Dell looks to Sears to extend buyer reach

April 28, 2003

BY MICHAEL KRAUSS

Round Rock, Texas-based Dell Computer Corp. quietly announced back in January they are piloting sales kiosks in Sears stores.

Coming on the heels of Sears' $1.86 billion acquisition of catalog clothier Lands' End, I thought Sears CEO Alan Lacy might be up to something big. Lacy needs major changes to transform Sears. Then, too, maybe Dell could use Sears' bricks and mortar to improve its customer experience and gain merchandising expertise. Calls to Ray Brown, vice president and general merchandise manager of home electronics at Hoffman Estates, Ill.-based Sears and Dwayne Cox, a senior spokesman for Dell, dampened my speculations.

"All of the kiosks in Sears stores would be characterized as pilot programs or experiments," Cox says.

"We're just a few weeks into this, there's nothing to talk about yet," Brown adds.

So why is Dell in bed with Sears? Are they moving away from their fabled direct-to-consumer strategy? Is it to improve Dell's after-sale customer service and support?

No way.

Broad experiment
The kiosks are part of a broad experiment by Dell that spans 10 states where some 50 kiosks are already in place. Most of these mobile kiosks are in the common areas of major shopping malls. According to Cox, only four are at Sears' stores. One is in Austin, Texas, and three are in Orlando, Aventura and Coral Gables, Fla.

The kiosk program is aimed at one single goal -- improved market penetration. Dell wants to reach a retail shopper who they characterize as direct-averse -- not typically interested in shopping online. The kiosks at Sears simply give a broader range of buyers the opportunity to pass by, touch and test the product, and maybe place an order.

"If you go to a kiosk, you can't purchase a product and walk away with the product," Cox says. "The kiosk gives you the benefit to see, feel, touch and talk to a subject matter expert. Get a test drive and a demonstration. Then you can order it online at home or at the kiosk."

Cox is quick to point out the tiger isn't changing its stripes.

"Dell remains intensely, fiercely, direct," he adds. "We continue to think the fact that we're direct gives us anywhere from a 10% to a 15% cost advantage over our indirect competitors."

Keeping control
Dell also appears intensely, and fiercely, intent on control. According to Cox, even if you order a Dell computer online from a kiosk at one of the Sears pilot sites, it is still a direct transaction with Dell. "Sears is not a party to the transaction or an intermediary in it," he says. My guess is Sears gets a fee and maybe a percent of any gross transactions attributed to the kiosk, but neither Sears nor Dell would share intimate details.

As a marketer and a Dell customer, this still left me curious. The direct model is efficient. It's lower-cost, but it's not always a great consumer experience. And the merchandising possibilities in cyberspace often don't measure up to those in a physical store. For example, purchasing a laptop online is complicated. It requires a myriad of choices about items like processors, memory and software. It helps to have an expert give you guidance. Post-sale inquiries can be frustrating. After-sale maintenance and service and be downright daunting. All of these are reasons why it would be nice to drive to a local Sears store to shop for or service a Dell computer. Dell recognizes the problem, but their solution involves the direct channel.

"We're investing more in direct after-sales service and support," Cox says. "Our goal is to deliver each individual customer the exact kind of support they desire down to the level of their machine."

Comparing customer service
What does Cox mean? Well, consider the experience at Best Buy. If you buy your computer there and have a problem, they're going to refer you to a manufacturer's call center. They aren't going to know the history of your machine. They aren't going to have a relationship with you. They aren't going to solve your problem.

Dell is aiming for something the gurus call mass customization. Conduct customer service online, using technology to keep costs low, yet customize and personalize the service for each individual buyer. It may sound like an oxymoron, but if Dell can deliver, it will give them another competitive advantage.

What about Sears? Why are they in this?

When I think of Sears, I think of the power of in-store merchandising. Though Sears won't comment directly on the Dell collaboration, listening to a veteran merchandiser like Brown you get some hints.

Retailers sell boxes
"From a consumer side, few folks have broken the code at retail in terms of what the consumer wants to do with computers," Brown says. "They sell boxes. They're box merchants. They buy the box. They uncrate it. They set it on the shelf. They put a price on it. What you see is boxes lined up like little soldiers. They all look alike. They focus on bits and bytes," he laments.

"In the absence of anything else, you focus on price," Brown says. "And now there's no going back."

Brown believes the answer to falling prices and the commoditization of technology rests with the merchandiser. "You have to recognize customers' needs and provide a valued solution. If you do that, you can charge more," he says.

He uses the audio business and home theater as an example. "For years there hadn't been many advances in audio receivers and prices started to collapse. Along came this idea of home theater in a box, an integrated pulling together of components; receivers, mini DVD players, subwoofers and speakers and the wiring all in one. Now we're selling home theater in a box for $ 400 to $ 500 when the average price of a receiver is heading south of $ 150," he says.

Find a consumer need. Bundle up a group of products and services. Merchandise it smartly. Charge more.

"We like to think to ourselves as the best in the industry," says Cox from Dell. "Course our detractors say that we have the largest house in a burning neighborhood."

Maybe the relationship between Dell and Sears will help put the fire out.

Michael Krauss can be reached at michael.krauss@diamondcluster.com or news@ama.org.