May 25, 2007
Dude, Wal-Mart’s Selling Dells
Ten days ago, Wal-Mart announced that it was expanding its consumer electronics departments in its stores and would increase its selection of high definition televisions, home theater systems and digital cameras. Now, it also appears as though the company is intent on upping its profile in personal computers with the addition of two Dell Dimension desktop systems, priced below $700, to its selection.
When Wal-Mart initially announced changes to its consumer electronics department, Kevin O’Connor, vice president and general merchandise manager for consumer electronics, said, “Consumers are more technology driven today than ever before and are searching for the right price and products to quickly meet their needs.”
Gary Severson, senior vice president of Home Entertainment, Wal-Mart, said of the deal with Dell, “Our customers trust in Wal-Mart and Sam’s Club to provide the most convenience and best value on today’s top products and services. Dell is a proven electronics brand and adds a new complement to our other high quality desktop selections, and we’re very excited to now bring our customers new access to a product they want, with the ability to purchase a Dell right away.”
It’s not clear despite the announcement that Dell and Wal-Mart are in it together for the long haul. Dell has built its business selling directly to consumers.
Steve Baker, NPD Techworld’s director of industry analysis, told PC Magazine, “It’s absolutely a limited trial. Dell is a smart company moving into selling to third parties… I think everyone’s waiting to see what happens. Dell hasn’t sold to the typical customer that goes to a Wal-Mart.”
Discussion Questions: What is your take on Wal-Mart’s expansion of its consumer electronics department and its deal with Dell? What will Wal-Mart’s latest moves mean for the competition?
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Recently Michael Dell announced that Dell is considering other methods of distribution and that the “direct method” is not carved in stone at Dell. So it is not surprising that they had an announcement to begin distribution through Wal-Mart.
Like other manufacturers, Dell is selling only low priced models at Wal-Mart for consumers who want to pay less or can only afford that prices. Those consumers who want a computer that has more capacity or flexibility can still configure their own on the Dell website.
It will be interesting to watch how consumers respond to the experiment. It is a bold step for Dell to make and they should be congratulated for being will to take a risk to make a change.
Wal-Mart’s expansion of its consumer electronics department and in particular, its deal with Dell, helps to make personal computers more widely available to an expanded consumer base, particularly where income and affordability are concerned. Assuming that Wal-Mart sticks to its margin strategies, this will be an excellent development to help the lesser middle income family make PCs more available to more members of the family. Computers are a necessity today for people of all ages, for education, for almost every human being that wants to be part of today’s economy and society. I predict success for Wal-Mart, Dell, and for the expanded consumer base, as well.
This is certainly a win-win for both companies. The combined brand names of both companies will only prove to be a positive. This is a wise move for Dell and should prove profitable for Wal-Mart as well.
For this to be successful, either Dell must allow Wal-Mart to make profit on its products, or Wal-Mart must take a hit to its profits. Otherwise, Dell must offer a product to Wal-Mart that is a unique SKU, where Wal-Mart commits to purchasing such a large volume of the customized SKU that it is worthwhile for Dell to build it just for Wal-Mart. This could easily happen if Dell forgoes its specials, discounts and other price adjustments, and just gives Wal-Mart a standard “everyday” low price. This would allow 2 of the largest retailers of these products to work together and build upon their unique strengths in the electronics and computer category. Yesterday’s competitors CAN become today’s partners.
There is a more subtle aspect to the whole Wal-Mart/Dell decision. I have not shopped for a computer in a while, so I didn’t know that Wal-Mart was carrying HP computers. Since computers have pretty much become commodities I kept wondering how HP could keep eating away at Dell’s lead. When I heard that HP was offered at Wal-Mart it seemed to explain it.
The subtlety in all this is that the computer has really becoming a personal entertainment device rather than a “tool.” I don’t believe the Wal-Mart customers are all buying their machines to run bookkeeping software or manage businesses (although there are some of those). The computer must no longer be thought of as “technology.”
With this thought in mind, it explains why my local supermarket now has a “computer software” section. And why Dell needed to get out into the brick and mortar world.
