Dell's New Approach To Retail

Dell Inc. has always prided itself on its online-only business model, the core component of a lean corporate structure that, for years, allowed the company to underprice and take sales away from its competitors.

So it came as some surprise last week after the world's largest computer maker, which has started to lose some ground in the marketplace, said it will open two stores, in shopping malls in Dallas and West Nyack, N.Y.

These stores, however, aren't typical cash-and-carry retail outlets. Visitors who decide they want Dell products will still have to go online and buy them through the company's Web site. The two locations, opening this summer, are only showrooms, designed to show off Dell technology.

It's an approach to the retail market that has caused some chuckles among Silicon Valley types. Tech pundit Tim Bajarin said retail shoppers prefer the sort of instant gratification that comes from walking out of a store with a heavy shopping bag.

"How would you feel if you went into a flower store to buy flowers and couldn't walk out with them?" Bajarin said.

Dell spokesman Venancio Figueroa said the company is remaining true to its direct-model tenets but is building on a strategy that showroom-type stores give consumers "an idea of how they can use technology in the home as they are making their purchase decisions." He said, "We want to help consumers understand the benefits of technology."

With its two new 3,000-square-foot showrooms, Dell plans to give customers a look at 30 product combinations, dedicated to showing off its products that run game, home theater, productivity, digital photography and home office applications.

The move is an extension of the company's 160 kiosks in malls and airports, which the company calls Dell Direct Stores. Dell hasn't determined whether tech support will be available to customers through the two locations.

IDC analyst Matt Eastwood called the stores "a classic Dell experiment."

"One area where Dell has been really struggling is in the consumer space, and this is definitely a response to that," he said. "But I don't know how you can run a retail store without carrying some inventory."

According to research firm Gartner Inc., Dell's shipments rose by 0.2 percent in the United States during the first quarter of the year, while the overall market grew by 7.4 percent. The quarter dropped Dell's market share to 29.8 percent from 32 percent, the firm said. Worldwide PC growth also outpaced Dell's worldwide shipment growth, also an unusual development for the company.

At the moment, the hottest-selling product in the computer business is the consumer laptop. Sales of PCs to corporate customers, the area where Dell has built the bulk of its fortune, have hit a plateau.

For years, Dell was a reliable performer on Wall Street. Even in the midst of PC sales slumps, Dell forged ahead by taking market share from the competition.

But Dell has posted disappointing earnings announcements lately, largely because of stiff competition from rivals such as Hewlett-Packard Co., which has been making a comeback on consumer PC sales. First-quarter profit was down 18 percent for Dell, its biggest downturn in years.

Dell's foray into shopping malls is only one of a few surprising recent steps by the company as it seeks to regain momentum.

It recently acquired high-end computer maker Alienware Corp. and announced that it will start selling servers that use Advanced Micro Devices Inc. chips. For years, Dell had eschewed acquisitions and been exclusively loyal to AMD rival Intel Corp.

Last week, Dell said it will install Google's toolbar and desktop software on all new PCs shipped over the next three years.