Dell's Founder Is Rethinking Direct Sales

Dell's Founder Is Rethinking Direct Sales

Michael S. Dell, the chairman and chief executive of Dell, who built his business by selling direct to his customers, is now thinking about changing the way the company markets its computers.

"The direct model has been a revolution, but it is not a religion," Mr. Dell wrote in a memorandum sent on Wednesday to 80,000 Dell employees.

It is the first time that Mr. Dell or any other senior executive has publicly conceded that the business model that was crucial to the company's success could Ð'-- and should Ð'-- be altered. Until now, the company responded with an adamant no when Wall Street analysts or customers asked whether the company would consider other ways of selling.

While Mr. Dell's memo was short on specifics, he also told employees, "We will continue to improve our business model, and go beyond it, to give our customers what they need."

As Dell faced slower sales and increased competition, it experimented with minor variations of the model. For example, late last year it opened a showroom in a Dallas mall that displays, but does not sell, computers, printers and TVs. The products still had to be ordered for delivery.

Mr. Dell took back the responsibility of running the company in late January in an effort to reinvigorate slowing sales. He put a new management team in place with some promotions and by hiring from outside. And while he encouraged employees to start thinking of new ways of doing business, he stopped short of discussing the basic business model.

"He is understanding how the dynamics of the market have changed," said Samir Bhavnani, director of research at Current Analysis, a market research firm in San Diego. "It is definitely overdue, but I wouldn't say it is long overdue. This is something they should have done in 2005," said Mr. Bhavnani.

He suggested that Dell team up with an existing electronics retailer to become the exclusive supplier of PCs and printers to that chain.

The Dell memo signals that the company is preparing to shift toward more full-fledged retail operations. Mr. Dell disclosed that the company is putting in place new manufacturing and distribution models in the United States and overseas. The plans are being overseen by Michael R. Cannon, the former chief executive of Solectron, a big electronics maker, whom Mr. Dell hired in February.

The direct sales model had been the key to Dell's success. Taught in business schools and imitated by companies in other industries, the model enabled Dell to be the low-cost