May 31st, 2006
5 Reasons Why Dell’s Plan to Open Product-less Retail Stores is a Bad Idea
By Alice Hill
RealTechNews
For as long as I can remember, Dell was the champ. It took the concept of “Build it, Sell it” and turned it neatly around - finding that “Sell it, Build it” worked a whole lot better. Since then Dell has created a super-streamlined supply chain and manufacturing operation that companies from around the world study and marvel over, it made buying direct a legitimate and smart way to shop, and it made Michael Dell a wealthy man. Which is why we are all shaking our heads in disbelief over the news that Dell is envious of Apple’s gleaming retail stores, and has announced that it is going to open up a few stores of its own (in Dallas and New York), at a loss, to get the public awareness up and improve its image.
Here are 5 reasons why we think that is a very bad idea.
1. People Like to Bring Home Their Purchases
If it isn’t a 60 inch TV that requires home delivery, people who take the time to physically go to a store and wade through check out lines and doltish clerks, also like to have something to show for it. A tangible product they can enjoy. A new gaming console, a blender, a new DVD. Dell has announced that its stores won’t carry any merchandise. In my book that isn’t really a store, it’s a super sized kiosk.
In 2003, Dell did a deal to place branded kiosks in Sears outlets, and you can see Dell kiosk displays in many US airports, where you can touch digital cameras, and flat panel monitors and even place an order online- that business model seems fine because an airport is the last place you want to lug home a monitor or new desktop, but again, if you’re killing time before a flight, it would be nice to actually pick up a digital camera as a last minute gift, or reward that big sales contract you just landed with a new PDA on the spot.
Unlike Dell, Apple carries products in its stores; customers can try an iPod and walk out listening to one. Stores that carry no inventory risk putting off some shoppers, Whalin said. “I don’t think that works as well, particularly for consumers,” he said. “Walk into a major consumer electronics store, and they have a selection of TVs you can choose from, compare, load up in the back of your pickup and take home.” Source: Statesman.com
2. Gateway Tried the Same Thing and Failed
Gateway at one time was running a close race with Dell. Those cow patterned boxes were branding magic and the company’s crazy advertising and low prices, made it an interesting alternative to Dell’s more staid corporate image.
And then Gateway decided to try high-end consumer electronics. It also opened up a number of stores, including a flagship store in Manhattan I had the chance to visit before it was shuttered. The store had all sorts of showcases for giant Gateway TVs and home entertainment systems. And it also carried a few items. I tried to buy an external hard drive and some blank DVDs and waited so long for the clerk to figure out the cash register, I gave up and went to the nearby Circuit City.
The bottom line: retailing is hard work. You need good salespeople, an efficient check out process, and lots of clever ways to get a few extra dollars from every shopper who strolls in. A display-only store loses that chance to make last minute incremental purchases (like those blank DVDs I tried to buy) and Dell has not done well with its line of consumer electronics products. We say: Learn from Gateway. Dell is a better company, but that doesn’t mean it can’t make the same mistakes with a bad strategy.
“The first thing everyone will say (about Dell) is, ‘It’s Gateway all over again,’ ” said Stephen Baker, vice president of industry analysis at NPD Techworld. “Dell is not Gateway: It has a much bigger position in the marketplace and a much stronger brand name.” With personal computer sales starting to slacken, the stores will help the company get its products and systems in front of more people, Baker said. That’s especially important for consumer electronics such as televisions, which people more often buy after testing and comparing with other brands. Source: Statesman.com
3. No Killer App
The reason why Apple stores are doing so well can be summed up in one word: iPod. The iPod put Apple back on the map and brought people into beautifully branded stores that showcased computers and other Apple products in a way that allowed it to stand out and make a statement. The main problem with Apple products in other retail environment has always been the weighting. Mac software is given a few sad shelves in the back, if at all. Apple machines almost never got enough floor space, and Apple’s market share tumbled from this squeeze play. The Apple retail strategy was to pull out of the crowded superstore and showcase its innovative products in a highly branded store with no competition.
