Dell Digs to China for Retail Gold

Dell (Nasdaq: DELL) said Monday it would start selling its personal computers through China's sprawling Gome electronics chain as the company continues to embrace retail as a key part of its turnaround plan.

Hoping to tap into a customer base it doesn't reach through direct online and phone sales , Dell said it would start making its PCs available in 50 Gome stores next month, with dozens more stores to be added in 2008.

The move mirrors Dell's recent embrace of retail in the U.S and a few other countries -- a significant shift away from the direct sales model that it rode to the top of the PC market before being bumped down to second place by Hewlett-Packard (NYSE: HPQ).

The effort will also borrow a page from Apple's (Nasdaq: AAPL) successful retail strategy , with Dell saying it would staff Gome stores with trained Dell employees who can answer consumer questions.

"Chinese consumers are increasingly sophisticated in how they buy and use technology," said Michael Tatelman, vice president of marketing and sales for Dell's global consumer business. "For Dell, this is a great opportunity to extend connections with Chinese customers we may not have reached in the past."

Initially, a handful of Dell PCs will be available in the Gome stores, including Inspiron and XPS notebooks, as well as Dimension and Inspiron desktop machines.

Sharing the Shelves

The partnership is the latest change in course for Dell.

Since founder Michael Dell retook the CEO position earlier this year, the company has embraced retail, striking a partnership with Wal-Mart (NYSE: WMT) to sell customized PCs. It is also creating a retail presence in Russia, with plans to open a storefront in downtown Moscow, as well as in Japan -- where Bic camera stores now sell some Dell machines -- and the UK.

Dell's direct sales model, which propelled it to the top of the PC marketplace in the 1990s, "hasn't really worked" in other markets, Enderle Group Principal Analyst Rob Enderle told the E-Commerce Times.

Consumers in places such as the Middle East, parts of Europe and much of Asia "really value the relationships they have with retailers, and to move in these markets Dell has to embrace retail," he explained.

Gome is one of Asia's largest electronics retailers, one with nearly 1,000 stores in some 210 cities across mainland China, including smaller cities where Dell's sales have lagged. Dell machines will have company on the shelves; Gome already sells PCs from Dell rivals such as Hewlett-Packard, Sony (NYSE: SNE) and China's own Lenovo.

"Gome is one of the most powerful retailers in their region," noted Enderle, "and if you are going to do retail, you might as well go where the buyers are rather than setting up your own stores and trying to change where buyers go."

New World Order

The timing of the deal is important, as Dell may be moving quickly to expand its footprint in the region ahead of what's expected to be a much more vigorous challenge from Acer, which last month said it would buy Gateway (NYSE: GTW) in a move is expected to cut significant inroads in both the U.S. and Europe.

Acer will be in a position to challenge Dell and HP in many markets within two years, said Forrester Research analyst JP Gownder, and Dell may want to establish more of a presence in China as quickly as possible.

As a Taiwanese company, Acer likely won't ever become a favorite in mainland China, Gownder noted, but PC makers are currently thinking several moves ahead in what he calls the "global PC chess game."

In the next several years, hundreds of millions of PCs will likely be sold in emerging markets to consumers who have never owned one before. "Everyone is trying to figure out how to attack a market that no one understands yet," remarked Gownder.

Dell will be able to stock the stores with locally made PCs, as the company has significantly expanded its manufacturing footprint in recent years. If it can grow its market share even modestly, it could see major sales gains. PC sales in emerging markets will grow by more than 18 percent this year, compared to single-digit growth rates in established markets, according to recent Gartner (NYSE: IT) estimates.

Reaching consumers through retail stores is one part of a larger turnaround plan put in place by Michael Dell, who has cut the company's workforce, shifted resources into customer service, and targeted small and mid-sized businesses with new products and services.

Investors cheered the news of the China deal, with Dell shares rising 1.5 percent in late morning trading Monday to $28.19.