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?
Dell: We talked to McDonald's (NYSE: MCD) and they said they won't fit in the bag.
Executive (sighs): OK, I guess we could always try selling them at Wal-Mart (NYSE: WMT).
Dell: Brilliant!
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.
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Reader Comments (Page 1 of 2)
5-25-2007 @ 9:34AM
bhelder said...
I like Dell and have several units but I will never, never, never, by a Dell (or anything else for that matter at Wel-mart!
Bruce
5-25-2007 @ 9:47AM
Kenny L said...
Well I happen to work for Wal-Mart and yes I am just a Associate there and I would have never bought a dell before they went to Wal Marts and I still wont buy one just because there moving to Wal Marts because they have always had there price WAY to high when I can build one that is more efficient for me for half the money........
5-25-2007 @ 2:09PM
Natalee said...
When you are using the word "there" you are saying that something is over there, for example. If you mean to say "they are" and using the contraction it should be "they're" as in "they're moving to Wal-mart."
or as:
So maybe they do know what there doing. (Again, that should be "they're" as in they are)
Sorry, I know it's nit-picky.
5-25-2007 @ 2:10PM
T. Murphy said...
I worked for a company years ago that was the largest in it's field in the world. The owner would sell nothing to sears or the u.s. government. He knew to do so would mean relinquishing his company to their control.
5-25-2007 @ 9:35PM
Kenny L said...
LOL That is why I work for Wal Marts I guess lol
5-25-2007 @ 2:10PM
Harold B said...
All these crazy comments make me wander why do you think vendors knock down the doors of Wal-mart. I doubt they keep suppling Wal-mart if they are losing money. I think some people just cannot see success when they see it.
5-25-2007 @ 2:10PM
Instructor said...
Wal-Mart is the company that everyone loves to hate. I shop at Wal-Mart, but generally only for groceries -- and I avoid them completely from the end of October to the end of January, because I enjoy the superior service and shorter lines at my neighborhod grocery (Kroger) -- where I do about 1/3 of my shopping during the rest of the year. Shorter lines, better service, closer parking, and higher-quality make up for lower prices in many cases, and Kroger carries some items that Wal-Mart doesn't (possibly because the really smart vendors don't sell to Wal-Mart).
I generally do not buy non-food (i.e. Chinese) items at Wal-Mart, because the quality is too low to justify even the low price. For instance, the last time I bought "name-brand" shoes at Wal-Mart, I discovered that they were not actually the same as the same "name-brand" shoes at another outlet -- and they hurt my feet. A little research revealed that many "name-brand" suppliers make a 'special' run of lower-quality items for Wal-Mart, in order to meet Wal-Mart's ridiculous low-price demands.
If I were a supplier (or a vendor), I would refuse to do business with Wal-Mart. I personally know a facilities vendor who got screwed over by doing a "loss-leader" quote on some store fixtures, but when it came time for follow-on business, that store found another vendor who was stupid enough to do a "loss-leader" quote in hopes of follow-on business. He now routinely ignores Wal-Mart RFQs.
Smart vendors/suppliers refuse to let Wal-Mart have more than about 10% of their total business. Smarter vendors/suppliers don't do any business with Wal-Mart.
I haven't been all that impressed with Dell, and I don't buy Dell for my personal use. Unfortunately, the company I work for buys them, and I am required to use a Dell laptop. Now that Dell will be out of business in a couple of years (they are big enough that they won't die immediately), I guess I'll get an upgrade eventually...
5-25-2007 @ 2:11PM
Frank Labotomy said...
Anyone who doesn't know the difference between "there" and "they're" probably doesn't know his ass from his elbow and really shouldn't be critical of anyone else's reasoning, should he?
5-25-2007 @ 2:10PM
Rocha said...
If HP can sell at Wal-mart why shouldn't Dell?
5-25-2007 @ 2:11PM
Taylor York said...
"...the guilt by association is almost guaranteed to hurt the brand."
Guilt? Walmart?
Sigh. It is awfully lonely at the top.
5-25-2007 @ 2:09PM
Jeff said...
Dell can no longer leverage its core competencies. I wonder if they will put the Dell machines next to Walmart's fine wine collection?
5-25-2007 @ 2:09PM
joey56 said...
OMG...This is the end of the line for Dell...selling out to Wal-mart..good-bye Michael..it's been nice knowing ya..I thought you had a good product..but not if if it is sold at wal-crap.
5-25-2007 @ 11:30PM
Kenny L said...
Do we Really care?
5-26-2007 @ 1:46PM
J's said...
Well I see dell making a big mistake. Dell didn't become such a big seller because they sold to the public so much. Dell made it big selling mass amounts of desktops to large companies. Dell had it right not trying to keep in line with people that figure getting a desktop built by a mamma & papa outfit because of price but for the warranties and extra service dell provides to businesses and the customer that understands the value of warranties. If you get a comp built by some home grown comp store your getting what you pay for and nothing more!
5-27-2007 @ 2:00AM
Lisa said...
I don't think that seling through Wal-Mart is a good move for Dell. Dell is already plagued by a reputation for poor customer service (although I haven't personally had any bad experience with Dell in that department--my experiences have ranged from good to mediocre). It doesn't need the increased volume from selling at Wal-Mart to make things worse. Me? I'll stick with HP.
5-27-2007 @ 7:26PM
socalreic said...
I can't believe these comments. Maybe Dell has decided to join Walmart because HP was killing them by doing the same thing. I tried to buy an Compaq computer from Walmart last year around Thanksgiving when they were selling them for $399 and couldn't get one because they were sold out. I think the OLPC project is showing that margins can be high on laptops when a company is doing serious volume. Serious volume is Walmart's game and a good move for Dell.
5-28-2007 @ 12:16PM
RC said...
Considering the flimsy parts I used to see in Dell's cheap servers, it's hard to imagine how their quality could go anywhere but up.
6-17-2007 @ 3:06PM
W.R. Minto said...
I would guess that the Wal-Mart Dells would be a special build with different components sourced from super-cheap Chinese suppliers. Even if they keep the existing branding (Latitude, Dimension, etc., which is doubtful) they would use mass-market series numbers to differentiate. How about the Dell Mierderon 4400?
8-05-2007 @ 8:35PM
Aquadro said...
MOST OF THE PEOPLE THAT I TALK TO ENJOY SHOPPING AT WALMART, THERE IS A FRIEND THAT LIVES IN A SMALL TOWN IN PA. AND SHE IS SO PLEASED THAT THEY HAVE A NEW SUPER WALMART, AND SHE JUST BOUGHT HER COMPUTER THERE! I AM AN AVERAGE MIDDLE INCOME LADY AND I GET MY PRESCRIPTIONS CHEAPER AT WALMART...CAN'T IMAGINE WHY PEOPLE COMPLAIN ABOUT THE STORE, AND AS FOR THE VENDORS BEING TAKEN ADVANTAGE OFF, THEN JUST DON'T SELL TO THEM....JUNE
8-05-2007 @ 9:13PM
larry said...
you guys are so funny hate walmart all you want fact is average customer says 35 - 40 dollars a week by shopping there if you want to say bye to someone id start with albertsons and tom thumb