Circuit City courts AOL; Best Buy, MSN - electronic stores form partnerships with internet service providers - Brief Article - Statistical Data Included

Discount Store News, Jan 3, 2000 by Laura Heller

NATIONWIDE DSN REPORT -- Best Buy and Circuit City, the nation's top two consumer electronics retailers, staked out their spots in the ISP battleground two weeks ago when they announced strategic partnerships with Internet Service Providers-Best Buy with Microsoft; and Circuit City with America Online. The partnerships promise to increase membership in the on-line programs, as well as provide the retailers with lucrative residual revenue, a forum to showcase new technology and away to speed up adoption rates for broadband products.

Typically early to market, Circuit City unveiled its program first, announcing on Dec. 14, a partnership with America Online to promote AOL products and services in stores. The chain will make AOL its preferred service provider, promoting it in print and advertising campaigns, as well as other promotional programs.

In return, Circuit City will be featured as an anchor tenant on AOL's Shop@ online destinations. "Clearly, we expect this will increase traffic to our own Web site," said Morgan Stewart, manager, communications and media relations. Circuitcity.com began conducting on-line sales in July 1999.

Special merchandising areas will be created within their stores with AOL fixturing to showcase a combination if related products.

Not to be outdone, Best Buy announced its deal two days later, although Richard Schulze, chairman and ceo, alluded to the deal during a conference call earlier in the week.

Terms of the deal call for Best Buy to feature MSN Internet access and a full range of Microsoft's connectivity solutions including narrow and broad band products as they are released. A joint marketing agreement has Best Buy promoting all products and services in its advertising efforts and the soon to be launched Bestbuy.com retail site. The retailer will receive prominent placement on all Microsoft properties including MSNBC, Expedia.com, Hotmail, WebTV and the MSN eShop on-line shopping service.

And the trump card for Best Buy? Microsoft will invest $200 million in Best Buy common stock. "It's a good statement that they believe in the company, rather than just giving them money and throwing a banner across their site," said Rebecca Yarchover, an analyst with US Bancorp Piper Jaffray.

Microsoft struck a similar deal with RadioShack in November where it made a $100 million investment in Radioshack.com in addition to the creation of a Microsoft store-within-a-store.

Indeed, the deals are expected to help retailers better exhibit and explain complicated emerging technology to consumers, said Yarchover. "These are all good things."

It may even speed up adoption rates. "We signed up 500,000 people on Prodigy with a less compelling offer than (this)," said Wade Fenn, executive vp, marketing, Best Buy. "(There) is evidence that we can help move the market."

Circuit City will create a dedicated merchandising section grouped into stores with AOL signage, although Best Buy was not so specific. Initially, Microsoft products will be merchandised throughout the store, although they will get additional signage or more prominent positioning. Anything more definite, "will probably depend on consumer response," said Schoonover.

"Neither deal is an exclusive; both retailers and ISPs can forge other partnerships," said Best Buy president Brad Anderson. "MSN will get premium treatment in our stores."

Circuit City currently offers in-store rebates for customers who sign up for service with Compuserve, an AOL-owned business.

Best Buy originally offered its rebate deal with Prodigy, but in November MSN took over that position. But Best Buy has still to unveil its much anticipated e-commerce site. It is expected to do so on Jan. 6, and analysts anticipate the site will go beyond simply putting inventory on line by offering digital downloads and interactive services.

The upshot

The industry's leading CE nationals expand the battle of the brands, pitting AOL's tremendous customer base against MSN's ability to provide both on-line service and in-store product.