Best Buy Goes Solar, Invites SolarCity Into Stores

SolarCity (NASDAQ: SCTY  ) is moving into Best Buy (NYSE: BBY  ) stores in an effort to generate even more touch points with consumers. This is a notable move for Best Buy because it brings more services into stores and could make it a hub for showcasing the future of electric generation, storage, and consumption.

Personally, I think this move has been a long time coming (after all, I suggested it two and a half years ago), and it finally gives Best Buy's investors a growth story to look forward to. Let's take a look at why this is an important deal for both SolarCity and Best Buy.

To keep work crews busy, SolarCity needs to keep its sales channels full. Source: SolarCity. 

SolarCity is all about sprawl
At its core, SolarCity is an installer of solar systems. Sure, it offers financing, securitizes payments, and is getting involved in energy storage, but most of its workers are out in installation trucks or selling systems, so the trucks stay busy every day.  

That infrastructure of employees is creating value for shareholders, but they also need to be paid, or the overhead cost is lost. That is why SolarCity has put hundreds of millions into developing new sales channels over the past few years. The acquisition of Paramount Solar last year, a partnership with Home Depot (NYSE: HD  ) , offering financial product to individuals, and now this deal with Best Buy are all about expanding sales channels and touch points with customers.

Residential solar systems built by SolarCity. Source: SolarCity.

In a lot of ways, Best Buy makes a lot better partnership than Home Depot, who isn't a specialist in electronics. Selling energy systems alongside paint and countertops isn't exactly a natural fit, and exploring new retail partners is in SolarCity's best interest. There's no guarantee of success, but SolarCity can test a number of avenues for selling systems and stick with what works.

Best Buy becomes a service company
From Best Buy's perspective, this is a further move from selling electronics to selling a suite of products and services. Best Buy will sell you everything from a computer to a stereo system to a car charger -- and come to your house to install each one. This deal just expands these offerings into solar.

I think it's a good move, because so many of Best Buy's products are sold purely on price and can be purchased more conveniently online. Selling DVDs and TVs just isn't a profitable way to grow the business anymore, and it's the expertise and services that will keep customers coming in the door.

Services like Geek Squad are now more prevalent at Best Buy, which will continue with SolarCity.

Best Buy could even become a showroom for solar systems in the future, much like it is for home theaters in the Magnolia department. Talking to a sales person at a foldable table is one thing, but seeing how a Zep system and solar panels will fit on your roof and playing with the monitoring software is where Best Buy could really add value. We'll see if that's the future of solar sales.

Is this the start of a trend?
The question is whether or not solar sales in retail is going to be a big business going forward. I think it could be, but it depends on how the sales are done. SolarCity's current partnership with Home Depot is really nothing more than a table and a sales person with little infrastructure to touch and feel the solar system.

The same can be said for Home Depot kiosks run by Sunrun and Clean Power Finance partners on the East Coast. The retail sales channel is increasing in size, but it's far from refined, and it's too soon to say whether stores like Home Depot and Best Buy are the future of solar sales.

SunPower (NASDAQ: SPWR  ) hasn't made much of a move into retail, choosing to leverage installation partners instead. But CEO Tom Werner recently told me that SunPower would be expanding its advertising in residential solar and would even own some of the installation companies as well. It wouldn't be surprising to see retail be a piece of that strategy as well.

Foolish bottom line
Solar installers need a way to communicate the benefits of going solar and cover sales options, and retail channels are a great way to do that if they're done right. I'm not sure the table and laptop model will last, but if sales channels are built out so customers can touch and feel their solar options, I think it could help the entire industry sell solar. So, look for more of these partnerships in the future, and look for them to be even more immersive if they're successful.

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  • Report this Comment On March 13, 2014, at 1:41 PM, ronwiserinvestor wrote:

    Marketing the higher priced solar lease and PPA financing model to price sensitive consumers in a big box retail outlet is simply not a good idea.

    Many of these consumers will simply visit the Internet to comparison shop after being "educated" face to face by a salesperson, and will find higher performance products at much lower pricing online. Especially when compared to the pricing that's available when purchasing a solar system outright.

    For example: After making 20 years worth of leasing payments on a $0 down solar lease, a homeowner will end up paying about 3 times the amount that the homeowner would have paid if he or she had purchased a solar system instead.

    A leased 4.75 kW system will typically cost the consumer $117.00 per month for a total cost of $28,080. The same purchased 4.75 kW system would cost the consumer $9,642 after applying the 30% federal tax credit. That's a difference of $18,438 wasted when you lease.

    And that's without adding in the 2.9% annual payment escalator that the leasing companies are fond of adding into their contracts. Add in the annual payment escalator and the cost to lease a solar system rises substantially.

    The solar lease and PPA financing models are outdated and might have made sense 4-5 years ago when system pricing was much higher. Today solar system pricing has fallen well below $3.00 per watt before incentives. At this pricing level, solar leases and PPAs absolutely no longer make sense no matter how or from where they are marketed.

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