If consumers can shop on either the Wal-Mart or Dell web sites, and then find what they want at Wal-Mart, this will be successful. Better still would be a buy-online/pickup in-store capability. If either party thinks they can rely on foot traffic, then not so much.
Ryan Mathews beat me to the punch. I agree that Wal-Mart has really lost their way. One thing to add is that I think the move will hurt Dell. I think it will have a big impact on the Business Customer base.
My company is a heavy purchaser of Dell, and I can’t help but think there will be a major deterioration in service (which is already slipping) if they see a big surge in their consumer base.
As the price of consumer electronics items like high definition televisions, home theatre systems, and digital cameras continue to decline, it may be in Wal-Mart’s advantage to increase its selection of high definition televisions, home theater systems and digital cameras. However, if Wal-Mart tries to move in to the higher end of these items, then it will meet the same fate as it did while moving up the chain in the fashion area. Those who want to buy higher end high definition televisions, home theater systems and digital cameras will most likely go to stores like Magnolia Home Theater within Best Buy, Home Theater Store, etc. When it comes to home electronics, cameras, and appliances, Wal-Mart is for those who either know exactly what they want or for those who do not know exactly what they want but they do not have enough money to spend, and yet they want a digital camera, because as we all know, it is almost impossible to find knowledgeable sales associates at Wal-Mart who can explain the difference between 4 megapixels and 7 megapixels or optical zoom and electronic zoom, or what is the difference between a $250 digital camera versus $149 digital camera.
Wal-Mart is still experimenting with what it wants to be next and Dell ought to enjoy a good sales boost. Long-term–who knows? Wal-Mart seems to have abandoned sustainable strategy in favor of a merchandising tactic du jour approach.
Given that Wal-Mart/Sam’s Club is already selling other computer brands, I think this is a bad strategy for Dell. I think this strategy will negatively affect Dell’s market position as the preferred business computer supplier. The business user will probably always provide a higher profit margin to Dell, so I think they are taking a long-term risk for a short term revenue windfall.
Wal-Mart’s procurement strategy has long been about pitting two big vendors against each other for the benefit of the retailer and its customers, and that seems to be what’s going on here with Dell and Hewlett Packard. It’s interesting that Dell’s (and Wal-Mart’s) former CIO Randy Mott is now at HP, the company potentially with the most to lose out of this new arrangement.
This seems to be a reasonable win for Wal-Mart. But how can this be a win for Dell? Their margins are already thin and Wal-Mart is certainly not going to be looking to add any more profit to Dell’s equation. They’re going to have to figure out how to support a huge influx of lower-end machines in a highly competitive space. Personally if I were Dell, I’d be looking at ways to move up the value chain, not down.
For WM, I’m struggling with why this is anything but a potential positive. We are not talking about a massive explosion of Dell shops within WM, complete with trumpets blaring and falling confetti. It’s two SKUs! I may be wrong, but that almost certainly sounds like a test.
And kudos to both companies for making it a test. In theory, Dell has brand equity which may appeal to the WM consumer. In fact, the demographics, shopping habits and lifestyle description of the WM electronics consumer differ from those of the WM apparel consumer. Market research shows that brand recognition is important in consumer electronics and computers. Dell has massive recognition.
Yes, in the long run, to work for both companies, the product line should be differentiated from the offer Dell makes online. And yes, this is going to be a huge challenge considering Dell’s design-your-own menu of almost unlimited options to each system. Already though the options offered within each line on the Dell site differ and create limitations. I see no reason for this not to occur with the WM product line.
A final thought: what if Dell was seeing slowing sales in its lowest end products? What if that slow down was sufficient to make the line significantly less important or profitable? What real downside would they have in switching to WM to distribute that line?
This is not Dell’s first foray into the brick and mortar world by a long shot. The company successfully operates several hundred mall kiosks and a handful of in-mall Dell Stores that are in some ways comparable with Apple Stores. Dell kiosks and stores carry no inventory other than display pieces–but they are wired to the Web, permitting assisted online ordering.
