In crucial economies overseas, its old direct-sales model hasn't paid off
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."