Best Buy joins forces with key suppliers

On top of the challenges presented by online retailers, Best Buy Co., Inc. (BBY) is also facing intense competition from powerful suppliers such as Apple, Inc. (AAPL), which is expanding its retail presence.

Best Buy is building strong relationships with key suppliers to mitigate the impact of heightened competition from suppliers’ retail stores. A store-within-a-store arrangement with both Samsung and Microsoft is one example of such relationship-building.

Best Buy’s key suppliers—Apple, Samsung Electronics, Hewlett-Packard Company (HPQ), Sony, and LG Electronics—accounted for 45% of the combined merchandise purchased by the company in fiscal 2014. The company’s 20 largest suppliers accounted for about 70% of its purchases.

In April 2013, Best Buy and Samsung entered into a deal to establish the Samsung Experience Shop in more than 1,400 Best Buy and Best Buy Mobile specialty stores across the US. This store-within-a-store concept helps a supplier like Samsung gain more visibility and allows it to interact directly with customers using dedicated in-store Samsung sales consultants.

The partnership is a win-win for both companies. The deal enables Samsung to compete with Apple’s dominance across the US by leveraging Best Buy’s vast presence and high store traffic. For Best Buy, the deal is part of its renew blue strategy to work closely with vendors. The approach will also help the electronics retailer enhance its presence in the high-growth categories.

Both Best Buy and Apple are part of the SPDR S&P 500 ETF (SPY), which has 12.03% holdings in the consumer discretionary sector.

Best Buy entered into a similar partnership with Microsoft (MSFT) in June 2013. Windows stores were established at 500 Best Buy locations in the US and at more than 100 Best Buy and Future Shop locations in Canada.

Although these deals have strengthened Best Buy’s position, the company still remains highly vulnerable to competition from online retailers such as Amazon.com (AMZN).