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Dell to Open Two Full-Sized 'Retail' Showrooms

Dell Inc. (DELL), a company known for selling computer systems directly to consumers and businesses, has announced plans to open its first two full-sized retail stores this year.

The 3,000-square-foot stores will be located at high-traffic shopping malls in Dallas and West Nyack, N.Y. The Dallas store is set to open this summer and the one in New York in the fall, a spokesman said.

Sticking with its direct-sales approach, the stores will only carry display models. Consumers will still have to order online or over the phone and then wait for their purchase to arrive in the mail.

"We're adamant about staying true to the model. That's very important to us," Dell spokesman Venancio Figueroa said Wednesday. "We also know given our track record with customers that they actually prefer home delivery."

In a research note, analyst Cindy Shaw of Moors & Cabot Capital Markets said the move raises questions about Dell's confidence in its direct sales approach. She said the stores could backfire depending on how consumers react to the lack of store inventory.

"We view Dell's store pilots as either an acknowledgment that retail matters in some segments and/or a signal management will try anything that might stimulate revenue," she wrote.

Dell already operates about 160 tiny "Dell Direct Stores" at malls and airports across the country where customers can speak with sales representatives about computers, digital cameras, printers, televisions and other equipment.

The 120-square-foot kiosks had room for about 12 products; Figueroa said the much larger storefronts will be able to display three times as many items and will include settings such as a living room area where consumers can test out Dell products in more realistic settings.

Just how much Dell is spending on the stores was not disclosed. Figueroa said other details, such as the number of employees and the level of tech support being offered, was still being decided.

Apple Computer Inc.'s (AAPL) retail stores have succeeded largely because they carry products and feature well-trained employees who are able to answer consumer questions and provide technical support, said Shaw, the analyst.

"Although what we have seen so far of Dell's proposed store layout in many ways resembles Apple's successful retail stores, Apple carries inventory and offers tech support in its stores," Shaw wrote. "It is not clear to us that the economics of Apple's staffing model — likely supported by robust iPod sales — make sense for Dell."

The move comes after Dell posted an 18 percent drop in first-quarter profit last week due to stiff competition from rivals such as Hewlett-Packard Co. (HPQ), which has been cutting into Dell's share of worldwide PC shipments.

Shares of the Round Rock, Texas-based company were down 9 cents to $24.00 in early afternoon trading Wednesday on the Nasdaq Stock Market.