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The deals’ value to Best Buy
Analysts like to say Samsung and Microsoft stores will bring buzz to Best Buy but whether that translates to additional sales throughout the store is far from clear.
Investors measure the value of a retailer in two ways: sales per square foot and customer traffic. Best Buy generates a seemingly robust $852 per square foot compared to $303 for Target and $140 for J.C. Penney. But fewer people are visiting Best Buy stores, which means that $852 figure is likely to continue to fall unless the company can somehow reverse that trend.
“Best Buy needs to change those traffic patterns,” said Michael Dart, who oversees private equity and strategy practice at Kurt Salmon.
If executed well, a store-within-a-store concept can significantly boost the market value of a retailer if its overall sales and traffic go up, not just Samsung or Microsoft’s numbers, he said. For example, someone who purchases a Galaxy tablet might buy an accessory elsewhere in the store.
Of course, much of that depends on the strength of the brands that operate those stores within a store. With its popular Galaxy family of smartphones, Samsung has emerged as the technology maker du jour, a company that can truly challenge Apple’s dominance in mobile devices. The day Best Buy announced the Samsung partnership in early April, Best Buy’s stock soared 16 percent.
The Microsoft stores, which launched this month, are more of a head scratcher, said Green, the retail consultant. At 2,200 square feet, the largest Microsoft store in Best Buy is about seven times larger than the average Samsung shop. Unlike Samsung, which is a pure hardware business, Microsoft mostly makes software and sales of its latest Windows 8 operating system has been a major disappointment. Microsoft does operate its own stand-alone stores, including one at the Mall of America, but they are very small compared to the Apple Store, both in numbers and sales.
So, it’s hard to image the Microsoft store giving Best Buy much of a lift, Green said.
Still, the technology business is fickle; the hottest company can suddenly become the uncoolest and vice versa in a blink of an eye, analysts say.
Unlike Microsoft, whose concept can be found in 500 Best Buy stores in the United States, the Samsung store will be in all 1,000 or so Best Buy stores across the country.
Should Samsung hit rough times, it would be very hard for Best Buy to untangle itself from the Samsung shops, analysts say. But given Samsung’s soaring popularity, “this is the best riskiest move you can do,” Dart said.
Thomas Lee • 612-673-4113