We Say: This strategy works when you have something sexy like the iPod that gets people into stores. (I’ve been to more than one and am not even a big fan of the iPod.) The iPod product family evolves and improves, it has spawned a world of accessories and add ons, and all of that keeps them coming back for more. Is a Dell PC enough of a lure to pull you into a store and keep you there oohing and aahing over the merchandise? We’d say maybe, but Dell has no consumer electronics “hits” to date and it’s hard to get the foot traffic when you aren’t really selling products people can take home and enjoy.
Apple Computer Inc. has been storming ahead in the consumer market. Like H-P and Gateway, it sells through retail chains, but much of its recent growth has come from its sleekly designed Apple stores. The company has 133 stores nationwide. The newest one, which opened Friday on Fifth Avenue in New York, will be open 24 hours a day. Each store averages about $20 million in sales per year, said George Whalin, president of Retail Management Consultants in San Marcos, Calif. The stores account for about 17 percent of the company’s $13.9 billion revenue. Source: Statesman.com
4. People Like to Compare Brands
Perhaps the best thing about a physical store is looking an all the brands before you buy. It’s amazing how a spec sheet online can bring you in for one camera, but handling the various models can completely change your mind. Consumer electronics are especially visual purchases.
Dell has a number of models to choose from, but when it comes to LCD TVs and monitors and other more high end electronics, people like to see the Sony and the Viewsonics and all the players in between. It’s not just about price – everything from the styling to the remote is part of the buying process when you’re in a retail environment. We Say: Dell should be in stores, not kiosks or product-less half steps. Why not roll out a product assortment for Best Buy and see how it goes?
5. Tech Support Hell
Apple stores have been offering tech support, which sounds risky but again works well as branding. A “Sure, we’ll help you out, Macs are easy and not that hard to fix” vibe occurs when you can bring in your laptop and then check out the latest software and iPod accessories while you wait (offering you another chance to spend $$$). But what does Dell stand to gain, when you can’t really buy anything while you wait and you end up costing more money by bringing in your broken products.
When people buy from Dell, they don’t think “oh that router is from Linksys” they just think of that order they placed that included a desktop and a router. If they view a store with no products as the place to take back that faulty laptop and also drop off that router that never had enough range, then you can imagine what fun it will be hanging out there or worst of all, working there.
Apple Computer Inc.’s retail stores have succeeded largely because they carry products and feature well-trained employees who are able to answer consumer questions and provide technical support, said Shaw, the analyst. “Although what we have seen so far of Dell’s proposed store layout in many ways resembles Apple’s successful retail stores, Apple carries inventory and offers tech support in its stores,” Shaw wrote. “It is not clear to us that the economics of Apple’s staffing model likely supported by robust iPod sales make sense for Dell.” Source: Washington Post
We think this says it all:
The company still is working out how to handle tech support questions that existing customers might bring to the store, a spokesman said. Workers at its kiosks put shoppers with service issues in touch with Dell’s existing customer-care staff. Source: Statesman.com
Bottom Line: a larger kiosk is not a store, and having a person put in a call to a call center is not in-store technical support. As the market slows down, Dell does need to get in front of more shoppers, but why go this route? Put your products in stores that exist and compete on price and brand and you instantly open up another channel for selling. This method is just not going to end well.
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jbelkin says:
You hit ALL the reasons they will fail. Imagine the customer service FIASCO when they do the hidden camera thing and ask the Dell guy a question only to be told to call the 800 number or worse yet, call MS, that’s a software issue …
And you’re right about the ipod but even without the ipod - Apple still had plenty of ‘fans’ willing to wander around the store - how many fans is there of DELL willing to wander around a Dell store?
Also, even the catalog stores have faded because as you point out, people who shop by price can do it online and wait 1-7 days to get it knowing tey paid the lowest price. In a store, people want to take it home and start playing with it … and like at Costco, people even buy 60″ TV’s right on their cart …
I also heard the malls they are opening already have an Apple store there - talk about going into the lions den.
May 31st, 2006 at 2:01 pm
Alice says:
Plus - a PC is just a box with Windows. Even though I have owned about 8 Dells in my life, the one thing Apple has going for it is all the integration between its software and hardware. On the PC side, what would be compelling enough to show - that you can take pics and print them on Dell printers?
Plus, Dell is going to charge sales tax on a purchase you can make online for less. Stupid.