I think Paula nailed the major difference for Dell when Wal-Mart becomes its re-seller. That means there must be both enough net margin to share and a certain amount of finished stock held in the distribution pipeline. Those two factors are inherently at odds. This test may be a good deal for Wal-Mart customers and Wal-Mart itself. It will certainly put competitive pressure on HP, which has done very well in the Club channel. But Dell will have to gain a lot of volume and new end-users for this to pay back.
Betcha’ didn’t know this: I always purchase Dells, and a lot of them, for cash (naturally you wouldn’t know this–but please read on). Recently I decided to use Dell’s installment payment plan to purchase an extreme, high-end, flame-thrower notebook (they’re not really laptops anymore–too hot for our sensitive areas). After two months of paying the minimum payment, I discovered that I owed Dell more than when I started!
Purchasing Dells on credit through WM will save consumers money, but help to cripple Dell’s credit installment plan. Without knowing the contribution of consumer interest payments to Dell’s bottom line, I anticipate a hidden negative revenue “hit” they’ll experience even as their volume and BDI (Brand Development Index) expand.
Very scary for Dell. Are they equipped to distribute to stores? Are they equipped to hold inventory? Are they ready to be considered a pure commodity?
For Wal-Mart, I see it as a no-lose situation.
Wal-Mart needs some credibility in their CPU offerings and while HP is gaining ground, they are not the lead.
It seems that Dell started this type of price war before going to brick and mortar and have just followed it down the pipeline.
Let’s not forget that Dell still has the Alien brand line for high-end and can leverage dual branding to secure a multi-tier strategy.
It adds complexity but low-end machines are becoming a commodity anyway so I can see a fit.
It would also appear that the competition from a new HP is threatening Dell to try new things.
Good for consumer and Wal-Mart. Dangerous for Dell. As a Dell user, quality seems to have slipped dramatically in recent years. This feels like a fall further down the food chain of quality and could open a niche for higher-end PC producers that Dell used to fill.
I applaud Wal-Mart for looking to electronics to attract a more upscale consumer. As the world seems to be looking for LCD and Plasma screens, Wal-Mart’s no hassle (rebate free) marketing and pricing will be welcomed by thousands and if Wal-Mart is astute enough to provide quality Hi Def support machines (DVD Recorders, Home Audio, etc.), they might be able to convince Dad to drag Mom in to look at sheets and cosmetics. Who knows?
It’s very hard to make money selling low-end commodity personal computers and laptops. Daimler’s stock rose nicely when they announced the Chrysler giveaway. It’s unlikely that Dell or HP can make decent money selling low-end machines at Wal-Mart or through any other channel. And low-end customers, like all customers, make demands upon the help desk folks. Dell’s help desk’s reputation has already been hurt. Sometimes it really pays to ignore the customers whose demands can’t be met profitably.
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Recently Michael Dell announced that Dell is considering other methods of distribution and that the “direct method” is not carved in stone at Dell. So it is not surprising that they had an announcement to begin distribution through Wal-Mart.
Like other manufacturers, Dell is selling only low priced models at Wal-Mart for consumers who want to pay less or can only afford that prices. Those consumers who want a computer that has more capacity or flexibility can still configure their own on the Dell website.
It will be interesting to watch how consumers respond to the experiment. It is a bold step for Dell to make and they should be congratulated for being will to take a risk to make a change.
Wal-Mart’s expansion of its consumer electronics department and in particular, its deal with Dell, helps to make personal computers more widely available to an expanded consumer base, particularly where income and affordability are concerned. Assuming that Wal-Mart sticks to its margin strategies, this will be an excellent development to help the lesser middle income family make PCs more available to more members of the family. Computers are a necessity today for people of all ages, for education, for almost every human being that wants to be part of today’s economy and society. I predict success for Wal-Mart, Dell, and for the expanded consumer base, as well.
This is certainly a win-win for both companies. The combined brand names of both companies will only prove to be a positive. This is a wise move for Dell and should prove profitable for Wal-Mart as well.
