Dell Losing Its Religion, But The Devil Is In The Details

Michael Dell this week sent out an email to his employees around the world, saying that the company's direct model was "not a religion," and that the company would explore new ways to reach the customer.

It wasn't the first time the word "religion" has been used out of Round Rock in recent weeks to describe how the company doesn't view the direct model. The chairman and CEO has been using that description since re-assuming the CEO post in January.

But if the direct model isn't a religion, it's been one of the company's "golden Dell rules," according to the company's founder himself. And, Michael Dell says, he learned that after the company's previous, failed attempt to make a go of a retail business in the 1990s.

The last time Dell entered the retail space, it was a move made out of "panic" that bombed because the company strayed from its core strength: so explained Dell in his book, Direct From Dell, which he wrote eight years ago as a guide to good business strategy.

"One of our strategies for growth was to move into the retail channel," Dell wrote. "This decision was not based on following the truth of our convictions -- or even what we knew to be our core competencies -- but basically because we panicked."

Dell explained that "all of our competitors were selling indirectly through the dealers and resellers. . . The industry buzz was that Dell could not continue to grow by direct sales of computers alone; rather, that only by combining our direct business with sales. . . in retail outlets would we stand a chance."

The move, he wrote, violated one of Dell's three Golden Rules, "Never sell indirect." (The other two Dell Golden Rules are "disdain inventory" and "always listen to the customer.")

Eventually, Dell came to believe his company just couldn't make a profit by selling through retail stores so he pulled the plug on the effort and never looked back -- until earlier this year when his company's sales, profit and market share were declining and he stepped back into the chief executive post.

To make its way into the retail channel or commercial reseller channel this time, the company may need to re-think its second golden rule of disdaining inventory. As of last Nov. 3, Dell reported that it had five days of inventory. (In March, the last time Dell reported "preliminary earnings," it failed to report its inventory situation.) To make a go of an indirect sales strategy, Dell may need to ensure that its pipeline has enough PCs, notebooks, peripherals and parts in stock so channel partners can keep their customers happy. To build that inventory may take an investment so large it could eat into the company's already-declining profits.

Dell may be losing its religion on selling indirect, but the devil will be in the details.

"Someone once said that the difference between Dell and other companies is that while all companies make mistakes, Dell never makes the same mistake twice," Michael Dell wrote, a few pages after detailing the aborted retail efforts.

So the question that may be asked is, Was it a mistake for Dell to try to sell indirect once before, or was the mistake ever thinking his company only ever needed to sell direct?