Samsung Electronics Co. (005930), stepping up a battle with Apple Inc. (AAPL:US), will staff mini-stores at Best Buy Co. (BBY:US)’s U.S. locations to showcase how its tablets, smartphones and televisions work together. Best Buy shares surged.
Starting April 8, the Suwon, South Korea-based electronics maker will open 500 Samsung Experience Shops inside Best Buy, taking up about 460 square feet of prime space near the front of the retailer’s largest stores Samsung said in a statement today. Financial terms weren’t disclosed.
Samsung, stung by Apple lawsuits accusing the company of “slavishly” copying products, is spending hundreds of millions of dollars this year to prove to consumers it can innovate as effectively as its U.S. competitor. Samsung will hire its own staff to demonstrate new features on the upcoming Galaxy S4 phone, and show how content can be transferred to its smart TVs, laptops and tablets, said Ketrina Dunagan, vice president of retail marketing for Samsung Mobile’s U.S. unit.
“This effort is the last of a three-legged stool, from products to marketing and now retail,” Dunagan said in an interview.
Best Buy’s largest U.S. stores typically measure about 40,000 square feet. The companies plan to add smaller Samsung spaces by June at about 1,000 other Best Buy and Best Buy Mobile locations, Dunagan said.
The Samsung Experience Shops are a direct challenge to Apple, maker of the iPhone, which leads smartphones sales in the U.S. with 38 percent of the market versus 21 percent for Samsung, according to a March 6 research report from ComScore. Samsung leads worldwide with 40 percent of the 545.2 million smartphones shipped in 2012, according to researcher IDC.
“This is our first opportunity to demonstrate connected mobile products in a location with educated Samsung employees able to walk a consumer through the experience,” Dunagan said. “About 70 percent of U.S. population is within 10 miles of a Best Buy.”
Best Buy Chief Executive Officer Hubert Joly, hired in August to lead a turnaround at the biggest U.S. consumer electronics retailer, has made the store-within-a-store concept a linchpin of his plan to revive same-store sales.
To fend off Web retailer Amazon.com Inc. (AMZN:US) and Wal-Mart Stores Inc. (WMT:US), the largest U.S. store chain, Richfield, Minnesota-based Best Buy seeks to distinguish its locations as places where consumers can explore differences between devices and operating systems, and obtain sales and service, said Scott Anderson, vice president of phones and tablets.
Best Buy Rises
“When you’re the biggest seller of consumer electronics in the U.S., and you partner with all of these successful companies, whether it is Apple or Samsung or Sony or Toshiba, you need that space in store to demonstrate their products,” Anderson said in an interview.
Best Buy advanced 16 percent to $25.13 at the close in New York, its highest closing price since March 28, 2012. The shares (BBY:US) have more than doubled this year as investors have turned positive about its prospects. Samsung slipped 1 percent to 1.51 million won in Seoul.
The Samsung partnership “is another step in the right direction and better positions Best Buy against Amazon and the typical price deflation seen in the category,” Christopher Horvers, an analyst at JPMorgan Chase & Co. in New York, wrote today in a note. He rates Best Buy as overweight, equivalent of a buy recommendation, and said he expects the move to boost customer service and profitability at the retailer.
Apple has more than 400 stores around the world, with 150 outside the U.S., attracting 121 million visitors in the first quarter ended in December. Sales reached an all-time high of more than $6.4 billion, the company said in January.
The Cupertino, California-based company also sells its products in dedicated sections at about 740 big-box Best Buy stores, said Jeff Haydock, a Best Buy spokesman. Apple declined to comment, said Amy Bessette, a spokeswoman.
Establishing a successful retail presence has been tricky for Samsung and other electronics manufacturers seeking to emulate Apple. Samsung closed a showroom in New York’s Columbus Circle last year that offered product demonstrations but no on-the-spot sales, saying it was no longer needed.
Sony Corp. (6758) operates 22 U.S. outlets that let consumers browse Sony products and purchase TVs and custom-configured PCs and tablets. Sony, Hewlett-Packard Co. (HPQ:US) and others in the past have paid Best Buy and other retailers to create in-store demonstration kiosks.
Samsung’s mini stores are the first to group all of its products in one place so customers don’t have to wander Best Buy looking for knowledgeable salespeople, Dunagan said.
The company, which introduced more than a dozen new features for the Galaxy phone at a New York event last month, faces the challenge of explaining them clearly to U.S. shoppers, said Richard Doherty, executive director at Envisioneering Group, a consulting company.
“You don’t want to have some part-time salesman handling that sale when you’ve got a more complicated product line,” Doherty said. “This will be an expansion from Samsungland to Samsung Country to push down Sony and LG and use their bucks and catalog to finally challenge Apple in size and number.”
Best Buy is moving smartphones, tablet computers and small appliances closer to the front while reducing space for slower-selling CDs and DVDs, part of a restructuring expected to raise operating profit by $200 million annually, according to Anderson, the retail executive.
Sales at stores open for at least 14 months fell 2.9 percent last year for a third straight annual decline. Consumers believe Amazon, Wal-Mart and Target Corp. (TGT:US) sell electronics for lower prices, Best Buy told analysts in November.
David Strasser, an analyst at Janney Montgomery Scott in New York, boosted his 12-month price target for Best Buy yesterday to $36 from $21, saying the reallocation of space may eventually boost sales per square foot to $901 from $851, and gross profit to $217 from $210.
Joly is spending more to train employees to sell phones as rising demand creates opportunities to sell accessories and warranties.
Most of Best Buy’s customers who initially shop online for phones wind up purchasing them in stores, Anderson said.
“People are still wanting to come in and kick the tires of the phones,” he said.
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