Dell to Test Retail Stores
By George Anderson
Slowing sales at its consumer direct business along with success selling through 160 free-standing kiosks in malls has encouraged Dell to take the next step. The computer and electronics company will test a retail store concept with two mall stores this summer.
The company said it remains firmly committed to its direct sales model where consumers purchase product online or over the phone. According to company spokesperson Venancio Figueroa, the move to stores is a natural progression from the kiosk model that Dell has been using since 1994.
Dell moves into its retail store test having lost market share in the personal computer business for the first time since 1989, according to Gartner.
Cindy Shaw, an analyst with Moors & Cabot Capital Markets, told The New York Times, Dell’s retail stores will appeal to consumers and small businesses. Those groups, said Ms. Shaw, represent about 20 percent of Dell’s sales.
Dell has chosen the NorthPark Center mall in Dallas and the Palisades Center in West Nyack, N.Y. to test its first stores. The stores, each with a footprint of about 3,000 square feet, will have products on display for consumers to evaluate. No actual inventory will be kept on hand. Instead, consumers will select the items they want and fulfillment will be handled the same as it is now done through Dell’s other sales channels.
This is not the first time the company has sold its products through retail outlets. The company previously abandoned distribution through Best Buy, Costco and Sam’s Club because of lower margins associated with having products sold through an intermediary.
Ms. Shaw has reservations about the Dell mall store model for similar reasons. She said the company will have to staff stores and “it is not clear to us how cost-effective Dell’s stores might be for build-to-order.”
Moderator’s Comment: What do you see as the pros and cons of Dell operating its own retail stores? What will it take for the company to be successful?
– George Anderson – Moderator
Given that there will be no inventory to speak of in the stores, my assumption is that the sales that are generated from the surrounding zip codes will be tracked (either from the store location itself, or when people enter the store – think about it – and order from home later on). I think that sales that are best met through the need to “ask a live person” a question is what is being pursued here.
Some people may be intimidated by the telephone or catalog sales approach – so this allows those people to touch the product and ask questions.
Will it work? I am inclined to think it will if the staffing of the stores is attentive, friendly, and answers questions (and at the same time, is able to move those that are “non-buyers” along and free up time and product for those that are prospects).
May be a smoke screen to see what the competitive reaction could be. I would play this card…. as well.
Or, Dell may be contemplating new products that need more observation, touch/feel by shoppers, than its current means of non mortar selling. Hmmmmmmmmmmmmmmmmmmmmmm.
Another issue for consumers and small businesses is that this adds a step in the process. If someone is browsing in the mall, stops in at the Dell store, and wants to pick up a PC, they still have to go through the “build to order” system of Dell’s. At the Palisades mall mentioned, there are at least 6 other places in the mall to buy a PC so they’ll miss a lot of impulse sales from those who need a PC right away. If they carried inventory on a few desktops and laptops with the most requested features built in, would that blow their image?
I have to agree with Kai. It appears as if Dell is reacting to Apple’s success, but there is so much more involved in the Apple Stores that have made the outlets viable. First, as per Kai, is their ability to sell higher margin product. Secondly, the store design and customer experience are supportive of the the entire Apple brand mystique. It all builds upon itself and sells more product…profitably.
With news of this new Dell move, I immediately pictured the new Apple commercials, which epitomize their own customer as a hip, alert, cooperative guy juxtaposed to the chunky, nerdy, clueless PC user. A Dell storefront could be an opportunity to put a public face on the company and reverse the image. But are they really up to that challenge?
Dell’s in an ever-greater margin bind. Years ago, it was an unbeatable combination of low cost producer, low cost marketer, and superior service provider. Nowadays, the competition has reduced its costs while Dell’s service is no longer clearly superior. Home personal computing doesn’t make the margins it once did. It’s likely that Dell’s corporate business is the great profit provider, not sales to individuals. If Dell minimizes its number of retail stores, they’ll keep the overhead down. The real question: is there a reasonable strategy for making money in the home computing market, or would it be better off for Dell to abandon it? Or, should Dell raise its prices while improving its service, and position itself to be the higher priced and best service provider, even though its market share will decline?
Didn’t Gateway try this same approach and fail? What will Dell be doing differently that will enable them not to suffer the same fate as Gateway?
This is a losing proposition for Dell. They should look at the failures from their competitors (like Gateway) at trying to develop this concept. Dell should recognize that there are not enough margins in their products to support a retail store under their current business model. Dell needs to stick with their current go-to-market focus and direct their marketing efforts in other arenas. The costs of maintaining a retail storefront, staffing it, shipping product to it and accepting returns, will far outweigh the benefits of selling the same systems online and redirecting these resources to their online model.
Having spent almost 20 years in the computer industry, my first thoughts on reading this were…doesn’t this sound familiar? “Why?”, you may ask. Because it sounds somewhat similar to Gateway. Yes, there are differences. Yes, Dell has better service. Yes, Dell knows to be very productive. Yet there is a very familiar ring. A 3000 sq. ft. footprint is not a huge store nor is it a tiny store. A consumer would need to be interested in Dell only to shop in that store. If the consumer is pre-sold on Dell, why the need to go to the store? If the consumer is looking for an education or comparison, why go to a Dell only store? Why not go to Best Buy or CompUSA or any other retailer who carries multiple brands to learn which is best? I have an open mind, but I need convincing. History repeats itself. Hopefully, in Dell’s case, they can alter the history and not repeat the Gateway story.
It’s about time. Dell has to sell low end, reliable computers — only a couple of configurations. Improved model every year.
I can go right now a few miles away from one of those malls and buy a better PC for 60% of Dell’s price. Dell’s custom configuration sales paradigm is getting obsolete.
It’s price and reliability. Easy for a big company that understands its market. Let’s hope Dell catches on.
Dell operates about 165 mall kiosks that an industry source informs are each making a profitable contribution. The kiosks also carry no inventory, but they provide human experts and hands-on interaction to prospective customers who may be reticent about buying online.
The new in-line stores it plans to test would be in the same vein, except that they would have more room to showcase Dell digital lifestyle products, such as flat screen monitors and home theatre setups.
A comparison with the failed Gateway stores is less apt here than a comparison with the wildly successful Apple stores. Gateway spent way too much on its free-standing locations, which never attracted enough traffic to come close to pulling their weight. In contrast, the Apple stores (like Dell’s mall locations) draw from mall traffic and deliver very high sales per square foot.
The Dell in-line mall locations will offer a more immersive experience than its kiosks and they will permit hands-on interaction with top of the line gaming and home theatre systems. There is also room for a “geek squad” type service desk. The test seems very well thought-out and will be well worth watching.