In a leaked internal memo, recently re-installed CEO Michael Dell indicated that his namesake computer company may be considering entering the traditional retail channel as a way to boslter its declining market share. According to Reuters, the memo reads in part: “The Direct Model has been a revolution, but is not a religion.”
The memo did not state whether Dell would seek to sell computers through its own branded retail stores—a strategy employed successfully by Apple&mdahs;or seek to enter into existing consumer electronics outlets like Best Buy, Frys, and Circuit City.
The memo also emphasized that Del is looking to expand its presence in developing economies like Russia, Brazil, India, and China, and criticized competing computer makers for unnecessary complexity and costs in customer-facing services. “These so-called ‘service divisions’ create a never ending cycle of activity with unclear return on investment,” Michael Dell wrote in the memo. “We intend to break this cycle. We will build different kinds of services and offer key technologies that will help customers escape this complexity trap and unlock the true potential of technology.”
Dell may face difficult competition if it chooses to enter traditional retail channels: the company no longer has a strong price advantage over its competitors, in part due to Intel offering processors at the same price to all manufacturers, rather than giving Dell an industry-unique volume discount. And brands like Hewlett-Packard and Toshiba have years of experience moving their products through traditional retail outlets, where Dell has exactly none. However, analysts generally agree Dell needs to come up with new strategies to compete with market leader Hewlett-Packard, which has taken over Dell’s top slot in part due to success selling its products through traditional retail channels.
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