Where Dell Sells With Brick and Mortar
Where Dell Sells With Brick and Mortar
In crucial economies overseas, its old direct-sales model hasn't paid off
by Jack Ewing. BusinessWeek September 27, 2007
Buying a computer, putting it in your trunk, and driving home with it may not seem revolutionary--unless that computer is a Dell (DELL). The company pioneered made-to-order, direct-to-customer PC sales, and boasts on its Web site that it can introduce the latest technology "more quickly than companies with slow-moving, indirect distribution."
Now, as its global market share slips, Dell Inc. is giving that slow-motion model a closer look. The company is cautiously becoming a brick-and-mortar retailer, a path that has paid off big-time for rival Apple Inc. (AAPL) but which hobbled computer maker Gateway Inc. (GTW) In October, Dell will open a store in an upscale Moscow mall. That follows the introduction of a similar outlet in downtown Budapest in April.
These aren't the simple kiosks found in some U.S. malls, where consumers can try out Dell machines but must place an order for later delivery. Although operated by local partners, these stores stock only Dell PCs, which shoppers can buy on the spot and take home. "In Hungary, Internet shopping is not as widespread as in the U.S. or Western Europe, so it is very important that people can come to the brand store," says Tamás Damján, country manager for Dell Hungary. Dell won't detail plans for stores elsewhere, but hints that more are likely.
Not long ago, this approach would have been sacrilegious, but Dell needs to find a way to tap into emerging markets. In Russia, for instance, laptop sales are growing about 50% a year, but Dell only ranks eighth, with a 4.2% share, according to researcher IDC. In desktops, Dell doesn't even make the top 10. To boost its share, the company needs stores since, like most emerging countries, Russia lacks the home delivery services needed to support direct sales, and customers have little experience with e-commerce.
The stores in Budapest and Moscow represent just the latest move toward traditional retailing for Dell. This year, the company started selling at Wal-Mart (WAM) in the U.S., Carphone Warehouse (CRWHF) stores in Britain, and Bic Camera outlets in Japan. And on Sept. 24, Dell announced it was teaming up with China's biggest electronics retailer, Gome. After nearly a decade in China, the second-biggest computer market after the U.S., Dell has less than 10% share among corporate buyers there and only 2.5% of consumers. That's in part because the Chinese enjoy shopping in stores and find delivery inconvenient. Dell is also considering traditional retail outlets in India, another market with vast potential but similarly poor conditions for direct sales.
Selling in retail stores exposes Dell to new challenges: anticipating what kind of PCs consumers will want and managing inventory. With direct sales, Dell builds only the machines that customers order. And it's not clear what competitive advantage a PC from a Dell store has over a machine from a rival with more retailing experience.
While Dell's retail presence may signal the start of a fundamental shift in strategy, it isn't yet large enough to add a lot of sales. At the 500-square-foot Budapest store, about 50 to 100 people visit on a typical day, and sales usually amount to a couple of PCs or laptops daily. On a recent weekday morning, only one customer is in the store: György Fischer, a 48-year-old information-technology manager for a government research institute. Although he hasn't yet pulled out his wallet, Fischer says he's thrilled with Dell's Latitude 620 notebook and its three-year guarantee. Says Fischer: "I don't know any other companies that offer such a long warranty."
with Jason Bush in Moscow, Louise Lee in San Mateo, and Judit Zegnál in Budapest
Comments
Dell has built their business on the direct-to-consumer model. Their previous effort to expand into retail was brief and unsuccessful. They've relied upon their made-to-order and just-in-time inventory to build and grow their business, yet now they are looking to rethink that position in certain markets. As Dell looks to expand into global markets, they have identified a need to change their strategy in certain areas. This particular article highlights their efforts in the retail sector in Eastern Europe. Markets like those found in Moscow and Budapest are less responsive to direct ordering, differences in credit card use and lack of internet access have required Dell to look to retail if they wish to enter those markets.
It will be interesting to see if Dell can pull it off. Their previous entry into retail sales was not successful, and retail is not among their core competencies. So, how will they develop those competencies, and will they be able to succeed in the face of both new competencies and new markets? It will be a difficult challenge for them, but they are still in the early stages and appear to be moving slowly--a wise way to handle such an uncertain situation. These two stores are clearly more about market entry and learning than they are about big profits, at this point. They are also taking a different tack with regards to how they handle the sales. Previously they tried to sell their computers alongside the likes of HP, Gateway and Compaq in stores like Best Buy, stores they don't have as much control over. Now, however, they are working with local partners on stores that sell only Dell products. While they will still have to deal with inventory management and guessing what type of computers customers want, operating their own stores will help them maintain more control over what they stock than they would if they were selling in another, more general retailer.
As is pointed out in the article, Dell does need to learn how to retail if they wish to break into the consumer sector (and likely business, as well) in emerging markets. Internet use isn't all that high in many areas, and from a practical and cultural standpoint, they need to have local retail outlets in order to reach customers. I have a hard time seeing Dell moving into retail in the US market, but it is a necessary strategy change for emerging markets, and will help them gain market share in those areas, if they can pull it off.
Posted by: Charissa | October 8, 2007 8:57 PM
The article leaves the concept of "Brand Recognition" hanging. Is Dell more or less recognizable in emerging markets? I think Dell's publicity during the dotcom era and now the post-dotcom era has put the brand out there for people to see in the U.S. I'm wondering what means is most effective for advertising computers in emerging markets... Does the article imply that the actual presence of the store is going help advertising, or just sales?
I think your analysis of this article was deep and insightful.
Posted by: Tom Dougan | October 16, 2007 3:07 PM
It's a good question--is Dell trying to break into the consumer market in these places for its own sake, or in an attempt to build a presence so they can secure big business clients, which are way more profitable for them? Or, have they already gotten some business clients and are now trying to enter the consumer space? These questions are outside the scope of this particular article, I think, but it will be interesting to see how Dell adapts and builds brand in other countries.
Posted by: Charissa | October 17, 2007 8:20 AM
Nice post !
That is very interesting analysis and helpfull.
Posted by: Harso | November 13, 2007 10:41 PM
Great post thanks
Posted by: Greg Dickson | February 15, 2008 10:56 AM