You're No Apple, Best Buy
Best Buy (NYS: BBY) has seen the future, and it's apparently Apple-shaped.
The struggling consumer electronics retailer is testing out a new store model, according to The Wall Street Journal.
There are fewer products on display, eliminating the cluttered feel of the Best Buy stores we know now. Customers don't need to snake through the checkout lines at the front of the store, since there are now several places around the store to complete a transaction. There's also what Best Buy is calling a Solution Central help desk, staffed by its Geek Squad in a more inviting setting, providing tech support and knowledgeable advice.
The Journal comes to the obvious conclusion that Best Buy is simply trying to clone Apple's (NAS: AAPL) signature stores.
It may seem to be a smart idea on paper. Apple's sales per square foot are the envy of every mall tenant. However, if Best Buy thinks that it can just repurpose itself in Apple's mold it may want to see how this all played out for J.C. Penney (NYS: JCP) .
A Penney for your thoughts
Investors cheered late last year when the department store chain hired away the guy responsible for rolling out the Apple Store concept. CEO Ron Johnson's first quarter since initiating his makeover at J.C. Penney was disastrous.
One can argue that it's easier for a consumer electronics superstore to ape Apple than a fledgling department store chain, but if the guy responsible for the real deal couldn't port the magic, why should the zillionth Apple wannabe make it work at Best Buy?
See, it's not just a matter of opening up a store that looks like an Apple Store. The long-gone Gateway and Dell (NAS: DELL) storefronts had stylish layouts and savvy sales personnel. Consumers just didn't have much of a reason to visit one.
If Best Buy wants to copy Apple, it will first need decades of establishing itself as a premium brand with differentiated products. Then it has to build out a unique ecosystem that just happens to lead the industry. As you can probably imagine, Best Buy doesn't have the time or the opportunity to be the next Apple.
From Geek Squad to Chic Geek Squad
The reason why Best Buy sales have stalled over the past two years is because smartphone-armed shoppers can get what they want for less elsewhere.
Best Buy lacks the differentiated products, even if one can rightfully argue that Apple's differentiated products are now sold all over these days.
The real challenge for Best Buy is to lower prices aggressively without losing its blue shirt. How is it going to lower its cost structure if it will need to pay more to retain a helpful front line? Apple -- a company that has no problem staffing its stores -- is in the process of pushing through a whopping 25% increase in its basic wages.
Best Buy won't beat the inevitable showrooming trend by sprucing up its show or its room. All that this will do is make Best Buy's wares more expensive. The reason why Apple's storefronts are so successful is that it's selling what it makes. Best Buy is simply reselling the goods that countless website operators with barebones warehouses can sell at lower prices.
Microsoft (NAS: MSFT) has had some surprising success with its nearly two dozen Microsoft Store locations, but that's because it has the proprietary goods to artfully copy the Apple model.
Out in the wild
In the end, even if Best Buy's test store proves initially successful, it will be a harder sell as it rolls out nationally. It may stand out now as one of a kind within the Best Buy family, but the market demand isn't there for hundreds of these stores.
Best Buy's model of pushing high-margin services and extended warranties will simply continue to fall on deaf ears, especially as consumer electronics get cheaper and easier to use and replace.
Yes, the Best Buy model is broken, but we can't say that any change is welcome change. If the end result is a drain on the company's still hearty financial resources this stunt will simply break Best Buy for good sooner rather than later.
Best Buy is not a good buy
I entered a bearish CAPScall on Best Buy in Motley Fool CAPS seven months ago. The call is beating the market so far -- because Best Buy is not. If you want to play nice with the trends that will pay off in the future, forget Best Buy and begin reading up on the stocks that smart investors are buying. It's a free report, but it will only be available for a limited time so check it out now.
At the time this article was published The Motley Fool owns shares of Best Buy and Microsoft. The Fool owns shares of Apple. Motley Fool newsletter services have recommended buying shares of Apple and Microsoft. Motley Fool newsletter services have recommended creating a bull call spread position in Microsoft. Motley Fool newsletter services have recommended creating a bull call spread position in Apple. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.Longtime Fool contributor Rick Munarriz calls them as he sees them. He does not own shares in any of the stocks in this story. Rick is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.
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