How This Retailer has Completely Turned it Around
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Less than a year ago, Best Buy (NYSE: BBY) looked to be facing a glum future. More and more, consumers were opting to buy their electronics either online or in specialty stores, while a good chunk of Best Buy’s products (CDs, DVDs, video games) were increasingly going digital.
But Best Buy seems to have completely turned it around, and could have a bright future ahead of it.
Samsung and Microsoft
In April (borrowing a page from Ron Johnson’s J.C. Penney playbook) Best Buy inked a deal with Samsung to build specialty, dedicated shops within larger Best Buy stores.
It was truly a win-win for both companies. Samsung was able to build out a dedicated retail presence across the US in just a few months (and thereby up the ante in its war with Apple (NASDAQ:AAPL), while Best Buy was able to reduce its labor costs and offer a unique retail experience.
That wound up to be the case. Microsoft now plans to launch its own specialty stores in 500 Best Buys across the country. That number is fewer than the number of Best Buys with Samsung shops, but still represents a big chunk of Best Buy’s locations.
But Microsoft’s decision is actually far more important than Samsung’s.
Best Buy is a better bet than independent stores
The key difference between Samsung and Microsoft is that, unlike Samsung, Microsoft had begun a campaign to establish its own independent retail presence. Since last year, the Windows-maker has been slowly building out a full retail operation across the US.
Of course, Microsoft’s retail strategy has taken a relatively long time to implement, and the stores are few and far between -- many major metropolitan areas don’t have them at all.
One might expect Microsoft to slow or cease its own retail rollout in favor of partnering with Best Buy -- a store that has spent years acquiring and developing retail assets.
It also suggests that, going forward, other tech companies that may have had an interest in an independent retail operation might instead look to partner with Best Buy rather than develop their own locations.
Google or Sony could be Best Buy’s next partner
I would expect both Sony (NYSE: SNE) and Google (NASDAQ: GOOG) to consider partnering with Best Buy next. Sony already has a few dedicated retail stores in the US, but the company has never strongly pushed its retail presence.
But now, Sony is in the middle of a turnaround, and is preparing to launch (or has recently launched) a number of key products. These include the PlayStation 4, its 4K TVs, and the Xperia lineup of tablets and phones.
Sony’s products directly compete with Microsoft’s and Samsung’s, so getting its own dedicated shop within Best Buy would prevent it from losing a competitive edge.
As for Google, the company has been rumored to be plotting a retail rollout. In the past, I had even written that if the search giant chose to do so, it would signal the end of Best Buy’s business. But with Microsoft setting the example, it would probably make sense for Google to go the Best Buy route rather than work independently.
Certainly, it would be in Google’s best interest to get into retail. In particular, if the company wants Google Glass to do well, it needs a physical location where it can showcase the product to potential consumers.
Moreover, a Google store could also help the company teach people about the Chrome operating system, and by extension, sell Chromebooks. It could also help move Google’s lineup of Nexus devices.
The bull case for Best Buy
In the coming months, I expect Best Buy to announce additional partnerships with other major tech firms. Besides the obvious examples of Sony and Google, other companies such as Hewlett-Packard, Toshiba, Amazon and even BlackBerry could consider making a deal with Best Buy.
It is truly a game changing development for the tech retailer. Just a year ago, Best Buy’s real estate assets were seen as a burden -- large stores just weren't needed, many argued.
But now, Best Buy has been able to completely spin that around. As the success of Apple’s retail operation shows, electronics stores can still do well, as long as they’re run properly. That is, consumers want dedicated stores with knowledgeable workers -- not enormous warehouses.
The typical Best Buy might not look that much different than it did a year ago today, but the stores should continue to transform in the coming months. Overall, the outlook for the business has certainly improved.
After what might have been its most tumultuous year in history, there may finally be some light at the end of this long, dark tunnel. However, investors will need to answer some key questions about the company's future. How will new leadership perform? Will a smaller store format work out for both the company and its brave investors? Should you be one such brave investor? To help answer all these questions, The Motley Fool has released a premium research report detailing the opportunities -- and the risks -- in store for Best Buy. Simply click here now to claim your comprehensive report today.
Joe Kurtz has no position in any stocks mentioned. 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!