Does Microsoft need stores?

Discussion
Free class conducted in a Microsoft store - Source: Microsoft, July, 2019
Jun 29, 2020
Tom Ryan

Microsoft on Friday announced plans to close all its 83 stores globally and fully focus on online sales and support.

Sources told The Verge that the move was planned for 2021 but accelerated due to COVID-19.

In a LinkedIn article, Microsoft corporate vice president David Porter wrote that Microsoft’s product portfolio has evolved to digital products, including Microsoft 365, gaming and entertainment. Microsoft already reaches 1.2 billion people monthly with its online stores at Microsoft.com, Xbox and Windows.

Microsoft has also “proven” its ability to handle support remotely. Its team has virtually trained and supported thousands of customers during the pandemic. Since stores closed in late March, Microsoft has hosted more than 14,000 online workshops and summer camps and more than 3,000 virtual graduations. No layoffs are planned.

Microsoft’s new retail approach includes:

  • Remote in-person support: From Microsoft corporate offices and remotely, staff will continue to serve consumers, small business, education and enterprise customers across sales, training and support. Mr. Porter wrote, “We deliberately built teams with unique backgrounds and skills that could serve customers from anywhere.”
  • Online support: Current tools include virtual customer support, online tutorial videos and virtual workshops with tips. New services planned include 1:1 video sales support.
  • Showcase stores: The company will convert four stores — London, New York City, Sydney and the Redmond campus location — into Microsoft Experience Centers with no sales available. “We will continue to co-locate engineering, sales, support, envisioning centers, executive briefing centers, and retail spaces for maximum impact for our customers and our company,” Mr. Porter said.

Microsoft Stores, which launched in 2009, showcased Surface and Xbox hardware plus a selection of third-party PCs. Many observers felt the store mimicked Apple’s approach.

The closures will lead to a charge of $450 million, or five cents a share, in the current quarter.

“This is a tough, but smart strategic decision for Nadella & Co. to make at this point,” wrote analysts at Wedbush in a note. “The physical stores generated negligible retail revenue for MSFT and ultimately everything was moving more and more towards the digital channels over the last few years.”

DISCUSSION QUESTIONS: Will most of the hardware sales previously done through Microsoft’s stores now likely go to its online platforms or to other retailers? Do you see more pros or cons for Microsoft in making this move?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"Microsoft is an innovative and successful company and they will continue to be profitable by focusing on their core strengths."
"Even in this new world flagship physical spaces still make sense, and Microsoft is keeping five or six flagship locations."
"We will see a lot of chains taking the “opportunity” to close stores and wipe the books during the pandemic."

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39 Comments on "Does Microsoft need stores?"


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Jeff Weidauer
BrainTrust

Microsoft’s foray into physical stores was an ill-advised mimicry of Apple. In an attempt to be seen as one of the “cool kids” Microsoft unwittingly doubled-down on its establishment persona. Redmond needs to focus on what it does well and stop trying to be something it’s not. Few people will notice or care about the store closures, and the minimal sales from those stores will easily transition to other retailers (Best Buy) or online.

Scott Norris
Guest

Even in the “before times,” Jeff’s comment that “few people will notice or care” was 100 percent on point. The Mall of America store was practically vacant even in the pre-Christmas rush — while the Apple store was packed as usual. When Apple moved its location to a larger space on the west side, Microsoft’s spillover traffic evaporated.

Mark Ryski
BrainTrust

The Microsoft stores were nothing more than a “me too” strategy, following Apple’s tremendous success. The Microsoft stores never captured the imagination of shoppers, and the store experience lacked … an experience. Microsoft’s business is substantially online, and closing their retail stores will not have any negative impact on their business. Making this move now makes good sense.

Bob Amster
BrainTrust

There is a Microsoft bigot (or two) among us….

Richard Hernandez
BrainTrust

Most Microsoft stores in malls that I have seen were right across from Apple retail stores. I never saw the Microsoft store with traffic like Apple’s stores and the customers that were in there were playing Xbox games. Very little revenue generation in that. They made a wise choice to close all but three stores. I suspect Microsoft is working on a virtual online option to fill the gaps of a brick-and-mortar store.

Bob Phibbs
BrainTrust

Quite simply #YoureNotApple. This always seemed like a necessity rather than strategic. Their stores always looked empty to me.

David Naumann
BrainTrust
David Naumann
CEO and President, Cogent Creative Consulting
9 months 23 days ago

Microsoft’s decision to close its stores was probably not just based on the impact of the pandemic. It wouldn’t surprise me if the stores were not as profitable as Microsoft expected and that is probably the real reason for the closures. Microsoft has proven that they can effectively sell and support hardware products online/remotely. Apple may decided to close some of its less profitable locations too. The biggest downside of closing stores for Microsoft and Apple is the loss of brand and top-of-mind awareness, but that is not a problem for industry leaders.

Neil Saunders
BrainTrust

Let’s be blunt about this: Microsoft really opened stores because Apple had stores, and Microsoft’s stores were always a very pale imitation of Apple. As such, they didn’t deliver in terms of productivity or sales – especially so given their expensive locations. A review and shut down was always on the cards, but the pandemic hastened that process. In the short term, Microsoft will do fine without stores, a lot of its sales will migrate online and it can use partners like Best Buy to push products where a physical experience is required. That said, it’s a shame they couldn’t make their outlets work – especially now that others in the digital products and services space (Amazon, Ring, etc.) are operating more physical shops. Longer term, this may weaken Microsoft’s visibility with the consumer.

Suresh Chaganti
BrainTrust

I think retail strategy has outlived its purpose for Microsoft. They will retain the flagship stores as experience centers, which will provide heft to the brand. But as a sales channel stores probably didn’t make sense.