For this to be successful, either Dell must allow Wal-Mart to make profit on its products, or Wal-Mart must take a hit to its profits. Otherwise, Dell must offer a product to Wal-Mart that is a unique SKU, where Wal-Mart commits to purchasing such a large volume of the customized SKU that it is worthwhile for Dell to build it just for Wal-Mart. This could easily happen if Dell forgoes its specials, discounts and other price adjustments, and just gives Wal-Mart a standard “everyday” low price. This would allow 2 of the largest retailers of these products to work together and build upon their unique strengths in the electronics and computer category. Yesterday’s competitors CAN become today’s partners.
There is a more subtle aspect to the whole Wal-Mart/Dell decision. I have not shopped for a computer in a while, so I didn’t know that Wal-Mart was carrying HP computers. Since computers have pretty much become commodities I kept wondering how HP could keep eating away at Dell’s lead. When I heard that HP was offered at Wal-Mart it seemed to explain it.
The subtlety in all this is that the computer has really becoming a personal entertainment device rather than a “tool.” I don’t believe the Wal-Mart customers are all buying their machines to run bookkeeping software or manage businesses (although there are some of those). The computer must no longer be thought of as “technology.”
With this thought in mind, it explains why my local supermarket now has a “computer software” section. And why Dell needed to get out into the brick and mortar world.
If consumers can shop on either the Wal-Mart or Dell web sites, and then find what they want at Wal-Mart, this will be successful. Better still would be a buy-online/pickup in-store capability. If either party thinks they can rely on foot traffic, then not so much.
Ryan Mathews beat me to the punch. I agree that Wal-Mart has really lost their way. One thing to add is that I think the move will hurt Dell. I think it will have a big impact on the Business Customer base.
My company is a heavy purchaser of Dell, and I can’t help but think there will be a major deterioration in service (which is already slipping) if they see a big surge in their consumer base.
As the price of consumer electronics items like high definition televisions, home theatre systems, and digital cameras continue to decline, it may be in Wal-Mart’s advantage to increase its selection of high definition televisions, home theater systems and digital cameras. However, if Wal-Mart tries to move in to the higher end of these items, then it will meet the same fate as it did while moving up the chain in the fashion area. Those who want to buy higher end high definition televisions, home theater systems and digital cameras will most likely go to stores like Magnolia Home Theater within Best Buy, Home Theater Store, etc. When it comes to home electronics, cameras, and appliances, Wal-Mart is for those who either know exactly what they want or for those who do not know exactly what they want but they do not have enough money to spend, and yet they want a digital camera, because as we all know, it is almost impossible to find knowledgeable sales associates at Wal-Mart who can explain the difference between 4 megapixels and 7 megapixels or optical zoom and electronic zoom, or what is the difference between a $250 digital camera versus $149 digital camera.
Wal-Mart is still experimenting with what it wants to be next and Dell ought to enjoy a good sales boost. Long-term–who knows? Wal-Mart seems to have abandoned sustainable strategy in favor of a merchandising tactic du jour approach.
Given that Wal-Mart/Sam’s Club is already selling other computer brands, I think this is a bad strategy for Dell. I think this strategy will negatively affect Dell’s market position as the preferred business computer supplier. The business user will probably always provide a higher profit margin to Dell, so I think they are taking a long-term risk for a short term revenue windfall.
Wal-Mart’s procurement strategy has long been about pitting two big vendors against each other for the benefit of the retailer and its customers, and that seems to be what’s going on here with Dell and Hewlett Packard. It’s interesting that Dell’s (and Wal-Mart’s) former CIO Randy Mott is now at HP, the company potentially with the most to lose out of this new arrangement.
This seems to be a reasonable win for Wal-Mart. But how can this be a win for Dell? Their margins are already thin and Wal-Mart is certainly not going to be looking to add any more profit to Dell’s equation. They’re going to have to figure out how to support a huge influx of lower-end machines in a highly competitive space. Personally if I were Dell, I’d be looking at ways to move up the value chain, not down.
