Friday, May 25, 2007

Business Media & Schumpeterian Dynamics

Today's "Financial Insight" column on the back page of the Wall Street Journal's Money & Investing section discussed Dell's recent foray back into retail, via Wal-Mart.

Essentially, the computer maker has deigned to sell some desktop units through the giant discount chain. Notably absent, however, are its notebook products. I wrote this post last fall, discussing how mistaken I believe Dell's strategy is in this respect.

At the end of the short piece, the authors wrote,

Dell has tried this strategy before, and it failed. In 1993, it began selling PCs at Sam's Clubs, a division of Wal-Mart. One year later, it pulled out. The reason: "This is a no- or low-return business," said Michael Dell. "We like to be in businesses where we can make money, and we know how to do that in the direct business. He must be hoping history doesn't repeat itself"

Guys, it never does.

What puzzles me is why much ink is even spent on this sort of Dell action anymore. History assuredly won't 'repeat' itself, in the larger sense, in that Dell is history. Its phenomenal total return and sales growth run is history. It has become just another datapoint sustaining Joseph Schumpeter's keen observations, early in the last century, on the nature of the rise and fall of businesses in a technologically-based, fast-moving capitalistic economy.

Home Depot is essentially the same. It, too, is now a market-saturating, mature company. The salad days of rapid, profitable growth and consistently-superior total returns are over.

Why can't the people in the business media see this? Companies are born, some develop strongly, they mature, then they age and go gently into that good night.

From an industrial structure point of view, aging sectors tend to consolidate, in order to preserve some vestiges of profit margin, amidst slowing or declining sales volumes and revenues. Very rarely, if ever, do leaders in a non-cyclical sector rise again, without drastically changing their business focus.

Dell and Home Depot are now, hopefully, just interesting, Schumpeterian footnotes in business history. I wish I could write that we won't hear a lot about them anymore, but that's probably not true. Because business writers and reporters don't seem to know all that much about business theory and reality over time. At bottom, business "news" and reporting seems to be more about entertainment than providing useful insights and information.

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