The Real Price of Retail

May 29, 2007

A few days ago Dell made a splash by telling the world they had established a partnership with Wal-Mart to sell their computers and other products throughout Wal-Mart’s 3,000 stores worldwide. This marks an interesting milestone in Dell's corporate existence. Dell has always been acknowledged as an innovative and cutting edge company through their direct sales model which took a layer of distribution (in this case retail) out of the sales process and allowed customers to "have it their way", so to speak.

With the competitiveness in the PC market and Dell’s admission of trailing behind the likes of HP and IBM, the motivation for this transition in their sales channel is clearly predicated on increasing overall volume to boost the market's perception of their thriving company and the goal of being #1 worldwide in the PC market. Obviously, this has sparked a debate on their ability to maintain a differentiated strategy in the branding of "Dell", which has generally been perceived as a higher quality because of their direct channel strategy.

In hearing the news of this new marriage between Dell and Wal-Mart it reminded me of an article that I ran across at fastcompany.com entitled "The man who said no to Wal-Mart" and it hit home with the story of Jim Wier, CEO of Simplicity (owner of Snapper Lawn Mowers) who was at a crux in his company's life cycle where he would have to choose a path that would shape the course of his company going forward. Was he going to choose a path of high volume, low margins products or high quality and sustained margins product sets at levels that his company needed to maintain its proper corporate health? To the surprise of many, including Wal-Mart, Mr. Wier respectfully choose the path that many others had not in the past -- the one without Wal-Mart. Although two unique industries here with technology and durable consumer goods, the thoughts have to be the same in the minds of both management teams. It’s a fascinating article and I would encourage anyone who runs a business that struggles with pricing and volume levels to read.

There is no doubt Dell has been one of the most influential companies of the last 20 years in the technology industry and their management teams, through addition and attrition, have paved the way for tremendous success both financially and technologically over those years. Not many other companies have the ability to coin a phrase such as "Dellionaire". With this shift, I trust the powers that be have thought long and hard regarding the pros and cons of the retail markets, primarily in the retail technology sectors. If volume is what they want, then volume is what they are likely to receive. The real question lies in “at what price?” and which of these two corporate giants has a bigger muscle to flex in the room, Dell or Wal-Mart?

-Sean

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