Dell woos big-box retail mistress

Dell's burgeoning relationship with big-box retailer Costco could be the first step to entering more retail channels, according to some analysts.

The recent appearance at some Costco warehouse outlets of a Dell 2200 15-inch laptop with a 1.7GHz 540-series Pentium 4 processor and 80GB DVDRW hard drive, priced for $899.99, has prompted some analysts to ask if Dell is breaking out of its direct online business model.

Costco is a "long-time good partner" of Dell, said a spokesman on Tuesday, noting that "one allotment of Dimension and Inspiron" was provided to them "more than a month ago".

The spokesman declined to reveal Dell's sales numbers for its products at Costco. He added that Dell is not planning similar retail partnerships outside of Costco.

But analysts suggested additional retail partners could be just the thing to spice up Dell's online sales, which in the past have been augmented primarily by shopping mall kiosks.

Despite the low price and the drab, grey colour, the Dell 2200 laptop at Costco is a solid machine, according to Toni Duboise, a PC industry analyst at research firm Current Analysis. But it is a far cry from Dell's splashy XPS brand of premium PCs, she said.

She added: "It's an antiquated configuration... It pales in comparison to the other machines that now support 64-bit and dual-core Pentium chips."

Costco has also been featuring a Dell 6000 laptop for $1,299.99 and a Dell XPS 600 desktop media centre with a 20-inch LCD widescreen for $2,499.99. Both models come with a three-year warranty, which Duboise said is a good incentive for the small to mid-sized businesses that frequent Costco.

Dell is known for changing prices on the fly through a combination of just-in-time manufacturing and extensive real-time sales data. The blend has allowed the company to balance its demand and supply, and maintain a leadership position in unit sales.

However, market changes in the last 18 months have forced the number one PC seller out of its comfort zone.

During the company's last earnings release, chief executive Kevin Rollins admitted that Dell's sales teams were too aggressive in selling its computers at a discount - $400 laptops, $300 desktops in some cases - but that the company going forward would keep costs in line and focus more attention on a balance of products, including XPS desktop and laptop computers.

Roger Kay, an industry analyst at Endpoint Technologies Associates, suggests Dell is testing the retail waters like it did in the late 1990s with Price Club, which was later acquired by Costco. Kay also recalls Dell's 2001 attempt to sell to retail shops in Japan.

Kay said: "Right now Dell is struggling with consumers, and when a company has that problem, it tends to experiment with its business models. They make a small commitment to a new business method and then see how it goes and if things seem good, then the company can pump up the volume."

Dell's relationship with Costco is a good fit, Kay said, because it is a buyer's club that draws in small to mid-sized businesses, a core demographic for Dell.

Kay added: "Dell wouldn't get the same response, say at a BestBuy, where shelf space is heavily contested. If Dell made a deal to enter that market, there would be great cries from Dell's rivals."

Dell could certainly use a boost of any sort to increase its sales, based on its last profit report, Current Analysis' Duboise said, noting that further partnerships with other retail partners could improve the company's standing.

She said: "The Dell brand carries so much weight with consumers that if they did this in the future, their competitors would certainly take note."

Michael Singer writes for CNET News.com