Best Buy's partnership with Samsung stands out as a crucial development because it draws the Richfield, Minn-based company closer to what's likely its best shot at regaining relevance to consumers, who've clearly shifted to online spending and specialized retail channels such as Apple stores. While Samsung is nipping at the heels of Apple in the tablet and smartphone market using the Google (GOOG - Get Report)-Android ecosystem, it also is presenting a credible threat to PC-giants such as Dell (DELL) and Hewlett-Packard (HPQ) with its fresh line of cheaply priced Chromebooks. In spite of Samsung's size and position, however, the company has virtually no independent retail presence in the U.S., unlike Apple and increasingly Microsoft (MSFT - Get Report). Hence the partnership with Best Buy, which will open 500 Samsung store-within-a-store set-ups starting in May and ending this summer. According to Deutsche Bank analyst Mike Baker, the partnership will improve ties between Best Buy and Samsung, while improving the retailer's store space for the hot-selling smartphone, tablet, Chromebook and flat screen products Samsung offers.
The store-in-store concept differs from the one currently in place with Apple, which siphons off the company's iPhone, iPad and iMac products to their own part of Best Buy retail outlets. Samsung is putting its own workers and marketing spending to its store concept at Best Buy, whereas consumers still have to go to an Apple store for a full experience. The distinction is crucial as just about every hardware manufacturer tries to figure out a way to beat a commodity trap that has only Apple consistently fetching premium prices and consumer loyalty. As it rolls out Windows 8 software and a corresponding ecosystem of smartphone, tablet and PC products, Microsoft is building out branded stores in the mold of Apple. Meanwhile, BlackBerry (BBRY), which recently launched its BB10 operating system and Z-10 smartphone, fought hard for relevance in the storefronts of the leading U.S. wireless carriers such as Verizon (VZ) and AT&T (T). HP and Dell appear noticeably behind in generating excitement for new tablet or PC products. Best Buy's turnaround will be reliant on competitiveness of ecosystems such as Android, BB10 and Windows 8, given the concentration of the company's top vendors. Apple, Samsung, HP, Sony (SNE) and LG are Best Buy's top five vendors, according to Baker of Deutsche Bank, who calculates they account for about 45% of the company's sales. "A key to Best Buy's plan to fight back against market share losses is leveraging its vendor relationships," Baker wrote in a Thursday note to clients. As part of a March 11 upgrade to "overweight," Piper Jaffray analyst Peter J. Keith said closer supplier relationships could drive the company's sales and gross margins, which have both been pressured in recent years. "While many investors we speak to remain skeptical that BBY can stabilize sales and improve gross margin, ongoing announcements similar to the two today lend support to improvement in these two important metrics," wrote Keith in an April 4 client note. The analyst gives Best Buy shares a $26 price target. Best Buy shares gained about 16% in Thursday trading on its Samsung announcement. Shares are up over 100% for the year to date, to $25.45 in Friday trading, amid renewed optimism the company can turn around its operations.