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Did Samsung Just Save Best Buy?

By John Maxfield - Apr 4, 2013 at 1:40PM

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Samsung and Best Buy announced a new and wide-reaching agreement today. Will the move be enough to save Best Buy from itself?

Something strange happened earlier today: Global electronics-manufacturing giant Samsung announced an agreement to install autonomous stores in 1,400 Best Buy (BBY -1.84%) locations, and not a peep of the huge announcement had previously been leaked. What's most curious is the fact that a rising and respected company like Samsung would partner with an utter basket case like Best Buy.

It probably goes without saying that this could end up being a huge coup for Best Buy -- it's the best-performing stock on the S&P 500 (^GSPC -0.40%) today, up almost 13% at the time of writing. One of the biggest challenges for any brick-and-mortar retail company is simply getting customers in the front door. The theory is that once they're inside, the chances they'll actually make a purchase can be directly influenced by the store itself through merchandising and/or customer service.

But for Best Buy, getting people to visit its stores and consummate a purchase has become increasingly difficult over the past few years. With regard to the former, shopping at a waning retailer simply isn't what it used to be, as both the physical upkeep and particularly the customer service at Best Buy leave a lot to be desired. The latter is a challenge because the customers that traffic the store are often simply using it as a showroom for products they'll later purchase for a substantial discount on Amazon.com.

Consequently, if the new Samsung Experience Shops are able to attract a crowd, half of Best Buy's battle is done. And the other half, moreover, could be bolstered by the Korean company as well, given that Samsung will both staff and train the "shop-in-shop" employees. This is assuming that the influence flows from Samsung's employees to Best Buy's, and not the other way around.

The success of the partnership on Samsung's end, however, is less certain. In any case, there's no question that it's a relatively cheap and easy way to quickly build a formidable retail presence in the United States to rival Apple (AAPL -1.07%).

As anyone who's been in an Apple store can attest, that segment of the company's operations has been an enormous success. At present, Apple operates roughly 400 stores around the world. It earns a staggering $6,050 per square foot, according to data from RetailSails.com. By comparison, Tiffany, the runner-up in this regard, earns only $3,017 per square foot. And in the most recently completed fiscal quarter, an estimated 121 million customers walked through its front doors.

If Samsung can replicate some of this success, it would be an enormous accomplishment for the company.

Yet one has to wonder about Samsung's strategy of hitching a ride on a falling star. Beyond the downright dismal experience that visiting a Best Buy promises, it hasn't even been a year since its former CEO stepped down following allegations of an affair with an underling. In the intervening time period, the company dismissed its founder and former chairman Richard Schulze, hired a new CEO with no retail experience to speak of, fended off a half-hearted and publicly waged takeover bid by Schulze, and then finally capitulated by allowing Schulze back on board as chairman emeritus.

Given this and Samsung's rising acclaim, it's hard to imagine two stranger bedfellows.

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Stocks Mentioned

Best Buy Co., Inc. Stock Quote
Best Buy Co., Inc.
BBY
$84.77 (-1.84%) $-1.59
S&P 500 Index - Price Return (USD) Stock Quote
S&P 500 Index - Price Return (USD)
^GSPC
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Apple Inc. Stock Quote
Apple Inc.
AAPL
$145.54 (-1.07%) $-1.57

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