Ungenius

Apple competitor Dell announced yesterday that they’re getting into retail in Apple’s shadow, even going so far as to choose two locations already sporting Apple Stores. The Dell stores mimic both Apple’s stores and Dell’s own widely dispersed mall kiosks. Dell’s stores will be spacious showcases of Dell’s products, a play that uses the space to “grow the brand” just like Apple’s stores. Unlike Apple’s stores though, the Dell stores will not carry stock and will only allow customers to place web orders. And this is how Dell will lose.

One of Apple’s key decisions in venturing into retail, even though they too saw their stores more as showcases than points of sale, was that customers should be able to walk out with the goods. In the end, the sales came stronger than Apple ever expected and the focus of the Apple Store eventually became as much about the sale as it was the showcase. Like Dell, you can order custom configurations of Apple products in their stores. But Apple chose to also carry the basic configurations and, in a couple of situations, “ultimate” custom configurations – units that are more-or-less maxed out.

Dell will find some problems in its venture into retail, many caused by its decision not to carry stock. First, Dell will only attract casual shoppers. Few customers will bother to travel all the way to the mall just to make a web order when they could easily visit Dell.com or call it in themselves and save some gas. Apple Stores drive a tremendous amount of traffic into the malls partly because people know they can walk out with the goods, and many of these shoppers drop into The Gap and spend money there too. Put simply, the Apple Store magnifies revenues for other stores. Dell doesn’t have the market appeal to cause this kind of lensing effect. Why does this matter, though?

The Mall Economy

To understand why any of this matters, you have to understand how malls work. At home, you pay a (relatively) flat rate on your mortgage or lease. Alas, it’s not so simple in malls. Your favorite stores typically pay a flat, per square foot rate of rent, plus a small “tax” on their revenues. The more sales you drive, the more rent you pay, the happier the malls are, the more the mall likes your store. Imagine if your store isn’t just an insanely high-earner, but it also drives enough traffic to cause a measurable, significant rise in sales at other stores?

Apple does this and, thus, malls actively court Apple. They want Apple Stores. They crave them like Courtney Love craves heroin attention. They have been known to move existing tenants out of prime real estate to make way for Apple. When Apple has a facilities complaint – like having a food court grease trap too close to their AC intake – it gets taken care of, even if it requires an extensive rework of the mall’s roof. True story, that one. Our back room smelled like teriyaki chicken for a few months.

Dell will never have this. Dell, as a brand, doesn’t drive people to malls. People will not line up at 2AM to be the first into a new Dell Store. On a busy Monday before Christmas, Dell’s store will not draw more than a thousand visitors looking to go home with a late Christmas present and, even if it does, that’ll be a thousand disappointed customers when they realize that they can’t buy anything. Lacking this, Dell will play second fiddle to Apple in any malls they co-habitate.

If Dell wants prime real estate, the malls will be happy to accommodate them at an inflated rate. But Dell won’t be able to drive the same sales that Apple does and will have a harder time justifying the expense of their stores.

The Dell Kiosk In Austin

Dell’s home – Round Rock, Texas – is a suburb of Austin, where Apple has a store in Barton Creek Mall. Mind you, Dell is the largest non-governmental employer in the area by a very wide margin. Barton Creek Mall is also home to one of Dell’s existing mall kiosks. Ask anyone in town – even Dell employees – where the local Apple Store is, and they’ll tell you. Most of them, humorously, own iPods. Even better is a conversation I’ve had numerous times with these Dell employees.

Obvious Dell Employee: I’d like an iPod please.
JC: That’s awesome. Out of curiosity, why don’t you get a Dell Jukebox?
Dell: A…what?
JC: Your MP3 player.
Dell: We make iPods?
JC: Your total is… You should go look at them down at the Dell Kiosk down by the movie theater.
Dell: We have a kiosk here?

No one knows about the Dell Kiosk in Barton Creek Mall. No one. For a while, I would eat at a little sushi place next to their Kiosk and, even in the midst of the busy holiday season, their employees would be playing games on the plasma TVs with nary a customer in sight. Once, the kid even interrupted my lunch to ask about applying for a job in my store, and whether we offered a mall employee discount on iPods.

Dell isn’t a buzz-complaint company. They sell cut-rate hardware at cut-rate prices. High-end retail isn’t a game they should be getting into. If ever there were a company in need of a lesson from Gateway, it’s Dell. Apple had everything going for it in its attempt to avoid Gateway’s fate – a trendy high-margin product and a legion of fans bordering on zealotry, to be precise. Dell has neither, and appears poised to repeat Gateway’s history.