Dell officially does Wal-Mart; more partners expected

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

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.