Best Buy Is One Step Closer to J.C. Penney

Ron Johnson's flawed experiment to turn J.C. Penney around by opening branded mini-stores in the department-store chain is alive and well at Best Buy .

Shares of Best Buy moved higher on Thursday on news that Microsoft will open hundreds of stores inside Best Buy's cavernous superstores this summer. Best Buy stock also moved nicely higher when Samsung announced an even larger mini-store initiative two months ago.

The market eventually soured on Johnson's vision when it failed to generate sales growth at J.C. Penney. A similar fate may also await Best Buy.


On paper, the move is brilliant. Best Buy has extra room. As consumers migrate to digital music, games, and movies, there's less reason for Best Buy to continue stocking CDs, software, and DVDs. Best Buy's recent fadeout of musical instruments also creates more space. The company is an empty-nester. Why shouldn't it rent out the extra rooms after its children move out?

The "store in a store" concept should also help attract shoppers, and that's been sorely lacking at Best Buy, with physical-store sales declining for most of the past two years.

Microsoft also has plenty to gain here by opening 500 stores -- some as big as 2,200 square feet -- inside Best Buy locations, where shoppers continue to choose non-Microsoft smartphones and tablets. It will be staffing the stores with 1,200 employees, and while that breaks out to two to three Microsoft ambassadors per location, that's two to three more people at Best Buy who can talk an undecided shopper into choosing its PC, mobile, and gaming solutions.

The ultimate question is whether two brands that aren't as cool as they were a decade ago can regain some of that swagger by teaming up. At least J.C. Penney has the luxury of fleshing out its makeover by picking out brands that are on the rise. Best Buy did that with Samsung earlier this year, but it may be a different story with Microsoft if shoppers avoid Lumia smartphones and Surface RT tablets the way they are outside of Best Buy. 

In what may prove to be a cruel case of foreshadowing, Microsoft's video promoting the new Best Buy stores features a single person checking it out.

Microsoft and Best Buy had better hope that isn't the case, just as Samsung may be wondering if it just got hosed by having to set up shop alongside Mr. Softy.

To learn about two retailers with especially good prospects, take a look at The Motley Fool's special free report: "The Death of Wal-Mart: The Real Cash Kings Changing the Face of Retail." In it, you'll see how these two cash kings are able to consistently outperform and how they're planning to ride the waves of retail's changing tide. You can access it by clicking here.

 

The article Best Buy Is One Step Closer to J.C. Penney originally appeared on Fool.com.

Longtime Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool owns shares of Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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