The strange and inglorious history of tech boutique retailers
Samsung plans to put mini stores within all of Best Buy's stores in the next three months. Can it succeed where others have failed?
Last year, nearly as many people visited Apple's retail stores as went to Disneyland parks. That's something to marvel considering Disney has been in the amusement park business since 1955, and Apple's gadget stores are barely 12 years old. Apple's stores are also light on the cotton candy, fireworks, and bathrooms.
While there are plenty more differences between the two, one major similarity is that both companies have relied on these institutions as the ideal experience for interacting with their products.
In that same vein comes Samsung's latest foray into the retail business. Today, the company announced plans to put mini "Experience Shops" in all 1,400-plus Best Buy and Best Buy Mobile stores by June. These display areas will be attended by Samsung's own staff and specially trained Best Buy employees, though limited to mobile phones, tablets, and cameras, along with some computers and a television to demonstrate connectivity.
It's not the first time Samsung's tried to directly represent itself to consumers. But it's also a markedly different strategy for the company, which has quickly risen to popularity (and profit) from its smartphones. Before this effort, Samsung relied on mobile carriers and so-called "big box" retailers to put its products in stores next to devices made by other companies.
The move is the latest in a series by technology companies to take control of the retail experience without risking it with full-fledged stores. And while Apple is now held up as the shining example of how a standalone company store can be done with great success, it didn't get there overnight.
Before its retail empire, Apple inked partnerships with electronics retailers, including Best Buy, Computer City, Circuit City, and Sears, to sell its products. But people at these stores simply weren't choosing Apple's computers over Windows-based PCs.
Apple changed strategies in late 1997 when it struck a deal with CompUSA, where it experimented with a store within a store. There, buyers would be able to experience Apple products in a controlled environment, made separate from the sea of PCs, laptops, and gadgets from other vendors. But the products were often segregated and largely ignored by store staff and shoppers who had to walk several aisles over to compare them with rival computers. Just months after that deal, Apple also pulled its computers from four rival retailers.
Fed up, Apple started its own line of retail stores, to serve as the place to see the entire Apple ecosystem, and where the company had total control of the presentation. The move was initially viewed as overly ambitious given the company's puny market share. The rise in popularity of the iPod, and later the iPad, got Apple's products back into several big box stores. The company later expanded some of those deals to include mini stores at places like Best Buy, Target and Walmart.
A look back at efforts from other tech companies shows that both ideas -- the store within a store, and first-party stores -- are not a sure bet. From computer maker Gateway's rise and fall, to phone makers that didn't quite understand how people bought their products, history has shown that acting like Apple is one thing, but duplicating its retail success is quite another.
A Gateway to profits...and doom
The case study for a rise and fall in technology, though especially tech retail, is computer-maker Gateway. The PC company rose to popularity in the 1990s with its direct-sale business and branched out in 1996 with stores that would showcase its machines to consumers. They were a quick hit, eventually growing to more than 300 stores. But along the way, the business of computers changed and eroded that empire.
The main idea behind Gateway's "Country" stores when they first opened now seems bizarre. Instead of being a place to walk out the door with a machine, the stores were set up to introduce people to the computers and let them order one for home delivery right from the shop. The company would capitalize on this and sell extra products and services on the side, a part of Gateway's business that -- at one point -- made up all of its earnings.
Problems arose, though. Rival Dell was doing the same built-to-order business, but people could do it from home and over the phone. Dell also managed to fare much better with business buyers, whereas Gateway's bread and butter had been government and education.
Other outside forces included a dramatic slowing of the PC market in the U.S., a brief economic recession in the U.S. that kicked off in early 2001, and a two-year technology recession that began the same year. On top of all that, Gateway's stores stymied the company's efforts to get other retailers to sell its computers. Instead of trimming, Gateway responded by expanding its product line to more than 15 categories, including a TV business.
The end came in 2004. Gateway bought low-end PC maker eMachines in an effort to appeal to the growing market of people who wanted inexpensive computers. The acquisition also brought with it retail channel deals that would get Gateway in the door at places like Best Buy, Costco, Circuit City, and Walmart. With those opportunities in place, Gateway announced plans to shutter its remaining 188 retail stores and lay off nearly 40 percent of its workforce just a month after the deal.
Three years later, Gateway would go on to be acquired by Taiwanese PC maker Acer for $710 million, a fraction of the $7 billion it was once offered to become a part of Compaq Computer in 1997. The story might have been different had Gateway started off its stores by selling the computers right out of the box, not expanded so quickly, and if it had seen more success in various spinoffs.
Not everyone is Apple
Believe it or not, Gateway had more success going it alone in the retail business than most of its tech peers. Dell and handset makers BlackBerry (formerly Research In Motion), Nokia, and Sony are on that list.
