Dell officially does Wal-Mart; more partners expected

Dell officially does Wal-Mart; more partners expected

Summary: Wal-Mart has confirmed that it will be selling Dell PCs across the U.S.

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TOPICS: Dell
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Wal-Mart has confirmed that it will be selling Dell PCs across the U.S. and analysts expect more retailers to follow suit.

In a post on the Wal-Mart site, Gary Severson, senior vice president of Wal-Mart entertainment and electronics in the U.S, outlined the following:

Starting June 10, Wal-Mart stores and Sam’s Club locations throughout the U.S. and Puerto Rico will carry two new desktop models, each offered in a package bundle under $700. 

Available only at all 3,400 U.S. Wal-Mart stores and Wal-Mart Puerto Rico stores will be an exclusive Dell Dimension Mulitmedia Desktop Computer.  A second exclusive model will be available in 3,000 Wal-Mart stores, also in June. (More about these models built exclusively to be sold at Wal-Mart will be announced soon.)  Sam’s Club and Wal-Mart Canada also will carry different, exclusive models in their stores.

In a nutshell, Dell will configure a bunch of PCs with the same specs and ship them to Wal-Mart for sale. The two companies will then tweak the offering and distribution based on sales and feedback.

For Dell, Wal-Mart provides a big retail outlet to supplement its direct model. Wal-Mart gets an anchor tenant in its revamped electronics department.

Most analysts expect Dell to follow up with more retail partners beyond Wal-Mart. "We expect this to mark the first of several announcements aimed at building a global retail presence for Dell PCs," said J.P. Morgan analyst Bill Shope. I detailed some potential retail partners yesterday.

What's unclear at this juncture is how Dell's bottom line will be affected. The retail model is generally more costly and Shope expects Dell to take a hit initially on its profit margins. Meanwhile, Wal-Mart suppliers make their money on volume not pricing. It's likely Dell isn't getting a huge cut in this partnership.

Shope added:

"Shifting to a direct model will generate incremental costs that we do not believe are well understood. These costs come from changes to the production model, reseller margin costs, inventory model adjustments, and intangible costs from channel conflict management."

Indeed, Dell is likely to see the following costs from its Wal-Mart deal:

  • Dell will need to apply RFID tags as required by Wal-Mart;
  • Dell will need to store inventory, something it doesn't have to worry about with the direct model;
  • Dell will have to coordinate logistics with Wal-Mart in the driver's seat. Historically, Dell has dictated supplier relations.

Topic: Dell

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  • Dell just bought a very large problem...

    One thing Dell has never had to deal with is obsolete PCs. Stick a PC on a store shelf for 60 days and it is obsolete and its street value drops quickly. Say you have a $600 PC, 60 days later that same $600 will buy a better PC.

    Will be interesting to see if they can suceed where everyone else has failed.
    No_Ax_to_Grind
    • I think that's an....

      ....overstatement.
      Feldwebel Wolfenstool
    • A bit of an ex!ageration

      "Will be interesting to see if they can suceed where everyone else has failed."

      HP has been quite successfull with it's combined Direct\Retail strategy. That is how they overtook Dell in sales. Apples retail sales are up 92%. Iwouldn't exactly say they are failing either.
      ShadeTree
      • Apple is an Exception to the Rule

        In some ways your correct, however consider this: 1. Apples is, generally, an exception do to the nature of Apples technology, their customer base and their business model - they aren't really competing in the trenches with PC venders. If you want an Apple you pay Apple prices. 2. HP's business model has overtaken Dell for a number of other reasons other than just playing in the Retail/Direct market; and they have better price control than if they were only dealing with Walmart. 3. Dell is very late to the party to head this way.

        Walmart is the dictator of retailers and Dell is absolutely not used to holding inventory and YES - 6 mos in a warehouse reduces held inventory value by at least 20% or more, depending upon industry releases of newer technology and price pressure wars between hardware suppliers, ie AMD vs Intel etc.

        I can't see this relationship doing much to help Dell. Gateway hasn't shown much improvement when they moved from Direct to Company stores then Retail/Direct either. HP has their arms around this and costs under control in this arena, at least for now.

        HP also outsources support, but, 1. Dell went their first angering customer's by the droves and Dell's very poor outsourced relationship has got to be part of what has tanked their performance over the last couple of years. This move won't cure that the bad taste that underlying problem has left consumers.

