Dell's Wal-Mart move shows direct limits

DELL SELLING THROUGH Wal-Mart is one of those individually small yet symbolically significant steps. A bit like chiselling out the first brick from the Berlin Wall, putting a foot on the moon or, more realistically, Dell using AMD chips, it's emblematic of a new dawn or a change in the weather, to blend several metaphors.

The selection of Wal-Mart as retailer of choice is interesting. Michael Dell's business hero is the US grocer's founder Sam Walton. Walton had the right channel to market when he started Wal-Mart back in 1962, Dell had the growth channel for PCs when he started selling PCs in 1984. Both are famous for pricing low and squeezing every drop of juice from supply chains. Wal-Mart has come under heavy fire for its labour conditions but Dell has been more gently treated excepting sporadic criticisms of its support service and a perceived lack of R&D investment.

This isn't the first time Dell has tried retail, of course. It flirted with the model in the early 1990s before retrenching and winning the argument against those that said direct sales would only work for a niche audience. Ever since, it has insisted that retail customers were far less profitable because of the cost of shipping PCs to stores, having them sit losing value in inventory, and the service price inherent in supporting newbie buyers.

So what has changed? Perhaps Dell feels that it can find a cheaper way to get products to retail customers or maybe it can persuade them to touch and feel in stores before buying online. Either way, it is taking baby steps. Only a couple of configurations will be available and only in the US, Canada and Puerto Rico.

Michael Dell called his book Direct From Dell and it might go against the grain to admit it but the move to retail is surely also an admission that in mature markets the direct-sales model may have reached its peak.

From the Alienware buy, selling services, the customer blogs, and now Linux and tablet PCs, Dell has been tweaking its strategy for a few years now but its main tenet, even stronger than the “direct” mantra has been to follow what the customer wants. Dell has a fresh look about it and one of the smartest CEOs in the business. Don't bet on it rising again. µ