Can Dell be successful in the channel?

Dell's decision to appoint Officeworks as its inaugural Australian retail partner sends a clear signal to its PC rivals that the vendor is serious about winning back marketshare. The question is, can Dell be as successful with a channel as it was without.

The loss of the top PC vendor spot worldwide to HP in late 2006, followed by some poor financial results and stagnating growth, forced the PC giant into a major rethink of the holy Dell "direct model" that made its name.

According to a Gartner report released earlier this year, growth in indirect PC shipments globally during 2006 hit 11.8 per cent, while direct PC sales grew by just 4.5 per cent. The analyst group found indirect channels accounted for 76 per cent of total shipments over the same period.

Since announcing plans to embrace an indirect strategy, Dell has inked agreements with retailers around the globe, including big hitters like Wal-Mart, Staples and Best Buys in the US, Tesco in Europe and China's largest CE retailer, Gome. Analysts we spoke to last week saw Officeworks as a good first retail choice for Dell locally. Dell's intentions to recruit more retailers down the track is now raising speculation about who this could be.

Australia's most formidable IT and CE retailer, Harvey Norman, has already stated it will steer clear of the PC giant, but one alternative that springs to mind is JB Hi-Fi. After a successful and rapid rise in the CE space, JB Hi-Fi started stocking computer-related items, including desktop PCs and notebooks, 18 months ago. It is now opening dedicated computer stores across the country.

JB Hi-Fi CEO, Richard Uechtritz, told ARN in January the retailer now enjoys double-digit marketshare in the computers space. He also claimed to be one of Australia's top three computer retailers. While I've been unable to verify this specific figure with analysts, such a claim doesn't surprise me. Nor did it surprise IDC's Felipe Rego, who said JB Hi-Fi had been chalking up solid performances. The fact that JB Hi-Fi is already stocking products from Toshiba, Asus and HP shows it's got clout with the tier-ones.

The other way to reach into more segments of the consumer market is via broad-based mass merchants. Dell's choice of discount retail chain, Wal-Mart, in the US, has already prompted suggestions that it could choose a similar path in Australia and partner with Big W or Kmart.

Moving up the chain and into the commercial space, Dell also rolled out its first official partner program, PartnerDirect, in the US last November. An Australian partner program is expected to hit mid-year.

Although no official details have been released, ARN understands the vendor appointed its first local channel director last year to craft a suitable Australian partner program. Early rumours suggest the program will largely mirror the US and include two partner tiers: Registered Partners and Certified Partners. Both will have access to a dedicated partner website, marketing, deal registration and credit options. Top-tier certified partners who commit to deeper relationships with Dell will get additional benefits.

The biggest challenge for Dell is not developing the framework however - it's wooing partners to the table. The biggest concern expressed by local channel players to date is how Dell will determine which customers are serviced directly and which ones channel partners can go after. As most of Dell's competitors have discovered in the past, failure to set clear rules of engagement between direct and indirect can lead to confusion, suspicion and anger.

If Dell plans on truly making its mark in the channel, it's going to have to build up credibility and trust behind its brand first.

Nadia Cameron is the editor of ARN.