For a long time, the continued viability of Best Buy (NYSE:BBY) remained uncertain largely because of the growth of Amazon (NASDAQ:AMZN). Customers were using a practice called "showrooming" where they would visit the brick-and-mortar chain, get a look at the items they hoped to buy, take advantage of Best Buy's customer-service personnel, and then make their actual purchases online.
Effectively, Best Buy was carrying the expense of having stores, paying staff, and stocking merchandise, but Amazon was getting the actual sales. That formula could have been a quick path to bankruptcy for the physical chain had it not revamped its business model when Hubert Joly became Best Buy's CEO in 2012.
Now, perhaps in testament to how far Best Buy's turnaround has come, the retailer has just entered into a partnership with Amazon. That's a big step that shows that the brick-and-mortar chain no longer fears being supplanted by its digital rival.
How are Best Buy and Amazon working together?
The companies will partner to sell a line of smart televisions with Amazon's Fire TV built in. More than 10 models will be sold in Best Buy stores starting this summer.
"Our goal is to enrich the lives of our customers by offering them the very best products and services, whether they come to us online, visit our stores, or invite us into their homes," said Joly in a press release. "Our partnership with Amazon is exciting because we believe Fire TV Edition delivers an incredible user experience and further strengthens the growing connection between home theater, home automation, and voice control."
The built-in Fire TV serves both as a hub for entertainment via streaming services and as a home-automation control center. It comes with voice control and Amazon's Alexa digital assistant. It can also be paired with an Echo device, which, among other things, allows for a hands-free TV viewing experience.
Why is this important?
Best Buy already sells Fire TV products as well as Kindle tablets and readers. For those devices, however, the retailer is really just secondary distribution for devices Amazon mostly sells itself.
In this case, Best Buy will be the exclusive retail home for these new TVs. It will also have exclusive sales rights to sell them on BestBuy.com and as a third-party seller on Amazon.com.
This is Amazon acknowledging that consumers want to see a television before buying it, and adding Best Buy to its sales chain to offer that. Basically, Amazon is forgoing being the sales lead on its own product, because the smart-TV line will sell better if people can get hands-on with the TVs in a brick-and-mortar location.
Call it full circle
In the showrooming days, Amazon simply used Best Buy to educate its customers and then made the sale itself. In this deal, the company is directing the sales to its sometime-rival. That makes sense because while the brick-and-mortar chain's primary goal is to sell products and services, Amazon's is to take over your home with Alexa.
This deal furthers both companies' goals. It will help Amazon get its smart TVs (and Alexa) into more homes, while Best Buy will sell more products and reinforce its place as a destination electronics retailer.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Daniel B. Kline has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon. The Motley Fool has a disclosure policy.