Dell Steps Up Consumer Pursuit

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"The million-dollar question is whether a Dell or any other vendor can do the same." Consumer sales account for only 15% of Dell's $57 billion total, though they account for 40% of PC sales worldwide (see BusinessWeek.com, 2/2/07, "Dell's Not on Easy Street Yet").

In Europe alone, there's plenty of room for growth on the consumer side. In France, for example, Dell is a leader in business computers, with 27% of the market, but it has only about 3% of the consumer market. Even as Dell steps up its pursuit of consumers, business customers remain a big focus. Dell and other executives are in Paris for the company's annual meeting with its biggest European customers.

The company is trying to figure out what the next billion PC users are going to want to buy. It has already designed an entry-level consumer PC for the Chinese market that sells for about $275 and sees huge potential in other developing markets such as India, Eastern Europe, Russia, and Brazil.

Adapting to Change

The question for Dell, though, is not just how consumers will react, but whether Wall Street will warm to its aggressive new retail strategy, which is sure to increase operating costs.

Not only do retailers take a cut on each PC sold, but Dell will need to stock inventory for the first time. That means giving up a huge historic advantage of selling only direct—it must now try to guess what models customers will want and slash prices to move products that gather dust on shelves. "The thing we have questions about is whether this is a market share play or for profitability because dealing with the [retail] channel involves significant overheads," says Gartner's Margevicius. "What I think Michael is trying to do is reset expectations on who Dell is, but they may get hurt because of this on Wall Street."

Indeed, after news of the Wal-Mart deal was announced, Dell stock took a hit. On June 7, the shares slipped just over 1%, to $26.99.

An ability to adapt to changing demands is also what has prompted Dell to rethink its approach to TVs. Dell pulled out of the plasma TV market in February and is now offering Sony (SNE) LCD 40- to 46-inch TVs. For the time being it is continuing to offer Dell-branded television sets that are 37 inches and smaller, but the writing is on the wall. Dell says more consumers are watching TV on their digital displays, so the company will focus on a new generation of products that marry the TV and the PC.

The new, stronger focus on consumers is only the beginning. Five years from now, says Dell, the company will become far more customer-centric. Maybe then, he'll be back in the City of Lights to unveil Dell's next new direction.

Schenker is a BusinessWeek correspondent in Paris.