at ZDNet. Prior to that he was executive news editor at eWeek and news editor at Baseline. He also served as the East Coast news editor and finance editor at CN... Full Bio

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