FYI - Gigabuys.com
March 3, 1999
Expanding Its Reach, Dell Computer
Builds a Superstore on the Internet
By EVAN RAMSTAD
Staff Reporter of THE WALL STREET JOURNAL
Making a big push into Web retailing as its core personal-computer business shows signs of slowing down, Dell Computer Corp. is launching an ambitious online store that will sell 30,000 electronics products in addition to the company's own PCs.
The new Dell venture, dubbed Gigabuys.com, will offer consumers everything from memory chips and printer cartridges to digital cameras, 3Com Corp.'s Palm Pilot hand-held computers and a huge number of software titles. Dell plans to unveil the site Wednesday.
Dell.com
www.dell.com
CompUSA
www.compusa.com
Best Buy
www.bestbuy.com
Shopping.com
www.shopping.com
Dell is just the latest PC giant expanding its online retailing amid a struggle to keep up the breakneck growth in computer sales. Compaq Computer Corp. and Gateway Inc. both recently branched out into online electronic retailing and expect to have sites running this spring.
Already the nation's largest online computer seller, Dell says it wants to establish itself in the accessories market before some upstart or existing operator gets there first. Executives feared that if Dell didn't improve its offerings, its customers might find what they need at other sites. Then, says Dell Chief Executive Michael Dell, "they might decide to buy their next PC at somebodyelse.com."
Eric Brown, an analyst at Forrester Research, Cambridge, Mass., says Dell hopes the new site will triple its accessory sales and boost traffic to its Dell.com site by 20% over the next six months. Dell wouldn't confirm those numbers.
'Building Its Brand'
Dell "may find that as computers become more commodity items, their real strength may be as retailers par excellence of all consumer electronics," Mr. Brown says. "We used to think Amazon.com was just books, but now they're going to sell drugs. It's all about brand on the Web, and Dell is building its brand."
Dell already has a long track record in e-commerce, claiming Internet sales of $14 million a day. Dell.com is one of the most-trafficked sites on the Web, with an estimated 2.5 million visitors a week.
Through a program known as DellWare, the company for several years has sold about 6,500 accessories in a catalog and, more recently, online. Some of the products it offered, such as memory chips or modems, were sold only if they worked with Dell PCs.
For Dell, Compaq and Gateway, expanding the product line and moving into the traditional turf of retailers and dealers underscores painful changes in their business. Once-fat computer profit margins have fallen so far that the slimmer margins on accessories don't look so bad. As a result, pushing accessories is one way to add profitable sales at a time of falling average computer prices and sluggish revenue growth.
Sales growth has been a sore spot for some of these highfliers. Dell's stock recently was hammered when the company said its fourth-quarter sales jumped just 38% from the year before, instead of the 50%-plus growth rate that investors had grown accustomed to.
Dell got serious about a new Web site in early December, when Mr. Dell sent e-mail to top executives complaining about the difficulty of buying accessories at the existing Dell.com. At a meeting a few days later, Mr. Dell and a handful of executives set the launch date for the first week of March, roughly 10 weeks away. "In the Internet world, time is so valuable," said Richard Owen, chief of Dell's online operation. "We know we're going to be in a foot race."
At the moment, the electronics manufacturers are running to the Web more nimbly than retailers, which have been relatively slow to develop sites. Of the biggest electronics superstore firms, Best Buy Co. is selling only compact disks and digital videodisks online, and Circuit City Stores Inc. and Tandy Corp.'s Radio Shack aren't yet selling products online. Tandy has made online selling a priority, however, and plans an electronic-retail site by summer. Circuit City says it will launch such a site in the late spring. A spokeswoman for Best Buy says, "E-commerce is key to the long-term growth of Best Buy. It will be a focus for us."
CompUSA Inc., the largest computer superstore chain, has a Web site that sells 30,000 items, far more than it displays in its stores. It also offers more than 100,000 software titles for downloading. The operation is growing fast but is a very small part of CompUSA's revenue.
Meanwhile, Gateway said last week it will pay $21 million for a 9.9% stake in the online retailing subsidiary of New England Circuit Sales, which had $86 million in revenue last year. Gateway also has an option to purchase the remainder of the business, which has operated as NECX Direct. In January, Compaq agreed to pay $220 million for Shopping.com, a money-losing online retailer that is a big seller of computer products, along with many other items.
Risky Move
The move is somewhat risky for Compaq, which, as the leading seller of PCs through retailers, must juggle direct sales with its need for dealer loyalty. Last week, the Houston PC giant canceled contracts with several Web-based dealers -- including Shopping.com -- because the Web sites could sell Compaq computers online for less than Compaq and its store-based dealers charged.
A Compaq spokesman defends the company's Web-retailing strategy, saying it is so broad that it won't threaten computer dealers. He points out that Shopping.com will serve as the e-commerce arm of Compaq's Alta Vista Internet portal -- a widely used Web search site.
Dell doesn't sell its computers through outside dealers, and it's taking steps not to alienate the middlemen it deals with. With Gigabuys.com, Dell will continue its practice of using wholesalers such as Ingram Micro Inc. and Merisel Inc. to fill accessory orders, saving itself the cost of carrying inventory.
The company plans to integrate ordering with its Dell.com site, allowing customers to use the same electronic "shopping cart" at both sites. Dell.com will remain the site where customers go to buy Dell computers and obtain information on Dell products.
Executives say that Gigabuys.com will offer detailed product information and the ability to track an order, features that already exist at Dell.com. "If you look at the existing online shopping sites for peripherals, including, frankly, ours, there's basically a little bit of information, buy it and that's it," says Paul Bell, who heads Dell's consumer-products division.
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