Dell says that new initiative is a clearance venture

Dell Turns to Retail as Alternative Clearance Channel

By: Toni Duboise, Senior Analyst Desktop Computing

From increasing the number of Dell Direct Store kiosks to selling computers through QVC Home Channel Network, it is no secret that Dell is fervently exploring multiple alternative channel strategies in its effort to further its dominant position in the PC marketplace. One of the relatively unknown initiatives, however, is a pre-holiday retail effort recently uncovered by Current Analysis.

In a scenario that belies Dell’s configure-to-order business model, the company placed a Dimension 4700 desktop bundle and Inspiron 2200 standalone notebook on Costco retail store shelves nationwide. Before this surprise retail appearance, Costco sold Dell systems exclusively through its Web site and in-store kiosks.

While Dell’s sudden presence in retail will set off rival vendor alarms, a Dell representative contacted by Current Analysis downplayed the retail play, indicating that it is more akin to a clearance venture that will serve to accelerate a product transition than a significant retail initiative. Still, Current Analysis feels that Dell’s uncharacteristic foray into retail warrants further investigation.

From Kiosk to Store Shelf

Dell's desktop entry offers a solid–albeit antiquated–configuration bundled with an attractively large-screen 19-inch LCD companion monitor. The plain-Jane gray Dimension 4700 looks out of place amongst the pre-holiday lineup of Costco’s other desktops, which are dressed in updated silver and black chassis, powered by either 64-bit or dual-core processors, and packed with at least 200 gigabytes of hard drive storage. As outlined in the specification table below, the lack of cutting-edge 64-bit or dual-core processor leaves the 3-year warranty as the only true differentiator for Costco’s new Dimension 4700.

There are similar issues with Dell’s notebook entry. While the 15-inch standard display seems out of date compared to the rest of the market, which is gravitating toward 15-inch widescreens, the machine’s 2-year warranty option is a standout next to rivals that offer the traditional 1-year warranty.

As indicated, there is a stark difference between Dell’s systems and other in-store rivals at Costco. The Dimension 4700 desktop offers a no-nonsense configuration devoid of the bells and whistles prevalent in Costco’s other desktop computers, which exhibit an entertainment PC bent and prices ranging from $899 to $1,899. Similarly, the Inspiron 2200 notebook competes with Costco’s other notebook computers, which all have widescreen displays and prices ranging from $799 to $1,449.

Both Dell’s desktop and notebook offer enhanced warranty options and a superior value proposition at Costco’s base level price point. Instead of targeting Costco’s affluent, high-end PC shopper, an established market for the high-profile retailer, these machines are more likely to appeal to Costco’s cost-conscious home and/or home-business PC buyer, who may value the extended warranty above cutting-edge features.

This kind of effort is a real challenge to vendors like Lenovo and HP, and retailers like Best Buy, CompUSA, Office Depot, and Staples, all of which are committed to increasing small-business coverage within the retail channel. As a result of their efforts, machines with the Windows XP Professional operating system installed have doubled their share of retail store placements over the past year.