Dell should abandon direct sales model

Michael Dell's return as the chief executive of Dell could mark the entry of the computer maker into the retail market, analyst firm Current Analysis suggested.

"We believe that at Dell, there is a high-level belief that in the consumer market, customers need to experience (i.e. touch and feel) the products more than in the business segment. Retail is the next logical step," wrote Sam Bhavnani, a research director, covering computing and storage for Currently Analysis in a report.

A retail presence won't just allow consumers to gain hands on experience with Dell computers and flat panel TVs. It can also help polish up the company's tarnished customer service image by serving as a drop off location for products that need servicing, he suggested.

Bhavnani cautioned however that shareholders could undermine a move into retail because of the costs and because the investments could take several years to show a pay-off.

Michael Dell last week was appointed as the company's chief executive, a position that he had given up in July 2004. The move came as the computer maker is facing declining revenues and a drop in its overall market share.

Dell currently operates so-called Dell Direct Stores where consumers can test drive select computer models and talk with company representatives. The kiosks however don't sell any merchandise and still require buyers to place their orders through the company's website.

Under the previous chief executive Kevin Rollins, Dell focused largely improving its supply chain, allowing research and development to fall by the wayside. The computer maker fell behind in the industrial design and customer experience of its computers.

Consumers in recent years have placed an added emphasis on those areas, as is witnessed by the rise of Apple and HP. "Dell seemed to lack the intangibles that work in a Web 2.0 world," noted Bhavnani.

He expects that Michael Dell will put more emphasis on product innovation.