Michael Dell: So guys, we need to devise a strategy to crush our margins and destroy our brand, all in the name of generating additional volume. Any ideas?
Marketing Executive: Well, how about giving them away with Happy Meals?
This pretty much sums up how I feel about Dell Inc.'s (NASDAQ: DELL) plan to start selling its computers at Wal-Mart. As the industry becomes increasingly commoditized, Dell is one of the few companies that has been able to maintain a strong brand as a computer maker. Even if dealing with Wal-Mart doesn't force it to reduce the quality of its machines, the guilt by association is almost guaranteed to hurt the brand.
Dell has been losing market share to lower-cost Asian companies, and rather than choosing to focus on the strength of its brand, Dell appears to be joining them in the race for the bottom. I don't think it's a race Dell can win, and the pricing pressure that every Wal-Mart vendor faces could severely impact Dell's quality and eventually the strength of its brand.
I wonder if Wal-Mart executives read The Wal-Mart Effect. If they did, they could have learned about companies that described getting addicted to the volume Wal-Mart provides, even as it crushes margins and destroys quality.
There are a lot of really great reasons not to want to be a Wal-Mart vendor. That it took Dell so long to join forces with the world's largest retailer shows that it was aware of some of the downside. So maybe it knows what it is doing. Investors, however, don't appear to think so, as the stock dropped after the partnership was announced.