Beginning in 2002, Dell had a series of kiosks in U.S. malls, designed to sell items like TVs and printers, which didn't need to be customized. Dell also stocked a handful of computers, a peculiarity for a company that made its name by selling built-to-order products. Dell called it quits in 2008, saying that its products were already available in more than 10,000 retail locations, including Best Buy and Walmart.
BlackBerry opened its first retail store in North America in 2007, six months after Apple's first iPhone hit the market. Located north of Detroit, the lone store signaled BlackBerry's desire to push beyond carrier stores, where its products had typically been sold and showcased to consumers. A report in April 2012 from the Wall Street Journal referred to the store as "lonely" and a "reminder of failed corporate strategy." The Canadian company has had more success in emerging markets like Indonesia with a series of kiosks.
Nokia long offered direct sales through its Web site but became more aggressive by opening standalone stores in the mid-2000s. It had retail locations in the U.S., U.K., France, Spain, and various other countries. Near the end of 2009, the company announced plans to close its stores as part of a new retail strategy that passed along the duty of selling and stocking its products to operators and other retailers. The plan was to pull in revenue from services and applications on its online Ovi store instead. By mid-2011, Nokia had shuttered the vast majority of its stores.
"There was a phase about five years ago where there was a big push for Nokia, Sony Ericsson, and others to go after retail," says Gartner analyst Carolina Milanesi. "That lasted a couple years and then everybody realized there wasn't that much money to be made in the same way Apple was making money."
"The reality is consumers don't buy phones that way," Milanesi added. "They go to the retail outlets of carriers or distributors to find out what phones to buy and also the packages to get with the phone."
It wasn't all bad, especially for companies that didn't just make phones, but it wasn't great either. Case in point: Sony. The company's stores were a place where shoppers could come in and try products before buying them. Layouts were simple and even lavish -- but behind the scenes the company was plagued with financial losses.
Cost cutting measures last year included shuttering 11 of the retail stores, leaving 22 that are still open in the U.S., with most of those in California. In 2009, Sony also killed off its two flagship locations in San Francisco that had been a part of an $85 million Metreon complex. The company continues to sell its goods directly and through retail partners alongside those remaining stores.
The latest such entrant to try its hand is Microsoft. In 2009, the company opened the first of what would become a chain of stores in the U.S., Canada, and Puerto Rico. That's been supplemented with a series of kiosks, most recently used to make the pitch for its Surface tablet.
It's difficult to say if the stores are a success for Microsoft, though its strategy seems clear. The company, which made a fortune and built an empire on its software business, has turned more attention into its own hardware efforts, which so far remain its computer peripherals, Xbox and Surface. Having its own retail stores give it control of the sales experience, and shows consumers how all its products can work together.
Can Samsung make it work?
The Best Buy stores are not Samsung's only show floor. The company has done a series of pop-up shops, including a "roadshow" for the Galaxy Note 2 last year. This past July, the company opened a full-fledged retail store in Burnaby, British Columbia, and a month later did the same in Sydney, Australia. Its most recent addition is another such Experience store in Melbourne, Australia that opened up two weeks ago. All sell the company's products and offer services to get customers up and running with devices they just bought.
Up until 2011, Samsung also had a 10,000 square-foot showcase in midtown New York that was filled with its products, yet did not actually sell them. After a seven-year run, the company closed the flashy showroom, saying it didn't need the location since its products were selling just fine through other channels. However, the pricey rental costs in Manhattan's Time Warner Center and the fact it wasn't actually making money in the store likely played a role in the closure plans.
Venturing into the retail world by piggybacking on one of the world's largest tech retailers is decidedly low-risk for Samsung. But it's still ambitious. The company will have its Experience stores inside nearly twice as many Best Buy stores than Apple currently does. It's also investing resources in putting its own staff in those stores to help make the pitch.
One thing Apple's success has proven is that the product is everything. The company's Mac business has done remarkably well in recent years while many PC makers have faltered, yet you'll never see a line around the block for a new computer. The same cannot be said for devices like the latest iPhone and iPad.
"Your products have to be quite desirable for this to work," Current Analysis analyst Avi Greengart said. "The reason Apple sells a lot of products out of its stores is because people buy a lot of Apple products."
Where Samsung might be able to succeed where others have come up short, is in what it's selling. It's teaming up with Best Buy on the heels of its next major flagship smartphone, the Galaxy S4, which goes on sale in the coming weeks. Assuming Samsung can keep flagship products like that coming, and make that case next to its rivals in the best possible environment, there will be a reason to venture to these mini stores.
If not, there's always room for cotton candy and fireworks.
CNET's Shara Tibken contributed to this report.