Investor reaction to Best Buy’s (BBY) deal to put mini-Microsoft (MSFT) stores inside its big boxes wasn’t terribly enthusiastic, even though a similar agreement with Samsung (SSNLF) in January gave the share price quite a pop, as seen in a stock chart. Perhaps investors are beginning to wonder whether this boutique-ing of Best Buy can really solve its most serious problem.
Microsoft announced Thursday plans to set up shop with its own customer service reps in some 600 Best Buys starting in June to push its products, including Windows-based PCs, phones and tablets, and Xbox. Although promoted as a store-within-a-store setup, the wide variety of computers running some Windows product means that a huge part of Best Buy’s entire computer department at one of these locations will look a lot like a Microsoft store.
Samsung inked a similar deal earlier this year to open 1,400 Samsung Experience Shops to sell its own smartphones and products in Best Buy stores. Samsung shops will take up a lot less space since it doesn’t run stuff on say, Apple (AAPL) iPhones. In fact, Apple has its own shops in some Best Buy stores.
The deals are smart for Best Buy on a couple of levels. The boutiques are sure to increase store traffic from consumers looking for ways to try out the latest technology. A one-on-one with someone who can explain all the features of the different models isn’t something online retailers like Amazon.com (AMZN) can offer.
(YCharts, proclaiming Amazon the Suicide Bomber of Retail -- it trashes other companies’ profits, as well as its own -- has extensively covered the competitive retail landscape and how Amazon has altered it. TJX (TJX) sidesteps amazon by stocking goods the online giant doesn’t have. We’ve written recently about Amazon’s threat to Staples (SPLS)
; how some Amazon-resistant stocks are crushing the market; eBay’s (EBAY) competition with Amazon
; and Ulta’s (ULTA) vulnerability to Amazon.)
As the physical home to brand-leaders, Best Buy stands to benefit from marketing campaigns paid for by each of those vendors. That should help the struggling retailer control its selling, general and administrative expenses, a category its new chief financial officer has targeted.
BBY SG&A Expense TTM data by YCharts
But the arrangements generally just regroup products Best Buy would sell anyway rather than bringing the stores new revenue streams. Their success will be measured by whether the brand reps can convince more people to actually make their purchases inside Best Buy stores than Best Buy employees did. Too many consumers use Best Buy as a great place to try out products before they go to online competitors to make their purchases, often enticed to do so by lower prices. It’s this showroom-only status that was largely responsible for beating Best Buy profits and shareholder returns to a pulp in recent years.
BBY EPS Diluted TTM data by YCharts
For Microsoft, Samsung and Apple, setting up stores inside Best Buy must be a lot cheaper than opening stand-alone stores. And in the end, they’ll make money whether their product demonstrations lead to sales at Best Buy or Amazon.
Dee Gill, a senior contributing editor at YCharts, is a former foreign correspondent for AP-Dow Jones News in London, where she covered the U.K. equities market and economic indicators. She has written for The New York Times, The Wall Street Journal, The Economist and Time magazine. She can be reached at editor@ycharts.com. You can also request a demonstration of YCharts Platinum.
