Dell must cut costs to make retail profitable
Dell Inc’s (DELL.O: Quote, Profile, Research) retail computer business will become profitable when the company cuts manufacturing costs to align them with those of competitors, a senior executive told Reuters on Friday.
Ron Garriques, president of Dell’s global consumer group, said the company aimed to boost its consumer personal computer business to contribute more than the current 15 percent of total revenue, but gave no target.
At its analyst meeting this week, Dell said it will rely more on resellers and contract manufacturers to cut costs and increase sales. Dell broke away from its exclusively direct-sales model last year to offer computers in retail outlets, after losing the title of top PC maker to Hewlett-Packard Co (HPQ.N: Quote, Profile, Research).
“In order to make money in any business, the first thing that you need is your cost of goods sold to be competitive with your peers’ in the industry,” Garriques said in an interview.
Dell’s long-established direct-sales model had allowed buyers to custom-build and purchase computers online or by phone internet payday loans. Its new retail business has not yet hit profitability.
“We don’t have the same volume in retail globally (as rivals), and therefore we have a smaller fixed base to spread our costs over,” said Garriques, the former head of Motorola Inc’s (MOT.N: Quote, Profile, Research) handset business.
“Second, our supply chain was designed to make boxes of one” and not designed for mass distribution, he added.
Garriques said he and Mike Cannon, Dell’s president of global operations, are examining ways to take costs out of the process of designing, manufacturing and distributing PCs for retailers. Cannon said this week that Dell would hand more work to contract manufacturers that handle large volumes of orders for big PC makers, including HP.
Filed under: online by Fred