Why Dell Needs RadioShack

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As unlikely as a RadioShack acquisition may be, none of the analysts and industry insiders I spoke to on this were willing to shoot it down completely. Every one of them paused to think, invariably calling it an "interesting," "compelling," or even a "promising" concept. "Maybe initially it looks harebrained," says Roger Kay, founder of Endpoint Technologies Associates. "But if you look more closely, it could be a way for Dell to participate in retail without having to deal with the likes of Best Buy, with their aggressive terms, and without having to fight for shelf space with Hewlett-Packard (HPQ), Apple, Acer, and Gateway." Another Dell watcher, a well-known Wall Street stockpicker, doesn't expect Dell to buy RadioShack but says the idea isn't ridiculous, and that it represents the kind of radical departure the company needs to consider. "Dell really needs to do some out-of-the-box thinking [to improve sales to consumers]. That's the point," says the stockpicker.

Dealing with Retailer Distrust

Buying its own stores (probably a better solution than building its own; I just don't see the Dell crew being able to pull it off the way Apple has) may be one of those radical ideas. Dell has always based much of its thinking on cutting out the middleman. This would enable them to stay on that course. Also, Dell doesn't have the kinds of stand-out products that would give it a clear advantage over products from HP, Gateway, or other PC makers on store shelves. And it wouldn't have to overcome the distrust of retailers. Even when Dell made a brief foray into retail in the early 1990s, it often undercut partners by quickly offering better prices over the phone, recalls NPD's Baker, who worked for Staples (SPLS) at the time. "They'd poach our customers," he says.

Given Dell's low-innovation approach, don't expect a raft of Apple-esque products that by themselves warrant a trip to the Dell store. Rather, Dell would need to meld its logistical and operational skills to create in the physical world what it did so brilliantly in cyberspace in the 1990s—create some kind of new shopping experience. Maybe it could meld Dell's build-to-order capability, where you go into a store and get help to design your own perfect machine with actual hardware, rather than on a screen on an electronic kiosk. Then, you could go back a few days later to pick it up or have it delivered to your home.

Then there are customer service challenges. Dell clearly has some making up to do with consumers angered by faltering phone support in recent years. Developing a network of competent staffers at nearby stores could be a powerful, if expensive, way to win them back. For illustrative purposes, let's consider a prospective customer: me. I'm in the market for a new desktop PC. I'll probably end up buying online, but wouldn't mind getting a look at my ultimate choice before I do. And while I have no idea where Dell's nearest kiosk is located, there's a Radio Shack just a mile away. In the past, I've only gone there to buy cables and other tech paraphernalia. But if the store also served as a Dell showroom, store, and service depot, when I run out of patience with phone support, I might well be drawn in.

Harmonic Brand Convergence?

Hold on, you say: Why buy a chain that's about as exciting to most consumers as a trip to the dry cleaner? No doubt, RadioShack stores aren't nearly as swank as Apple's stores, but then, that's the point. Dell's typical customer isn't Apple's typical buyer. I've always thought that Dell's marketing approach over the years has been to build a kind of anti-brand, designed for everyday folks who just want a good deal. (If you want to sell to the techno-sophisticates, the Dell Dude would not be your first choice as pitchman.) Well, that's RadioShack, ain't it? I'll leave it up to the marketing pros to figure out the details, as my only spur-of-the-moment idea—"the Dell Shack"—doesn't quite have the gravitas they'd need. Still, it seems to me there could be some harmonic brand convergence here.

And Dell could clearly afford it. RadioShack's market capitalization is less than $3 billion, compared with $57 billion for Dell. They both earn roughly the same amount at the end of the day. (RadioShack posted net margin of 6.4% last quarter; Dell's was 6%.) On the other hand, the operational risk is high—especially for Dell, whose largest acquisition was PC boutique manufacturer Alienware last year. RadioShack has 40,000 employees, compared to 65,000 to Dell, so it's not nearly as small an undertaking as RadioShack's market cap might suggest.

So could this deal actually happen? Dell wouldn't comment, and RadioShack didn't return my call before press time. And I haven't got any money riding on Dell doing this deal. But it's exactly the kind of radical idea Michael Dell should be considering as he strives to turn around the company that bears his name.

Burrows is a senior writer for BusinessWeek, based in Silicon Valley.