May 31st, 2006 at 2:38 pm
Twigit says:
I worked for Dell Tech Support for several years before they made the transition to India. I was fortuniate enough to know what it is like to take the Direct Model and finaly beat out all of the other competition with it. Dell was in a growing phase and started hiring VP’s from failing companys like GE, Apple, Capital One, World Comm. I saw these guys come into Dell and then revitie mistakes Dell had made in the past. I now fear that they ran out of old Dell mistakes and have moved onto Compaq and Gateway mistakes. Dell use to have a Factory Outlet store in Austin, but found out it could sell refurbished systems faster, easier, and make more profit if they did it online. I was amazed at evening seeingsome of the mini booths around the malls here. I think what this is what happens to a great company that Grows to fast and furrous. They just find new ways to ruin a good thing. The Tech Support to India idea didn’t work out to well and I don’t think this will either. Outsourcing is a way to fractionalize the American dream and send it over seas to a means in which companies can max out the short term profits. I just wish some one could make a list of the true RED WHITE and BLUE companies out there that keep things at home these days so that I can find any brand to be loyal to.
In Closing I would have to say ALIENWARE has taken Dells old spot a top the HIGH PERFORMANCE PC market. Mainly because Dell outsourced it’s motherboard devolopment division to Intel, just like everyone else. One Big Company and So many mistakes. I can’t wait to goto the local Dell stores to look at what I am going to go home and Buy online. The Direct Champ may takes itself out of the game.
OK I know I said I was closing, but I have been around PC’s for many years and at one time Zenith made PC and they had the contract to supply them to the Military. Well now these days Dell is handling it. My guess is that the long term support of that equipment will tug on Dells Bottom line a bit. But then again all the Financail mangers I know can’t see past the Quarter they are end. Short term profits don’t make for a long term company, or pension funds, or a very nice place to work.
May 31st, 2006 at 4:20 pm
hudef says:
Yes, the article shows sound (but very reptetive)judgment. But so what? Why should I care if Dell stores are a success? Why didn’t the author just send his observations to Michael Dell in an email? Mike mighy hire him as a consultant.
May 31st, 2006 at 4:32 pm
Alice says:
I guess you don’t have to care if the stores are a success or not. I thought it was a real wake up call to see Dell acting this foolishly. I watched Dell go from a tiny ad with a phone number in PC Magazine to an online powerhouse, and this move is really awful to see.
May 31st, 2006 at 4:39 pm
Torisutan says:
Everyone here has hit the nail on the head here so I won’t drown you all in reiterated nonsense, but I just wanted to let Twigit know that Dell has bought Alienware.
So now it’s just six to one, half a dozen to another.
May 31st, 2006 at 4:47 pm
Steve says:
Dell lost me as a customer forever with their hijinks two years ago. Up until then I thought they had a decent product. Their inferior laptops and impossibly incompetent Indian tech support hell lost me forever.
May 31st, 2006 at 5:42 pm
Steve says:
Dell lost me as a customer forever with their hijinks two years ago. Up until then I thought they had a decent product, but their inferior laptops and impossibly incompetent Indian tech support hell lost me forever.
I know their sales and profits are down, and I have to laugh as they commit slow suicide with thier latest stupid move.
Suck it, Dell!
May 31st, 2006 at 5:45 pm
Twigit says:
Oh no I must have missed that. I loved Alienware. I guess I need to stick to building my own. LOL I would imagine the apeal of the Guys at Alienware to sell such a cool brand name. I should have started that one years ago. I just made built my son a sysem for Christmas that ROCKS 64 bit AMD. My quesion is why is it so hard for Dell to get into bed with AMD? They are both in Ausin and AMD is trying to BUY ATI. AMD has made a great processor for years and it the only reason you can get a processor cheaper then Office XP Pro.
May 31st, 2006 at 5:51 pm
EasyG says:
Dell grew big too fast to handle the amount of morrowns.scratch that call them new users who buy a $300 PC, and want it to talk and come with a teacher. Take the IPOD as a good example. That thing costs you an arm and a leg (if you really want the good stuff). One of the latests IPODs is MORE expensive than a cheap low entry PC, and it is possibly owned by a person with more intelligence level than an idiot wanting a cheap PC that can teach you how to use it, and if you screw it up, then come to your house and help you. By the way this is NOT just a Dell problem but the entire industry as a whole.
