Retail electronics may prove tough arena for Dell
Thursday September 25, 2:27 pm ET
By Ellis Mnyandu
(Recasts with Dell unveiling strategy)
NEW YORK, Sept 25 (Reuters) - Dell Inc. (NasdaqNM:DELL - News) will likely face stiff competition in its new push to sell digital items like flat-panel TVs and digital music players, resulting in faster price reductions for consumers, analysts said.
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With almost every retailer, including office supply stores and discounters like Wal-Mart Stores Inc. (NYSE:WMT - News), jockeying for a slice of the $100 billion U.S. consumer electronics industry, analysts said it may be some time before Dell realizes any returns from its expected entry into the consumer electronics market.
Prices for consumer electronics like home theater systems, digital cameras, and DVD players have already been falling as production costs for Asian manufacturers ease.
Dell, the No. 1 personal computer maker, on Thursday unveiled its consumer electronics strategy, which includes the launch of a music service. The Round Rock, Texas-based computer maker had said all along it is interested in pushing further into the consumer market.
But analysts said that even with its well-oiled online sales machine, it will be a tough road for Dell.
"Dell has a long way to go before gaining market share in the consumer electronics market," said Bill Armstrong, a retail analyst at C.L. King & Associates. "There are a lot of players and its entry could put pressure on product prices," he added.
The move is not expected to be much of a threat to retail heavyweights like Best Buy Co. Inc. (NYSE:BBY - News), the No. 1 retail electronics chain. But No. 2 player Circuit City Stores Inc. (NYSE:CC - News) could be vulnerable as it focuses on revamping stores as its sales weaken.
"Circuit City has been a weaker player and therefore a move (by Dell) into consumer electronics could be more detrimental to Circuit City," said David Schick, a retail analyst at Legg Mason.
Michael Baker, an analyst who tracks consumer electronics retailing at Deutsche Bank-North America, said he expects Best Buy to pose a formidable challenge to Dell in the consumer electronics segment.
"Best Buy is still the best competitor in the consumer electronics space due to its product mix and a strong store base," he said.
A push by Dell into consumer electronics follows a similar move by rival Gateway Inc. (NYSE:GTW - News), a personal computer company that is now refashioning itself as a consumer electronics brand -- but with little headway against major mainstream brick-and-mortar players like Best Buy.
Legg Mason's Schick noted that even competition from online sellers Amazon.com Inc. (NasdaqNM:AMZN - News) and eBay (NasdaqNM:EBAY - News) haven't hurt Best Buy. "Best Buy's sales have continued to grow," he said.
