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Best Buy’s Joly: More Vendor Shops To Come

Minneapolis — Best Buy will likely add more branded vendor shops to its sales floors following positive results from the first wave of installations, president/CEO Hubert Joly said. 6/12/2014 10:45:00 AM Eastern

Minneapolis — Best Buy will likely add more branded vendor shops to its sales floors following positive results from the first wave of installations, president/CEO Hubert Joly said.

Speaking before investors at the chain’s annual shareholders meeting here Tuesday, Joly described the in-store shops as “a win, win, win arrangement that is benefiting our customers, our vendors and our shareholders.”

Under Joly’s Renew Blue turnaround plan, Best Buy introduced branded Samsung mobile and Microsoft IT sections to its stores last year, and is presently rolling out Samsung and Sony home-theater display areas in select locations. It also maintains a dedicated Apple section, as well as Google product displays.

Most of the areas are attended by manufacturer-provided staffers.

Joly said Best Buy and its vendors are encouraged by the results of the partnerships, and that it’s “highly probable” that more such shops will follow.

 “The customer reaction has been very positive. It allows the customers to experience, touch, feel, understand how these technologies work,” he said. “It has been very positive for the vendors, and has been very positive for us, as the economics are much improved.”

He said vendor interest in the shop concept speaks to Best Buy’s strong assets, including its customer base, store traffic and supplier relationships. The criterion for the partnerships, he said, is that “it needs to be good for the customers first and foremost; it needs to be good for the vendor; and it needs to be good for us.”

Joly acknowledged that the shops represent “a very significant investment” on the part of manufacturers, and that not all parts of the stores lend themselves to the concept. Those hurdles, he said, will prevent Best Buy from becoming “just a collection of vendor experiences.”

Analysts have lauded the in-store shops as a cost-effective means of making Best Buy’s considerable real estate more productive. “One of the concerns about brick-and-mortar retailing is that store rent, an essentially fixed cost in the near term, is similar to a ball and chain around a retailer’s neck, a cost that becomes heavier as traffic and productivity decline,” observed Credit Suisse retail analyst Gary Balter in a research note. “Yet one retailer, Best Buy, has figured out how to turn this into an advantage by renting out the space to its primary suppliers, not only reducing rent and employee costs, but creating a better shopping experience for customers.”

While a common practice in Asia, and in some U.S. retailers such as Barnes & Noble's Starbucks shops, “Best Buy is unique in integrating these stores-within-a-store within the flow of the store,” he wrote.

Balter added, “We wonder why we have not seen more hardline retailers, specifically office supply, follow this thought leader.”

Separately, Joly indicated that Best Buy has been lobbying aggressively for the Marketplace Fairness Act, which would provide a mechanism for states to collect sales tax on online purchases, and has taken the cause to Washington himself.

“Over the past several months, when I was not busy in stores, I have spent a great deal of time meeting with members of Congress from both parties to advance this matter,” he told shareholders.

The measure is gaining momentum among lawmakers, he noted, as it can spur job creation and level the retail playing field. “They understand that the government shouldn’t have been in the business of picking winners and losers, as it is doing under the current tax policy,” he said.