Last, go blame it on the C- student that is now the president for the TAX deals that made American companies invest overseas.
May 31st, 2006 at 8:21 pm
EasyG says:
Oh wait, I forgot to talk about this moronic report\commentary. Everyone is ready to talk about how bad Dell is doing, however it has clearly outperformed the compatition (hands down). Have you actually read the sales information before you wrote this article???
This is once again some wannabe famous let me write some stupid crap up, and if it does really happen, then try to appear intelligent by saying I told you so.
May 31st, 2006 at 8:24 pm
Dave Barnes says:
Good luck to DELL (and they will need it). Retail is a difficult environment.
For example, the Apple Store vs CompUSA. Both sell Apple computers and iPods. Prices are the same.
The Apple Store is sophisticated, full of happy people buying stuff.
CompUSA is a dump full of red-shirted idiots.
I prefer to buy from CompUSA because:
1. the Apple rep in the store is great
2. I can test drive my item BEFORE buying it
My wife and daughter prefer the Apple Store because:
1. it is full of happy people buying stuff
The prices are identical. The environments are worlds apart.
,dave
May 31st, 2006 at 8:29 pm
Nerdal Network says:
Dell?
Real Tech News mentions some reasons why Dell’s proposed retail storefronts are likely to be a failure.
I tried to buy an external hard drive and some blank DVDs and waited so long for the clerk to figure out the cash register, I gave up and went…
May 31st, 2006 at 8:49 pm
Curtis says:
Quote:
“Dell should be in stores, not kiosks or product-less half steps. Why not roll out a product assortment for Best Buy and see how it goes?”
Endquote
Dell already tried this and it failed miserably. It is in direct conflict with the direct to consumer model. I’m guessing here, but I think what they are looking for in the new stores is a place where a customer can come in, play with the computer, ask questions, and configure it based on what they want. That way they can make an informed decision based on hands on, without the disadvantage of having to buy a spec computer right off the shelf.
May 31st, 2006 at 11:47 pm
ed3 says:
This is clearly an attempt to go after the remaining 5% who do not have a computer and only trust brick-n-mortar storefronts.
June 1st, 2006 at 4:50 am
Bill M says:
Apple has a strong, loyal customer base to draw from — and sell to — so they can afford a little flash to maintain the brand image. TO contrast — when was the last time you saw someone wearing a Dell logo t-shirt? (When was the first time?) “Cool” is not even a small part of Dell’s branding.
June 1st, 2006 at 4:58 am
John Edwards says:
No consumer hits? I dunno, it depends how you define a consumer hit. Their 2405FPW (or some close model number) has a semi-cult like following. A 24″ widescreen LCD that does 1920×1200 resolution.
But, yeah, nothing iPoddish.
June 1st, 2006 at 5:43 am
JO says:
Seems like there is a lot of Dell bashing going on here. Most of which has nothing to do with the actual article. Dell bought Alienware, yes. But Dell is also using the same Alienware people to build the machines, Dell just bought the name. Anyone who thinks wearing an Apple logo’d shirt is cool, has some serious issues anyway. If Dell is so bad and lost, how do they have contact with over 1 billion people globally annually and have the #1 PC market share in the US. I have a feeling there are a lot more Dell advocates than the 15 or so bashers that are not truly educated to the facts.
June 1st, 2006 at 6:40 am
JS says:
Apple is SOOO much better at the one thing most PC makers aren’t: hype. Actually, Apple is ALL hype(iPOD is an overpriced POS, OSX barely performs in a network environment, etc…don’t call me a hater, I work with mostly Macs, so this is from personal experiance). Therefore, a store is a perfect venu for Apples products. A pretty, happy store is the perfect place to fleece the rubes.
Dell, on the other hand, used to value quality. They streamlined their processes, used top quality equipment, etc… I’ve seen that go downhill over the past few years, and I believe it is because of modern business theories. In modern business theory, you can never be content with making a steady profit, since your main goal is to grow your share price for your investors. You need to grow your profits, and that, mostly, leads to bad ideas like this one.
June 1st, 2006 at 8:59 am
Dewy says:
I have been working for An American ISP, Not aol, and i have noticed that everyone has trouble with Norton Internet Security and Dell Computers. And I do tech support and they suck.