        If Dell brought their support back to the US I'd bet a large portion of Dell customer's would even have gladly paid a premium to get quality in country support. Wonder why they didn't think higher end instead of the bargain basement "cut throat" end, maybe their existing hardware purchase commitments to maintain their costs of hardware couldn't sustain the drop in sales, so they needed to "dump" hardware in the cheap end market. And their doing (speculation - but a reasonable one)

        Regardless Dell has given up control of their business model to the one company in the US that can destroy them - Walmart!
        cef1000@...
    • Oh please.. Things aren't THAT bad.

      [b]One thing Dell has never had to deal with is obsolete PCs. Stick a PC on a store shelf for 60 days and it is obsolete and its street value drops quickly. Say you have a $600 PC, 60 days later that same $600 will buy a better PC.[/b]

      First off, everyone who knows anything about computers KNOWS that by the time a computer hits the shelves - it's already obsolete.

      Secondly, unless they're having a massive price war, I don't see neither Intel nor AMD dropping the price on their chips THAT often.

      Third, we're talking WAL-MART here - not some high end retailer. Odds are quite excellent that whatever boxes show up at Wal-Mart will NOT be the top of the line, state of the art and will be more low to middle of the road stuff. Think Celeron, Pentium D, Sempron and maybe some single core Athlon 64 based systems. Don't be expecting any top of the line XPS or Alienware boxes showing up there.
      Wolfie2K3
    • That's why Stevie dropped the iPHONE $$$

      ...price by 200 Simoleans?
      Feldwebel Wolfenstool
  • Shrewed move

    By going with Walmart they are going after the low end user market that typically wouldn't be going online to buy a computer from Dell. Second the fact that Walmart requires RFID tags makes inventory control easier for Dell which won't have to have as high an inventory in stock since they will be able to use Walmart's RFID system to know when they have to resupply.
    jfp
    • I wonder if they would stock

      both Windows and Linux equipped machines?
      GuidingLight
  • Dell not used to being "the little guy"

    I can see the allure of WalMart's market reach, but I think this is a bad move for Dell. Most manufacturers end up unhappy after they get in bed with WalMart. WalMart has such market power that when they choose a vendor, they order in such huge quantities that they end up selling the vast majority of the products made by that vendor. Once that happens, WalMart has the vendor over a barrel. Give in to WalMart's new terms or lose the vast majority of your current business. WalMart traditionally starts demanding lower and lower wholesale prices for products. Companies afraid to walk away from WalMart (and most of their sales) end up cutting quality in parts and manufacture as a way to meet WalMart's new demands. Which results in a much lower quality product, eventually souring the public on the company's goods.

    So long term, not a good move. They'd have been much better served joining up with a less rapacious partner, someone like Target or Costco (both of which would have fed into Dell's attempts to become more of an upscale brand).
    tic swayback
    • The long term I don't think will matter tic

      Just remember that Dell is a big company without Walmart. So even if it went sour Dell could just walk away and still have the market it has. Let's just hope it sees this before it's too late (but I think it will).
      ju1ce
      • WalMart tends to gobble up companies

        Dell is tiny compared to WalMart. And when WalMart starts demanding more and more units, all of Dell's other sales will start to pale in comparison. It's happened to many companies. Some numbers:

        http://209.157.64.200/focus/f-news/990922/posts
        Wal-Mart's marketplace clout is hard to overstate. In household staples such as toothpaste, shampoo, and paper towels, the company commands about 30% of the U.S. market, and analysts predict that its share of many such goods could hit 50% before decade's end. Wal-Mart also is Hollywood's biggest outlet, accounting for 15% to 20% of all sales of CDs, videos, and DVDs. The mega-retailer did not add magazines to its mix until the mid-1990s, but it now makes 15% of all single-copy sales in the U.S. In books, too, Wal-Mart has quickly become a force. "They pile up best-sellers like toothpaste," says Stephen Riggio, chief executive of Barnes & Noble ( ) Inc., the world's largest bookseller.

        Wal-Mart controls a large and rapidly increasing share of the business done by most every major U.S. consumer-products company: 28% of Dial ( ) total sales, 24% of Del Monte Foods ( )', 23% of Clorox', 23% of Revlon ( )'s, and on down the list. Suppliers' growing dependence on Wal-Mart is "a huge issue" not only for manufacturers but also for the U.S. economy, says Tom Rubel, CEO of consultant Retail Forward Inc. "If [Wal-Mart] ever stumbles, we've got a potential national security problem on our hands. They touch almost everything....If they ever really went into a tailspin, the dislocation would be significant and traumatic."
        tic swayback
        • Been there done that...

