Dell faces tough rivals, economy in retail push
SAN FRANCISCO (Reuters) - A sign at the entrance of a Staples office-supplies store in El Cerrito, California, beckons shoppers to "See it. Touch it. Take it with you."
The ad refers to Dell computers, a new addition to store shelves as Dell Inc (DELL.O) had previously sold only directly to customers via the Internet or telephone.
Slowing growth and tough competition forced the No. 2 maker of personal computers to change tack last year, but investors have yet to see the full fruits of the effort.
Dell is now going up against entrenched retail rivals, including market leader Hewlett-Packard Co (HPQ.N), Taiwan's Acer Inc (2353.TW), Japan's Toshiba Corp (6502.T) and Sony Corp (6758.T), and China's Lenovo Group Ltd (0992.HK).
While Dell says its retail push is adding to revenue, it has yet to reach its competitors' profitability in retail almost a year after the first Dell PCs showed up in Wal-Mart Stores Inc (WMT.N). Dell says its goal is to make the business as profitable as its main rivals, chiefly HP.
"They are late in addressing the concerns of the consumer," said Kim Caughey, senior analyst and portfolio manager at Fort Pitt Capital Group, which manages $1.2 billion, including about 178,000 Dell shares. "The less savvy customer base really wants to go and touch it before they decide to buy."
Dell's entry into retail comes as a slowing U.S. economy is forecast to crimp global PC sales growth this year to around 11 percent from last year's 13.4 percent, according to market researcher Gartner Inc. Growth could slip into single digits if the economy worsens, Gartner said.
Dell's retail strategy will likely feature prominently at its analyst meeting on Thursday near company headquarters in Round Rock, Texas. The meeting, Dell's first since 2005, will give details on a five-point strategy focusing on retail, small businesses, large corporates, laptop PCs and emerging markets.
"We've had some very good top-line growth that's been generated from the combination of direct and retail," Michael Tatelman, vice president and general manager of sales and marketing for Dell's consumer business, told Reuters,
"We certainly are not in any way, shape or form exiting from the direct business," he said in an interview, saying industry surveys showed Dell accounts for about 5 percent of U.S. retail PC sales.
SCRATCHING THE SURFACE
Dell's computers are now in more than 10,000 retail outlets around the world, including Wal-Mart and Staples Inc (SPLS.O) in the United States; Carphone Warehouse Group Plc (CPW.L) in Britain; Carrefour SA (CARR.PA) in France and Spain; and GOME Electrical Appliances Holding Ltd (0493.HK) in China.
But Dell has a long way to go before it catches up with HP, which is in 81,000 retail outlets globally.
HP gets about a third of its revenue from sales of desktop PCs, laptops and printers to consumers, according to analysts, while consumers account for only about 15 percent of Dell's sales.
"You would expect to see more of a result (from retail) than what they reported in their last results," said Roger Kay, president of market researcher Endpoint Technologies Associates Inc. "It's early yet and they may be experimenting with it. They aren't doing it in a big way." Continued...
