February 21, 2008 – Business Management Article

HP’s retail channel strategy is working

Hewlett-Packard (HP), the world’s largest personal-computer maker (based in the Palo Alto, California), beat Dell in PC sales for the sixth straight quarter and posted a fiscal first-quarter profit (February, 2008). The results which topped analysts’ estimates on orders for PCs, servers and storage show that HP’s retail channel strategy (to rely on a network of retailers) is working. The option to view and touch the machines before buying is helping HP win customers. Furthermore, HP’s PCs and notebooks are sold in about 110,000 stores; 10 times as many stores as Dell. Dell has its PCs selling in more than 10,000 stores. Even in terms of desktop and notebook models offered through retailers, HP offers twice as many as Dell does. Shoppers, therefore have more choice. Last year, Dell discarded its much renowned direct-sales strategy and began forging partnerships with retailers in an attempt to win back shoppers.

Dell’s unique ‘direct build-to-order’ sales model?

Dell had been following its unique ‘direct build-to-order’ sales model for more than 20 years. Dell’s customers could plan their own configuration and place orders directly with the company via the phone or its Web site. Over the years, Dell’s supply chain efficiencies and direct sales gave it a competitive advantage. In 2006 however, Dell faced several problems. Many customers complained about long delays in supplies. Increasing discontent of customers led to a slowdown in sales. Consequently, Dell lost its market leadership to Hewlett-Packard Co. (HP). Dell will have to bear additional costs with its foray into retail distribution thereby minimizing its cost advantage. Besides, profit margins of Dell will drop further since it will have to offer incentives to compete with HP in retail stores. Read full-text of this case study on Dell’s Supply Chain Management Strategy.

Strong order book lifts profit at Hewlett-Packard

HP’s first-quarter net income increased 38 percent to $2.13 billion from $1.55 billion. Chief executive Mark Hurd who succeeded Carly Fiorina in April 2005 has topped his profit forecasts in each quarter since taking over. This only underscores the huge challenge Michael Dell has in turning around Dell.

First-quarter sales increased 13 percent to $28.5 billion. PCs account for about a third of Hewlett-Packard’s sales and it benefited from a decline in the cost of parts for PCs (memory prices fell by almost 45 percent last quarter). Even concerns about reduced U.S. spending were partly offset as Hewlett-Packard gets more than two-thirds of its revenue from fastest-growing economies outside the U.S. Countries like Brazil, Russia, India and China account for approximately 9 percent of the HP’s sales.

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keywords: Computers, Dell, HP, PC Manufacturing, Retailing