June 1st, 2006 at 9:30 am
Steve says:
To JO:
“I have a feeling there are a lot more Dell advocates than the 15 or so bashers that are not truly educated to the facts.”
This isn’t about Dell bashing. As mentioned in many articles, Dell does some things with supply chain streamlining that nobody else can compete with. That doesn’t mean Dell isn’t capable of doing something stupid. Whether you acknowledge it or not, Dell’s retail store strategy is flawed. It’s brought on out of jealosy for Apple’s retail efforts, yet it’s planned execution is very similar to the new defunct Gateway implementation.
The point is, Dell’s stores are not profit centers, they are expensive losses that should probably come out of their advertising budget. If Dell sticks to just a handful of “brand image” stores, then they will likely absorb those losses just fine. Given Dell’s proposed business model, there is no way they will ever approach the quantity or quality of stores from Apple.
June 1st, 2006 at 9:56 am
Michael Dell says:
What none of you seem to have considered is that consumers who aren’t computer experts and who might not know the specific differences b/w 2 Dell models might actually value the opportunity to see the machines in the flesh in a retail outlet.
Furthermore, all 5 of the points discussed above completely fail to consider what these retail outlets will provide for consumers compared to simply going to dell.com. That’s the whole point - what do these outlets add to Dell, not whether people want to walk out of a store with a toy, or how other companies have failed…
June 1st, 2006 at 2:01 pm
Derik says:
As a former Dell Kiosk employee I have seen this concept at work at the kiosks. and I have to admit if Dell even carried their Pocket DJ’s and maybe some of their better selling camera’s and some software, something that is easily stored this could take off like a rocket… I worked at one of their lower end Dallas stores and our crew took it from one of the lowest ranking kiosks to one of the highest ranking kiosks in the country in less than 4 months because we did something no-one else did… if it was semi-easy and it was a dell or they could prove they bought it from Dell we would take a look at it, all but one of our people had a tech support background and knew PC’s inside and out, so at least we could diagnose the issue so customers could easily call tech support and get their issues resolved quickly. If they offered just this basic tier one service and a few easy to store products I would almost guarentee their success,… but if they are just following the standard kiosk design… Hello HP as the industry leader.
June 1st, 2006 at 2:49 pm
Steven says:
Our stores sell very well because we sell to women and color coordinated gay men. It is all on the marketing….
June 1st, 2006 at 7:07 pm
Al Coholic says:
REPLY TO POST 3.
Dell now owns Alienware.
June 2nd, 2006 at 1:07 pm
alan says:
Has anyone else been on CareerBuilder and Monster and noticed that the Dell Kiosk employees are actually being hired through Spherion, which is a temp agency?
This will let Dell dump these employees more ruthlessly than a grouchy secretary if this doesn’t work out without firing a “real” Dell employee and having to worry about lawsuits over real or implied employment contracts.
August 10th, 2006 at 6:06 pm
Jeffsters says:
JS Wrote: “OSX barely performs in a network environment, etc…don’t call me a hater, I work with mostly Macs, so this is from personal experiance)” Please don’t lie to make your point. I am an IT Manager in a F500 with more than 3500 CPUs at a 45% Mac 55% Windows (mostly Dell) mix at our site. We’re mostly Marketing and the Comm groups. Anyway, I have 2 full-time and 1 Part-time Mac Tech. I have 7 PC Techs. Enough said there I think. I think someone needs to go to school on how to configure and support the platform here. Anyway….
back to the topic…
The issue here is that Dell’s model is a direct channel. This is how they compete and win so often on price as they do not need to take on the costs of distribution through a re-seller channel. If Dell moves to selling in the channel or stocking their stores, while not touching price, they will loose millions. If Dell EVER decides to carry product or sell through the likes of Best Buy they will have to take on the same price structure HP and Lenovo have laways had and thus loose their price/margin advantage. Things will have to get pretty bad for Dell before that happens I think.
August 11th, 2006 at 11:18 am
Jeffsters says:
BTW: Yes the people in the Dell kiosks are NOT Dell employees. To be fair though until a few years ago the people in CompUSA etc., where not Apple Employees but contracted from a firm called MarketSource I think. Been awhile.
August 11th, 2006 at 11:21 am
jonny says:
jonny
October 15th, 2006 at 2:03 pm