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Best Buy Test-Marketing Cell-Phone-Only Stores in Manhattan

Consumer electronics retailer Best Buy Co. Inc. (BBY) said on Thursday it is partnering with U.K. retailer Carphone Warehouse to test mobile phone-only stores at nine locations in Manhattan.

The stores, called Best Buy Mobile, carry more than 80 cell phones from manufacturers like Motorola Inc. (MOT), Sony Ericsson and Samsung.

Shoppers also have the option to choose from seven mobile phone service carriers, including Cingular, Verizon Wireless, Sprint, Amp'd Mobile and pay-as-you-go plans from Virgin Mobile, Boost Mobile, Verizon InPulse and Cingular GoPhone.

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"What we've seen over time is no one out there offering customers both choice and service in one location," said David Sprosty, chief executive officer of Best Buy Mobile, in an interview. "Our hypothesis is that by offering the level of care that they get from a carrier store with a better choice of phones, ultimately we can create something that will hopefully meet the needs of the customer that are underserved today."

The test comes as stores like RadioShack, Circuit City Stores Inc. (CC) and Best Buy that sell mobile phone products are facing more competition from wireless providers, which have opened up their own stores.

It also comes as RadioShack Corp. (RSH) struggles with its wireless business.

Last year, RadioShack said it would start selling Cingular Wireless phones and cut ties with long-time ally Verizon Wireless to try to revive its wireless sales. It has also signed a new 11-year deal with Sprint Nextel Corp. (S)

But the transition, which took place at the beginning of 2006, has been rocky. RadioShack has struggled to train its employees to sell Cingular phones and to raise awareness that it offers Cingular products.

"We believe [Best Buy's] test targets RadioShack and, to a lesser degree, Circuit City's wireless department," wrote Lehman Brothers analyst Alan Rifkin in a note November 29.

"While we don't know at this point whether Best Buy Mobile will ultimately be rolled out, it demonstrates the company's commitment to serving customers through a variety of channels.

Best Buy said it decided to test the mobile phone-only concept with Carphone Warehouse, or CPW, since CPW is the largest independent mobile phone retailer in the U.K. and it specializes in the small-box store format.

The Best Buy Mobile stores operate either as small stand-alone stores or as "stores-within-a-store," meaning they are set up within an existing Best Buy store.

Best Buy is hoping that by training its Best Buy Mobile employees extensively on the variety of cell phones and services it offers, it will get a leg up with today's shoppers who may be confused by all the choices out there.

Sprosty said the employees will not work on commission and will not be pushing one wireless brand over another.

The Best Buy Mobile stores started opening earlier this month and anecdotally, Sprosty said customers are responding well to the concept.

He said Best Buy will keep the test stores open for a few months before deciding whether to expand the pilot or scale it back, or see if the stores cannibalize business from its existing Best Buy stores.

"This whole thing really is about changing the experience for the customer and solving an unmet need, and if we can do that I think we will be a very successful and if we can't we won't. It's pretty simple," Sprosty said.

Verizon Wireless is a joint venture of Verizon Communications Inc. (VZ) and Vodafone PLC. (VOD) Cingular Wireless is a joint venture of AT&T Inc. (T) and BellSouth (BLS).

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