They can always do pop-up stores and special tie-ins for major product launches like a new Xbox.

Nikki Baird
BrainTrust

At Park Meadows mall in Lone Tree, CO, a tale of two cities unfolded daily. At Apple, a store packed to the gills, classes, talks, training, people shopping and even more importantly, people buying. One level up, the Microsoft store, same size, maybe even a little bit bigger, and — empty. My question is, *what* hardware sales that happened in stores?

I will say, though, I’m glad to hear they’re keeping the Experience Centers. I don’t know that I would turn off all sales out of there, I think they could still capture a lot of tourist traffic (when tourism is a thing again). But regarding the rest of the stores, I think it’s safe to say they were never successful.

Bob Amster
BrainTrust

Hardware sales of products to run Microsoft’s OS don’t have to be from Microsoft. There are many competing brands of computers. By comparison, you cannot run native MacOS except on a Macintosh computer. Microsoft has always targeted the business environment. Apple, by contrast, is growing its future business target by making itself the brand of those that aren’t even thinking about going into the workforce yet. Microsoft would have done well to develop an exciting retail concept. It just didn’t know how. Different cultures.

Jeff Sward
BrainTrust

It’s an acknowledgement that they aren’t the kind of hardware brand that Apple and Samsung are. So while I completely understand the closing of the mall stores, I applaud the maintaining of the Experience Centers. And I’ll even bet that more Experience Centers will open over time as Microsoft learns how to best manage that kind of “store.” The symbiosis between e-commerce/service and physical stores is now well established. It will simply be a different kind of model for Microsoft.

Zel Bianco
BrainTrust

My only concern would be that shoppers would not have the ability to have the hands-on experience they had with Microsoft stores. Also if Apple decides to open their stores eventually, it may become a competitive disadvantage to not support physical stores.

Ryan Grogman
BrainTrust

Anyone who has walked through a mall and noted foot traffic in Apple stores and then a Microsoft store knows the stores were not a success for Microsoft. I applaud them for at least recognizing when to cut their losses and back out of brick-and-mortar. Microsoft is an innovative and successful company and they will continue to be profitable by focusing on their core strengths.

Georganne Bender
BrainTrust

Does Microsoft need stores? Probably not. Do customers need Microsoft stores? I’d say yes.

All of our office and personal computers were purchased at a local Microsoft store. When the less than a year old laptop we use for presentations dropped dead the day before we were set to leave town I headed straight to that store. The team couldn’t fix the issue but they were able to save my data and reload it on a new computer they gave me for free. I would like to see remote in-person support do that.

It’s about service. Apple gets it. Not every person in their stores is there to buy new technology, sometimes people just need help.

Steve Dennis
BrainTrust
At one level, this is not surprising. Microsoft has been very much an also-ran in expressing its brand in a remarkable way in the physical world. At another, this seems incredibly short-sighted. For many retailers stores serve as an important component piece of the ecosystem of their brand. Accordingly, it’s less about the four-wall contribution of a brick-and-mortar location and more about the importance of the role of digital and physical in winning, growing and keeping customers however they ultimately transact. The first mistake was largely copying Apple and not doing anything truly remarkable. They should have addressed these shortcoming well before COVID-19 pummeled their metrics. The second mistake was rolling out so many stores before they really knew how they worked more broadly and hoping that a slightly better version of mediocre would be a winning strategy. To paraphrase Warren Buffet, “now that the tide is out we can see who’s been swimming naked.” I suspect a year from now they will be revisiting this move to some degree. The good news is they… Read more »
Brandon Rael
BrainTrust

While Microsoft’s online commerce platforms may generate $1.2 billion, in a pre-COVID-19 and in all probability a post-COVID-19 world, the physical retail stores are as relevant as ever. Microsoft was following Apple’s retail model, and its stores had a very familiar experiential hands-on operating model. Many have said that they were copying Apple’s strategies, however one would be hard-pressed to find a retailer that hasn’t replicated some of the curated and retail simplification elements that have worked so well for the Cupertino giant.

Life has not been, nor will it be, a pure 100 percent digital engagement. Amazon, Alibaba, Apple, and many other e-commerce-first giants have invested significantly in the physical brick-and-mortar space. Physical retail, even in a post-COVID-19 world, remains the place to engage, connect, and drive relationships between the brand and the consumers. The rules of engagement may have changed, however people enjoy in-person shopping experiences.

It will be interesting to see how this plays out for Microsoft.

Georganne Bender
BrainTrust

Well said, Brandon.

Brandon Rael
BrainTrust

Thank you Georganne!

Harley Feldman
BrainTrust

Any Microsoft store hardware sales will go on, some to Microsoft and most to its partners. The Microsoft stores never generated much excitement or traffic. As a contrast, Apple stores not only have unique Apple products, the people in the Apple stores are extremely knowledgeable and provide excitement about and support for Apple products. I purchased a new Mac the day before the new products were announced, and Apple three months later exchanged my Mac for a brand new Mac at no charge. Microsoft would have never provided that level of service.

While Microsoft will lose some of its visibility in retail locations, in the long run closing the Microsoft stores will have little effect on Microsoft revenues or profits. The limited number of people visiting the stores was a message that the stores provided little value.

Paula Rosenblum
BrainTrust

I suspect the reason for closing the stores is a bigger emphasis on B2B rather than B2C. While in the past it was all about shrink-wrapped software, I think Microsoft sees an advantage in AI, Azure, and analytics. These things don’t need stores. They need a strong, dedicated sales teams.

There is nothing about Microsoft’s marketing campaigns that say “Oh yeah, we have stores.”

We will see a lot of chains taking the “opportunity” to close stores and wipe the books during the pandemic.