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Will Best Buy's Horrible Customer Service Sink Samsung?

By John Maxfield - Apr 6, 2013 at 3:30PM

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Shares of Best Buy shot up last week after investors learned about its agreement with Samsung. Here's why Samsung's investors shouldn't the news as gleefully.

Is it just me, or is going into a Best Buy (BBY 0.32%) a little like getting poked in the eye? "In addition to price, we believe our ability to deliver a high quality customer experience offers us a key competitive advantage," claims its most recent annual report (emphasis mine). Really? Does that include ignoring customers and heaping thinly veiled disdain on those you do interact with?

Perhaps I'm being too harsh here.

I admittedly don't frequent electronics stores in general, or Best Buy in particular. Like a growing number of consumers, I buy my electronics either online or at Costco. Beyond price, I really do find visits to Best Buy increasingly dreadful. While it may claim to "deliver a high quality customer experience," I prefer a complete absence of customer service (a la Amazon.com) over what's offered at Best Buy.

It's for this reason that I find Samsung's decision to cozy up to this otherwise-waning retailer so peculiar. In case you missed it, at the end of last week, the companies announced a new strategic partnership, under which Samsung will open stores-within-stores inside all Best Buy locations by the middle of this year.

"Samsung sees the boutiques as an opportunity to educate shoppers about its products and sell some of its less-well-known gadgets," one of the company's marketing executives told The Wall Street Journal. And on Best Buy's side, "the new departments are part of Chief Executive Hubert Joly's effort to focus the stores on fast-selling products and strengthen relationships with key vendors."

This is clearly marrying up for Best Buy. Since the advent of online retail, the bricks-and-mortar retailer has struggled to drive traffic into its stores and convert what traffic is there into higher sales. As a result, for the 12 months ended Feb. 2, its same-store sales were down 2.9% according to Standard & Poor's Capital IQ. It has nothing to lose, in other words, by entering into the agreement with Samsung -- and thus the reason its shares led the S&P 500 (^GSPC 1.86%) last week.

The same, however, can't be said for Samsung itself. To revisit the matrimonial analogy, this is a clear case of marrying down for the South Korean electronics maker -- and I mean way down.

It seems obvious that Samsung's strategy here is to quickly and relatively inexpensively establish a retail presence to challenge Apple's (AAPL 4.01%). But one of the reasons Apple stores have been so successful -- beyond the quality of the products, of course -- is that they're teaming with a friendly and knowledgeable staff that's eager to please. Suffice it to say, at least in my opinion, that the same cannot be said of Best Buy.

The one saving grace is that Samsung is purportedly going to both staff and train the employees in its boutiques. Again, according to the Journal, "For the first time, [Samsung] is recruiting and training a fleet of retail workers who will staff the majority of the boutiques."

But the question of who will pay and supervise them once onboard will ultimately dictate the outcome. If Best Buy managers and personnel are responsible for this, are we really to expect something dramatically different than the status quo? And if Samsung is going to, then it seems inevitable that the company will demand a bigger cut of the sales -- something that Best Buy swears isn't the case.

Either way, I can't help seeing this partnership being anything but a short-term boost to Best Buy and a potential stain on Samsung's increasingly sterling reputation. This is why I believe that the biggest beneficiary of the deal could ultimately turn out to be Apple.

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Stocks Mentioned

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
$143.11 (4.01%) $5.52
Best Buy Co., Inc. Stock Quote
Best Buy Co., Inc.
BBY
$72.59 (0.32%) $0.23

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