          Seen it in full action because a former supplier of Walmart was one of our ERP clients (we stuck mostly to distribution vs manufacturer). There are also a few we had that were still currently Walmart suppliers before I left. :)

          I still think Dell is in a different position because of the industry. It can easily walk away when it starts to go downhill and regain momentum (if they do it soon enough).

          The difference between Dell and all the other suppliers is the fact that it's the only one that sold by order. I could be wrong of course because of it's past I just think Dell is in a unique situation because of it's "past".
          ju1ce
        • Dear Chicken Little,

          The sky isn't faling. Has Walmart been able to gobble up Sony, Samsung or any of the other electronics manufacturers they sell? I don't think so! Your doom and gloom reports don't take into account that should Walmart fail some other retailer will move into the vacuum. It is not like they will disapeer overnight. It would be a gradual decline such as Sears and caused by the growth in prominance of a competitor.
          ShadeTree
          • Should WalMart fail?

            I'm not postulating that WalMart will fail--just the opposite, that it will be a resounding success. But that success will serve WalMart better than it will serve Dell, as WalMart has a habit of doing terrible things to suppliers. They're not someone I'd be eager to partner with, particularly when other companies would wokr just as well and help Dell's image (Target, Costco, etc.). Here's a story of someone who thought better of it as well:
            http://www.fastcompany.com/magazine/102/open_snapper.html
            tic swayback
    • I "second" your post

      as I believe you are correct in your analysis of the deal.

      Additionally, not only does [i]WalMart traditionally starts demanding lower and lower wholesale prices for products[/i] but tend to bring in competing products at a lower cost from "offshore" competitors.

      I agree that this is a short term solution, and given Wal-Marts lower profits lately, that a Target, Costco, even Sears would put Dell into being viewed as a little more "upscale", thus allowing Dell a little more room on their margins.
      John Zern
    • Non-sequitir

      Think through the logic of your post.

      1. Wal-mart sells enormous quantities of product.
      2. As a result, all products sold through wal-mart suck.

      As you can see, one will never happen if two is true.
      frgough
    • I'd buy your argument, except...

      ...computers typically don't move very fast, regardless of price (well, within reason). Dell cares more for exposure than anything else, and face it, Wal*Mart [i]has[/i] exposure. Dell is not about to slash profit potential despite Wal*Mart's bashing reputation...it defeats the whole purpose of B&M retailing their computers in order to improve their bottom line.

      I suspect that Wal*Mart will have as much luck beating down Dell as they currently do with Nintendo (Wii), Sony (PS3), Apple (iPods), and Microsoft (360). Wal*Mart might try playing off HP/Compaqs against Dell's wares in order to beat both down on price, but up until now that strategy hasn't worked with most of the popular brand name gadgetry and tech gear that they sell. Just to [i]get[/i] those name-brand products, it's been Wal*Mart that's had to acquiesce to the tech manufacturers.
      flatliner
  • I don't shop at Walmart

    Whenever possible, I avoid Walmart. They can thank their foreign sweatshops and their alleged trade with Chinese companies which force prisoners to work to make goods for sale to Walmart. I say alleged because Walmart has enough money to sue all of us broke, but the evidence does exist for those who wish to search for it.

    I understand Dell's need to increase their sales numbers, but I would never buy a computer from Walmart.
    srobtjones@...
    • Not to mention....

      ...driving local business out of the market and treating their employees poorly (no health care, resulting in more costs for us taxpayers to support them). Just say no to WalMart. The quality of products sold their is very poor anyway.
      tic swayback
      • And to pile on....

        ...WalMart traditionally schedules employees for up to 36 hours per week, ensuring that they do not qualify for full-time employee benefits, has been sued countless times for discrimiination (and is losing the suits) and generally does a poor job with public relations.

        I think that Dell should have partnered with a Best Buy or another upscale establishment to keep the tarnish off their reputaion that is inevitable for someone who does business with WalMart.

        No matter how big Dell is, it can still be brought to its knees. Gateway anybody?
        Confused by religion