Microsoft is teaming up with Best Buy to promote machines with its latest Windows 8 operating system as the software maker and electronics retailer try to combat the worst personal computer slump on record.

Microsoft is setting up its own Windows stores inside 500 Best Buy outlets in the U.S. and 100 sites in Canada, the companies said Thursday. Other Microsoft products including the Windows Phone and Xbox gaming machine will also be featured as part of the alliance.

Windows 8, an overhaul of Microsoft's flagship operating system released in October to appeal to mobile users, has failed to reignite the ailing PC market, where shipments plummeted by their largest margin on record in the latest quarter, according to research firm IDC. Best Buy, the world's largest consumer-electronics retailer, posted an $81 million first-quarter loss amid mounting online competition.

Microsoft follows Samsung Electronics in striking an agreement with Best Buy. In April, Samsung started opening mini-stores in Best Buy outlets staffed by its own employees. That's an advantage for Best Buy compared to Internet retailers that don't have physical locations for consumers to test gadgets, according to Hubert Joly, the retailer's CEO.

Samsung is spending a portion of its marketing budget to generate traffic to Best Buy stores, Mr. Joly recently told analysts. "We're the only place of scale in the U.S. where they can showcase the fruit of the billions of dollars of R&D investment they make every year," he explained.

Best Buy's own marketing team has been undergoing changes as of late. Earlier this year Drew Panayiotou, senior VP-U.S. marketing quietly left the retailer and was replaced by Scott Moore. Mr. Moore reports to Scott Durchslag, president BestBuy.com and global e-commerce. The retailer has not had a CMO since Barry Judge departed in May 2012.

--Bloomberg News with contributions from Natalie Zmuda