Dell Returns to Retail
Dell adopts the retail strategy again by opening two new retail
stores at Dallas and New York.On May 24, 2006, the US-based Dell Computers (Dell), the world's largest PC manufacturer, announced its plans to open two retail stores one at NorthPark Center in Dallas and the other at Palisades Center in West Nyack, New York. Dell, a pioneer in the direct marketing model, adopted this shift in strategy as it faced stagnant sales and intense competition from rivals like Apple Computers Inc 1 (Apple) and Hewlett Packard (HP)2, who sold their products through retail channels and online stores.
Analysts cited Dell's decrease in market share as another reason for it to take up the retail initiative. Dell had reported market share of 18% in the first quarter of 2006 compared to 18.9% in the first quarter of 2005. Dell also changed its Intel-only tradition when it announced on May 20, 2006, its plans to include AMD Opteron 3 in its servers as part of its efforts to generate growth in its servers business as it reported lower growth using Intel's microprocessors.Some analysts explained that Dell's motive behind opening retail stores was because customers preferred to handle and test products like personal and notebook computers before buying them. This was a limitation in the existing direct marketing model.
They cited the instance of Dell having faced a decrease in sales especially in notebook computers as its rival HP's notebook computers had become more popular. HP, which sold its products online as well as through retailers, had argued that its multi-channel approach of selling its products held an advantage because it gave customers a chance to test the product. But, Dell announced that the retail store would include products only for display and inventory would not be stocked as the store would not sell its products. Dell planned to stick to its direct marketing model so that it could avoid the risk of stocking products. Dell spokesperson Venancio Figueroa said, “The DNA of the business model stays the same for us,” “We see these as extensions of the kiosks. The kiosks have performed well over time, and we want to experiment with a larger space.” 4
Dell's retail stores would offer 36 products providing a range of Dell's home theatre products like computers, digital cameras, printers, televisions, big- screen TVs, notebook computers, and other equipment. The customers had to buy the product through ordering online from Dell's website or through the phone. Also, the retail stores would provide office assistance to customers for PC repair and setting up of a network. In the early 1990s, Dell sold its products through a number of retailers like Best Buy, Costco and Sam's Club. But this practice was ended in 1994 as Dell cited low profit margins through this distribution model.
[1] Apple Computer Inc was launched on April 1, 1976 by Steven Wozniak and Steven Jobs. It posted a revenue $5.75 billion in fiscal 2006.
[2] Hewlett-Packard Company (HP) is one of the world's largest information technology corporations.. Headquartered at Palo Alto, California, United States, it has a global presence in the fields of computing, printing and digital imaging, and also sells software and services. It reported revenues of US$ 86.7 billion in 2005 and had over 151,000 employees across the world.
[3] AMD Opteron is a microprocessor designed by Advanced Micro Devices (AMD), a computer chip manufacturer. It was designed to scale from one to eight processors with no external logic required, which aids system designers by reducing the cost and complexity of building servers and workstations.
[4] Fred O'Connor, “Dell Opens Shop,” www.pcworld.com, May 24, 2006.