Samsung will open mini-shops inside 1,400 Best Buy stores

Best Buy has too much of something — floor space — that Samsung wants. So the Richfield-based retailer and the Korean electronics giant struck a deal.

The two companies announced Thursday that Samsung will open mini-shops inside 1,400 Best Buy stores. Under the deal, Samsung gets retail space in North America to help it compete with Apple in the race for dominance of the U.S. smartphone market, and Best Buy dedicates more of its space to profitable products like Samsung smartphones, TVs and tablets.

Analysts said it is a logical step that signals confidence in the embattled retailer's future on the part of one of the world's most important electronics companies.

Colin McGranahan, a retail analyst with Sanford Bernstein, said Best Buy stores have too much square footage dedicated to dying, less-profitable products like CDs and DVDs.

"You have a problem — you've got too much dead space," McGranahan said. "So what do you do? You call up one of your most important vendors who doesn't have their own stores in North America and is competing against a company, Apple, that does have their own stores, and you say, 'Hey, maybe we can work together on this.' "

Investors were pleased by the announcement. Shares in Best Buy rose 16 percent to close at $25.13 on Thursday.

Samsung mini-stores will be in place at 500 Best Buy big boxes and 400 mobile locations by the end of April. By the end of May, another 500 big boxes will have a Samsung mini-store. Six are already in place, including two in the Dallas area, two in the Chicago area, one in Rochester and another in Maple Grove.

Each Samsung Experience Shop in a big box store will be staffed by Samsung consultants, Best Buy said.

Best Buy believes the mini-shops will help drive traffic to stores, especially when Samsung rolls out a new product like the Galaxy S4 phone, which is expected in coming months.

"These smartphones are such a big industry right now, so when Samsung does something, it just creates a lot of interest," said Jeff Haydock, a Best Buy spokesman.

McGranahan is skeptical, because Samsung TVs, tablets and smartphones are already available at Best Buy, and he's not sure putting them all together in one spot in the store will change consumer behavior.

"It makes sense for everybody; it's just not financially that material at all," McGranahan said. "And I don't think it does much to address the traffic issue at all."

Details of the deal have not been disclosed. Analysts speculate Samsung will not pay rent, but will pay to install fixtures for the mini-shops. The company will also provide staff at all 1,000 big box locations.

For Samsung, the world's largest seller of smartphones, the deal is one way to narrow Apple's lead in the U.S. market, where roughly 130 million people have smartphones.

According to ComScore, Apple held 38.9 percent of the U.S. smartphone market in February, compared with 21.9 percent for Samsung. The third-highest was HTC, at 9.3 percent and shrinking over the past three months.

Piper Jaffray analysts Peter Keith and Jonathan Berg called the initiative "a big win for Samsung as it can accelerate its market share gains by showcasing how all of its products (TVs, tablets, smartphones, etc.) can be connected and thereby create greater brand loyalty (similar to Apple)."

The deal also shows that Best Buy's vendors are confident in Best Buy's future. Apple already has dedicated space in 740 Best Buy stores, McGranahan said, and he expects other companies to try to secure space at retailers like Best Buy. But Samsung is the "big kahuna," with popular phones, TVs and tablets.

"We have to believe this is a wake up call for Google, Sony and Microsoft, all strong partners of Best Buy," wrote David Strasser, a retail analyst for Janney Capital Markets. "These vendors will also need to take up more space and invest more heavily in Best Buy as a distribution partner."

Adam Belz • 612-673-4405 Twitter: @adambelz