Samsung (SSNLF, Financial) is taking Apple (AAPL, Financial) ever more seriously.
The South Korean tech giant is moving aggressively into the U.S. retail business. Samsung will open more than 1,000 mini-stores inside existing Best Buy stores around the country. Called “Samsung Experience Shops,” the firm intends these efforts to directly compete with Apple's stores.
The idea is to allow customers to get their hands on Samsung's gadgets in a store environment. The company believes that this will increase awareness of its products, and that those products are part of a unique brand with its own history of quality. Browsers will also be able to consult employees who are experts in personal technology and Samsung's products.
Rethinking retail?
By using Best Buy's stores to build its stores-within-a-store, Samsung is copying a traditional retail experience. But is the tech world so traditional? What works for clothing retailers may not work for electronics. Still, Samsung seems convinced. The amount of effort it's putting into opening 900 shops by the end of May is staggering.
For Best Buy, this is an attempt to combat the “showroom” factor that it suffers from. People come into the place to get a hands-on feel for potential electronic purchases, then end up buying them cheaper through Amazon. It's a part of the retail experience that gives Amazon a real leg up. Consumers have turned one of Amazon's weaknesses – the lack of ability to give a test-drive – into a disadvantage for Best Buy and other electronics retailers. Best Buy needs to turn that around quickly. Sharing space with Samsung is a step in the right direction.
A bit of exclusivity
Samsung's motivation– in addition to added sales – is the belief that its brand is not yet well-enough known in the United States. By opening specialty shops inside a big box electronics retailer, the company starts the process of establishing itself as a premiere brand for consumers. Building a level of “cool factor” respect would go a long way towards knocking Apple off its perch.
If making that case is successful, it could have a long-term impact on the market for U.S. personal electronics. Especially in the smartphone market. Google's Android operating system is currently running more than 70% of the smartphones being sold. Inside that number, however, is the fact that almost 50% of Android users are using Samsung hardward. Google stands to gain as much against Apple as Samsung, and will much lower risk.
Who's worrying?
Yes, Apple should be worried. With 53% of the U.S. smartphone market and almost 70% of the tablet market, Apple has a lot to defend. Samsung going big has got to worry the Cupertino company. With 390 Apple stores around the world, Samsung is going to install two or three times as many locations as Apple in the next three or four months. It's going to be a challenge.
But the smaller smartphone makers should be even more worried. BlackBerry and Microsoft will both be in trouble if the new Samsung shops gain market traction. The best advantage the two will have is that both are trying to focus on the business community and enterprisewide sales, instead of retail sales. Whether that will be enough to keep either company from being hammered remains to be seen.
The weakness of the plan
The biggest headache for Samsung in partnering with Best Buy is … well … Best Buy. Shares in Best Buy have jumped a bit on the news of the partnering, but that doesn't really offset the fact that the firm has been on an unprofitable slide for several years. Is Best Buy the firm that a successful giant like Samsung wants to be tied to? We'll have to see whether the bump in price for Best Buy is one of those media-driven things, or a real sign of a turnaround.