For WM, I’m struggling with why this is anything but a potential positive. We are not talking about a massive explosion of Dell shops within WM, complete with trumpets blaring and falling confetti. It’s two SKUs! I may be wrong, but that almost certainly sounds like a test.
And kudos to both companies for making it a test. In theory, Dell has brand equity which may appeal to the WM consumer. In fact, the demographics, shopping habits and lifestyle description of the WM electronics consumer differ from those of the WM apparel consumer. Market research shows that brand recognition is important in consumer electronics and computers. Dell has massive recognition.
Yes, in the long run, to work for both companies, the product line should be differentiated from the offer Dell makes online. And yes, this is going to be a huge challenge considering Dell’s design-your-own menu of almost unlimited options to each system. Already though the options offered within each line on the Dell site differ and create limitations. I see no reason for this not to occur with the WM product line.
A final thought: what if Dell was seeing slowing sales in its lowest end products? What if that slow down was sufficient to make the line significantly less important or profitable? What real downside would they have in switching to WM to distribute that line?
This is not Dell’s first foray into the brick and mortar world by a long shot. The company successfully operates several hundred mall kiosks and a handful of in-mall Dell Stores that are in some ways comparable with Apple Stores. Dell kiosks and stores carry no inventory other than display pieces–but they are wired to the Web, permitting assisted online ordering.
I think Paula nailed the major difference for Dell when Wal-Mart becomes its re-seller. That means there must be both enough net margin to share and a certain amount of finished stock held in the distribution pipeline. Those two factors are inherently at odds. This test may be a good deal for Wal-Mart customers and Wal-Mart itself. It will certainly put competitive pressure on HP, which has done very well in the Club channel. But Dell will have to gain a lot of volume and new end-users for this to pay back.
Betcha’ didn’t know this: I always purchase Dells, and a lot of them, for cash (naturally you wouldn’t know this–but please read on). Recently I decided to use Dell’s installment payment plan to purchase an extreme, high-end, flame-thrower notebook (they’re not really laptops anymore–too hot for our sensitive areas). After two months of paying the minimum payment, I discovered that I owed Dell more than when I started!
Purchasing Dells on credit through WM will save consumers money, but help to cripple Dell’s credit installment plan. Without knowing the contribution of consumer interest payments to Dell’s bottom line, I anticipate a hidden negative revenue “hit” they’ll experience even as their volume and BDI (Brand Development Index) expand.
Very scary for Dell. Are they equipped to distribute to stores? Are they equipped to hold inventory? Are they ready to be considered a pure commodity?
For Wal-Mart, I see it as a no-lose situation.
Wal-Mart needs some credibility in their CPU offerings and while HP is gaining ground, they are not the lead.
It seems that Dell started this type of price war before going to brick and mortar and have just followed it down the pipeline.
Let’s not forget that Dell still has the Alien brand line for high-end and can leverage dual branding to secure a multi-tier strategy.
It adds complexity but low-end machines are becoming a commodity anyway so I can see a fit.
It would also appear that the competition from a new HP is threatening Dell to try new things.
Good for consumer and Wal-Mart. Dangerous for Dell. As a Dell user, quality seems to have slipped dramatically in recent years. This feels like a fall further down the food chain of quality and could open a niche for higher-end PC producers that Dell used to fill.
I applaud Wal-Mart for looking to electronics to attract a more upscale consumer. As the world seems to be looking for LCD and Plasma screens, Wal-Mart’s no hassle (rebate free) marketing and pricing will be welcomed by thousands and if Wal-Mart is astute enough to provide quality Hi Def support machines (DVD Recorders, Home Audio, etc.), they might be able to convince Dad to drag Mom in to look at sheets and cosmetics. Who knows?
It’s very hard to make money selling low-end commodity personal computers and laptops. Daimler’s stock rose nicely when they announced the Chrysler giveaway. It’s unlikely that Dell or HP can make decent money selling low-end machines at Wal-Mart or through any other channel. And low-end customers, like all customers, make demands upon the help desk folks. Dell’s help desk’s reputation has already been hurt. Sometimes it really pays to ignore the customers whose demands can’t be met profitably.