Best Buy plays defense with Apple, iPhone

Update: Best Buy will begin selling Apple's iPhones in its store and the relationship between the two parties has become quite symbiotic.

According to various reports, Best Buy (all resources, BNET profile) will start selling Apple's iPhone in its stores beginning Sept. 7. For Apple, Best Buy is a great distribution channel--Apple Stores are typically located in metropolitan areas and consumers may not stumble on an AT&T store. Meanwhile, Apple is just solidifying an existing Mac distribution partnership with Best Buy by adding the iPhone. Update: The official statement is out from Best Buy. The company confirms that iPhone will be sold at Best Buy Mobile, which has been rolled out to its 970 stores. Best Buy sells Macs at 600 stores.

But the real story here is from the Best Buy side of the equation. Best Buy is under assault on multiple fronts. Consumer spending is slowing and discounters--Walmart, Target and Costco are increasingly selling electronics. Best Buy's previous defense against the discounters was to offer in-home services (Geek Squad, home theater installations), but Citi analyst Kate McShane expects Walmart and Target to offer similar services soon.

In a research note Monday, McShane wrote:

We are concerned that discounters such as Walmart and Target will now be offering services to its customers, once a competitive advantage of Best Buy. We think in a difficult macro environment consumers will be enticed by this and Best Buy could lose some share. A mere 10 bps change in share in either direction impacts Best Buy EPS by ~$0.07.

If other retailers start offering services Best Buy, which has a model fueled by add-on items like installation and repair, could take a hit.

Also see: Geek Squad: Best Buy’s secret sauce?

Best Buy plans to double Mac presence at its stores

 

Enter Apple. Apple CEO Steve Jobs isn't going to shack up with just any retailer because it could dilute the brand. That fact gives Best Buy some exclusivity. By selling the iPhone Best Buy will attract more foot traffic as curious consumers eye the iPhone. I'm sure folks will buy a few from Best Buy, but they may also wander around the store to buy something else.

Increasingly, Best Buy needs to keep moving as discounters take aim at the company. Apple may turn out to be Best Buy's best defense. McShane adds:

Best Buy has been successful at taking significant share in the home theater and computer categories recently most likely because of BBY’s acquisition of Magnolia in home theater and its relationship with Apple in computing, which allows differentiation through service and a deeper product offering.

Indeed, Best Buy has already received an Apple bump as it boosts its PC sales market share. Here's a chart via Citi:

Best Buy is obviously hoping to get an iPhone bump and grab more share.