NEW YORK (MarketWatch) — Best Buy Co. has repeatedly been cited as a major victim of showrooming, a purchasing pattern in which consumers visit stores to check out a product and then go online to track it down elsewhere at the lowest price.
But the company may be turning the tables on that trend.
On Thursday, Best Buy BBY -2.71% shares surged 16%, the biggest S&P 500 gainer, after the retailer announced it was teaming up with Samsung KR:005930 -0.07% .
To combat showrooming, Best Buy has already made its online price matching guarantee against the likes of Amazon a year round deal. With Samsung helping with educating customers, analysts said that will convert more store visits to actual purchases.
The partnership aims to sell Samsung Electronics laptops, mobile phones and cameras at in-store boutiques called Samsung Experience Shops. They plan to install more than 1,400 of these shops at U.S. Best Buy and Best Buy Mobile stores by early summer. The deal also marks the first time Samsung will make a major foray on the retail front as it currently doesn’t have any Samsung stores in the U.S.
Financial terms of the deal weren’t disclosed.
Reuters
Samsung will use its own employees at the majority of the shops. The in-store sections will be as big as 460 square feet, bigger on average than Apple’s AAPL -1.14% in-store shops at Best Buy, and have their own checkout lines. In comparison, Apple has 740 in-store shops at Best Buy’s big box locations.
“Showrooming is now a positive, not a problem” for Best Buy, said Janney Capital Markets analyst David Strasser. “This is indicative of BBY making merchandising progress, as well as highlighting the value of BBY real estate.”
The analyst said the deal is also a wake up call for Best Buy vendors such as Google Inc. GOOG -1.47% and Microsoft Corp. MSFT -0.80% , saying they’ll also need to make more investment and take up more space inside Best Buy to distribute and showcase their products.
“This clearly is the death of showrooming at [Best Buy],” he said.
Strasser said with Best Buy generating more sales per square foot than Home Depot Inc.HD -1.49% , Wal-Mart Stores Inc. WMT -0.53% and Target Corp. TGT -0.73% , the deal will also be a “great opportunity” for Samsung to leverage foot traffic inside Best Buy stores.
With Samsung making such a significant commitment at Best Buy, it will also stem showrooming for its own products at the big electronics retailer, the analyst said.
Samsung, with the world’s largest share of the smartphone market, ranks alongside Apple, Hewlett-Packard HPQ -1.33% , Sony, and LG Electronics as one of Best Buy’s top five suppliers. Together they represent about 45% of all merchandise sold it its stores, Best Buy said in its annual filing.
The move gives Best Buy’s Chief Executive Hubert Joly’s efforts to revive the struggling company another shot in the arm. Joly has vowed Best Buy will reallocate its merchandise space to more profitable or top-selling categories and reduce shelf space for such items as CDs and DVDs.
The expanded partnership “is a clear indication of BBY better leveraging its key partnerships to improve traffic and conversion rates,” said J.P. Morgan analyst Christopher Horvers. He said Apple and Samsung are Best Buy’s two largest vendors, together accounting for about a fifth of its sales.
With Samsung staffing the shops with its own employees and stepping up its marketing, Horvers said he expects a higher level of service at Best Buy for customers interested in learning about Samsung’s products.
He said the deal should also boost Best Buy’s bottom line since Best Buy likely sees more profit from Samsung product sales than from Apple merchandise sales.
“This is another step in the right direction and better positions Best Buy against Amazon and the typical price deflation seen in the category,” Horvers said.
Andria Cheng is a MarketWatch reporter based in New York. Follow her on Twitter @AndriaCheng.
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