Can Best Buy Win Where J.C. Penney Failed?

The concept of a store-within-a-store has been around for years. It just hasn't been called store-within-a-store -- it's been called a mall. But as brands have become more important to retail than the retailer itself, the stores have gotten smaller, even choosing to be within larger stores.

This concept was supposed to be the savior for J.C. Penney (NYSE: JCP  ) , with boutique-style shops lining the store's corridors. But that concept was an abysmal failure for the retailer, and the mastermind behind it -- Ron Johnson -- is now out as CEO. Now, Best Buy (NYSE: BBY  ) is expanding its store-within-a-store concept with the Samsung Experience Shop and Windows Stores, another risky bet for another floundering retailer. 

A whole new ballgame
The big difference between JC Penney's efforts and Best Buy's comes down to the draw of the brands. JC Penney was betting on Levi's, Liz Claiborne, and Joe Fresh as brands to draw in customers, and Best Buy is betting on Samsung, Microsoft, and Apple.

The draw of those three brands, which dominate electronics, will be bigger than any of the brands JC Penney offered. Best Buy is also one of the only major retailers remaining that can carry full product lines where customers can touch, test, and compare electronics products.

For brands, the draw of Best Buy will keep this partnership alive. Samsung and Microsoft see Best Buy as a way to expand in retail without building their own stores. Plus, they can train employees to be knowledgeable in their products, improving the sales experience for consumers. Apple also has a footprint in Best Buy, and that only expands the company's reach into more retail locations beyond its own stores.

Can Best Buy win?
JC Penney showed how risky the store-within-a-store concept can be, but I think Best Buy has a much better chance at success. The company's brand draw is much stronger than JC Penney's, and consumers will get a better, more in-depth experience from Microsoft, Apple, and Samsung-specific sections than they did under the old model.

The success of this model may determine whether Best Buy is a good investment and, potentially, its very survival. Revenue and earnings have dropped dramatically over the past year, so investors have to hope that stores-within-the-store will kick-start sales.

BBY Revenue TTM Chart

BBY Revenue TTM data by YCharts

The risk Best Buy is taking shows just how much of a paradigm shift we've seen in retail. Even the best retailers have struggled against online competition and only those most forward-looking and capable companies will survive. You can read about the 3 Companies Ready to Rule Retail in The Motley Fool's special report. Uncovering these top picks is free today; just click here to read more.


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