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Best Buy Gets a Lifeline

By Andrew Marder - Apr 4, 2013 at 2:43PM

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The tie-in with Samsung is great news for the struggling retailer.

For the past few months, Best Buy's (BBY -0.32%) stock has jumped and fallen based largely on who was thinking about buying the company or who was being hired. Now, the company has some news about something it's going to actually do: Best Buy is going to capitalize on the strong mobile phone business that it's built up, and open Samsung stores within its stores.

The mini-store
The concept is going to be set up in both traditional Best Buy stores and in the smaller Best Buy Mobile locations. The program was trialed in Texas, and the success made for a nationwide rollout, which should see the stores in 1,400 locations, with up to 900 open by the end of May.

The stores are going to be staffed by Samsung-trained employees, who will act as the company's only U.S. retail face. Unlike Apple (AAPL 2.54%), Samsung currently does not operate any retail locations, and so has no direct access to U.S. customers. The phone manufacturer is hoping that the new arrangement will allow it to better promote its products, including the iPad rival Galaxy Note tablet.

The Best Buy mobile plan
Best Buy has seen its mobile business expand over the last year, and has said that it will be spending more time focusing on the venture. Last quarter, computing and mobile comparable-store sales grew 13.4%, almost -- but not quite -- pushing total store comparable sales into the black. On the earnings call, CEO Hubert Joly said that the company would be giving more space over to mobile in 2013, due in part to its strong margins. 

For Samsung's part, its mobile division has been lagging behind slightly compared to its other product divisions. That growth is going to be difficult without this sort of deal, as Samsung sees the demand for smartphones beginning to slow in 2013. The tie-in with Best Buy should help the company expand its U.S. sales, and give the brand a stronger hold on customers, many of whom may not know the variety of phones and tablets Samsung offers.

The bottom line
This isn't going to put a major dent in Apple's income, but it should give a boost to both Best Buy and Samsung. Of the two, Best Buy is in a position to gain more, as sales are slowly righting at the big-box chain. Samsung pulled down $53 billion in revenue last quarter, so it's doubtful that any increase through Best Buy is going to make a noticeable impact on the company's earnings.

I'd be looking closely at Best Buy, if I needed more retail in my portfolio. The company is up 14% as of this writing, so the jump on this announcement is behind us, but the horizon looks increasingly good. There's still a chance Best Buy is really going to turn its business around.

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Best Buy Co., Inc. Stock Quote
Best Buy Co., Inc.
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