SAN FRANCISCO/ BOSTON (Reuters) - Dell Inc. DELL.O said on Thursday it plans to start selling personal computers through Wal-Mart Stores Inc. (WMT.N) in North America next month, breaking from a 23-year model of direct sales as it tries to rekindle business.
Dell, which called the move a “first step” into the retail market, will start selling the computers bundled with accessories for under $700 starting June 10. Shares of Dell slipped along with computer component makers amid investor concern the low-priced PCs may squeeze profit margins.
Dell computers will be available in about 3,500 Wal-Mart and Sam’s Club stores in the United States, Canada and Puerto Rico, a spokesman said. Dell and Wal-Mart declined to provide details on how the packages will be equipped.
The world’s largest retailer will sell two models of Dell’s Dimension multimedia desktop computer, which are now available directly from the computer maker.
“They (Dell) need to go retail and they are finally doing it,” said Shaw Wu, an analyst with American Technology Research who has a “neutral” rating on Dell shares and does not own any.
Dell is expanding in retail stores to compete better with Hewlett-Packard Co. (HPQ.N), which has overtaken Dell as the world’s No. 1 PC maker, partly through a strategy of selling in the United States through major retailers such as Wal-Mart, Circuit City Stores Inc. (CC.N) and Best Buy Co. Inc. (BBY.N)
Dell shares closed down 37 cents, or 1.4 percent, at $25.89 after earlier gaining as much as 1.7 percent. U.S. stocks fell amid concern the U.S. Federal Reserve may not cut interest rates this year.
The combination of Wal-Mart, famous for low prices, and Dell’s Dimension desktops, the company’s lowest-priced consumer models, may deter some upscale buyers, said J.P. Gownder, an industry analyst at market researcher Forrester Research Inc.
“This is a first foray into the world of retail” for Dell, Gownder said. “It’s not a bad move. But in the long run, they’ll want to establish a more-sophisticated retail strategy.”
Since its founding in 1984, Dell has sold computers directly to customers through the mail, phone orders or the Internet. It has also sold some models in limited quantities through retailers including Costco Wholesale Corp. (COST.O) and it showcases products in stores and mall kiosks where customers can order them for later home delivery.
Company founder Michael Dell, who retook the CEO job in January after sales growth slumped under predecessor Kevin Rollins, last month signaled that a retail push was in the works when he told employees in a memo that the direct-sales model was “not a religion.”
“In the coming quarters, there will be additional activity in support of this move into global retail,” said Dell spokesman Bob Pearson, declining to give further details. “Today’s announcement with Wal-Mart represents our first step. Stay tuned.”
Dell’s retail expansion comes after Taiwan’s Acer Inc. (2353.TW), the world’s third-largest PC maker, began selling PCs at Best Buy, Circuit City and Wal-Mart.
China’s Lenovo Group Ltd. (0992.HK) also said last month it planned a new consumer business unit as it faces stiff competition from HP, Dell and Acer.
Wal-Mart spokeswoman Melissa O’Brien said adding Dell computers is “part of a number of additions and enhancements that Wal-Mart is making in its electronics area.” Wal-Mart plans to improve its brand selection in electronics, she added.
The Bentonville, Arkansas-based retailer has no “definitive strategy” at this time to sell Dell computers outside the United States, Canada and Puerto Rico, O’Brien said.
Dell’s Pearson said the company plans to add additional retailers in its top 10 to 15 markets, including Britain, Germany, France, Japan, China, Brazil and Japan.
Dell’s alliance with Wal-Mart may put pressure on computer- component makers to cut prices because both companies are known for extracting the lowest prices from suppliers, squeezing profit margins, analysts said.
Dell itself, which historically boasted some of the highest profit margins in an industry known for thin profits, will lose some of that advantage by embracing retailers, analysts said.
Shares of semiconductor makers fell sharply following news that the Dell systems would be priced below $700, less than Dell laptop computers and high-end systems that range from around $1,000 to more than $6,000 when fully configured.
“Wal-Mart is known for its very tight supply chain, and Dell is also very good at that,” said Wu of American Technology Research.
At Dell, “margins are going to be tough,” he added.
The Philadelphia Stock Exchange Semiconductor index .SOXX slid 1.6 percent. Shares of Intel Corp. (INTC.O) the world’s largest chip maker and a major microprocessor supplier to Dell, dropped 3.1 percent to $21.97. Shares of Advanced Micro Devices Inc. AMD.N, which also supplies microprocessors to Dell, fell 2.2 percent.
Additional reporting by Nicole Maestri in New York