Best Buy’s New Strategy Is a Game Changer
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I changed my mind about Best Buy (NYSE: BBY) on Thursday. For months I've been bearish on the company, believing that their business model had become obsolete. But the retailer’s decision to partner with Samsung is a game changer, and if the company can work out similar deals with other device makers, it could have a bright future.
Best Buy CEO Hubert Joly channels his inner Ron Johnson
Ron Johnson’s turnaround strategy at J.C. Penney has been floundering. Perhaps he should've stuck to tech. The former head of Apple’s retail operation left the company to take a job as the CEO of one of America’s oldest retailers.
As part of his turnaround of J.C. Penney, he has begun to create “shops” within larger J.C. Penney stores. According to Johnson, these shops will generate better sales per square foot, a metric he maximized at Apple.
On Thursday, Best Buy announced that they would be stealing Johnson’s strategy. While it didn't phrase it in such a manner, Best Buy did announce that Samsung would be opening stores within many of Best Buy’s locations.
Samsung will even be staffing these stores with its own employees, ones adept at showing off Samsung’s products and offering tech support.
For Samsung, it’s a huge win. As the company tries to compete more directly with Apple, it’s at a disadvantage without its own retail operation. Apple’s stores have been a driving force behind the company’s growth, offering a place for consumers to test products and get needed tech support. Now, Samsung will be able to compete with Apple in that arena.
For Best Buy, it’s an even bigger win. The company has plenty of real estate -- arguably too much. But if it could copy Ron Johnson’s shop concept completely, it could leverage its real estate holdings greatly.
Microsoft should partner with Best Buy
Microsoft (NASDAQ: MSFT) has been slowly rolling out stores throughout the US; Best Buy already has hundreds of stores across the country. If Microsoft is committed to having a retail arm, partnering with Best Buy as Samsung has done would be a no-brainer.
Microsoft jumped into the retail game last year, in conjunction with the launch of its tablet, the Surface. Unfortunately, Surface sales have been sluggish -- Bloomberg reported in March that the Windows-maker had sold just over a million Surface RT tablets.
Currently, Microsoft has stores in only 26 states, and only a few stores per state. Keeping some flagship standalone stores might make sense, but if Microsoft is serious about selling hardware, it could accelerate its efforts by partnering with Best Buy.
If Google wants stores, it should follow Samsung’s lead
If the rumors about Google (NASDAQ: GOOG) are true, the search giant should also follow Samsung. With an expanding line of Nexus products, Chromebooks, and its upcoming Google Glasses, Google stores would certainly make sense.
But again, like Microsoft, the company could easily accelerate any rollout simply by partnering with Best Buy rather than committing itself to developing a network of standalone stores.
If Google is truly concerned about Samsung’s dominance of Android -- as some reports suggest -- then the company has even more of an incentive to consider stores. With a dominant lineup of smartphones, and a retail operation, Samsung could further affirm its Android dominance.
Other device makers could follow
In addition to Microsoft and Google, other companies could be interested as well. Sony has a few retail stores, but even fewer than Microsoft -- it has a presence in only 10 states.
Other than Sony, LG could be a possibility, perhaps even a company like Lenovo or Amazon would consider it. Apple already has dedicated sections in many Best Buy stores, and maybe the company would consider bolstering its efforts so as not to lose sales to Samsung.
A new life for Best Buy
Best Buy’s deal with Samsung is great news for the retailer: it demonstrates that there’s still demand for the company’s real estate assets. Wanting to replicate Apple’s retail success, Microsoft has already begun investing in stores and Google is rumored to be considering it as well.
If Best Buy could work similar deals with these companies, and perhaps others, it could become a mini mall for all sellers of electronics. That kind of fundamental change would give Best Buy a new lease on life.
Joe Kurtz owns shares of J.C. Penney. The Motley Fool recommends Google. The Motley Fool owns shares of Google and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!