Free class conducted in a Microsoft store – Source: Microsoft, July, 2019
Does Microsoft need stores?
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.”
- Microsoft Store announces new approach to retail – Microsoft
- A New Day for Microsoft Store – Microsoft/LinkedIn
- Microsoft is closing all of its stores – CNN
- Microsoft to Close Its Retail Stores – The Wall Street Journal
- Microsoft to permanently close all of its retail stores – The Verge
- Microsoft Retail Stores Shuttering In $450M Hit – CRN
- Microsoft to Launch Retail Stores – RetailWire
Discussion Questions
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?
Poll
BrainTrust
Ryan Grogman
Managing Partner, Retail Consulting Partners (RCP)
Jason Goldberg
Chief Commerce Strategy Officer, Publicis
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.
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.
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.
There is a Microsoft bigot (or two) among us….
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.
Quite simply #YoureNotApple. This always seemed like a necessity rather than strategic. Their stores always looked empty to me.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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 will get to reload with far cheaper real estate. And hopefully they will design for remarkable and be more committed to rapid prototyping.
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.
Well said, Brandon.
Thank you Georganne!
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.
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.
To make a point, I am going to be embarrassingly honest — I didn’t know Microsoft had stores. We are a PC/Microsoft family and office and always get products through online orders. Perhaps it is because all my children were old enough to buy their own Xbox when they wanted one and I checked out Surface at Best Buy. But I don’t think this will cause Microsoft overall to skip a beat.
I don’t think Microsoft will lose much by closing stores. Overall I see more pros. It lets Microsoft focus on what it is good at rather than chasing Apple, and eliminates a bit of corporate distraction in the process. If it’s smart, and it is, Microsoft will focus its attention and resources on developing the highest standard of online support. Customer service has always been their Achilles’ Heel, and this gives them a chance to work on it online.
The intent of Microsoft’s stores was likely more about showcasing than selling products. Microsoft can compensate for this loss of product showcase opportuntities with smart arrangements with retailers. For example, perhaps we’ll see a very nice section of Best Buy stores designed and managed by Microsoft – similar to the Sephora/J.C. Penney model.
Given the strength Apple have built with their stores for exceptional service and customer service I feel that Microsoft may be missing the point of having stores. Apple have used their stores to enhance the brand, giving confidence to their customer base and gaining respect from anyone who has even been inside one. This type of connectivity with your customer is very difficult to achieve online.
Clearly Microsoft doesn’t need those stores. As others have noted, the Apple stores are packed, and the Microsoft stores are really a “no appointment necessary — drop by anytime” experience. I never could figure out why the Microsoft stores were so quiet — but given that reality, closing will not cause a problem for Microsoft customers.
Let’s see. Apple opened hugely successful stores so Microsoft says let’s do the same.
Except they didn’t. Apple stores are built first on exceptional service — helping Apple users.
A few blocks down from where I teach in the city is the Microsoft store. I have a Lenovo computer and Windows operating system. In my class I had a problem that I hadn’t had before projecting Powerpoints to the video screen. So before my next class I walked over to the Microsoft store for help. Not one person was interested in even considering helping me. I am not sure one person even understood why I would come there if I wasn’t interested in buying anything. How foolish of me, I thought they were like Apple.
My wife is an APPLE person. When she has a problem she makes an appointment (most times the same day), goes and is treated like royalty. Oh, yes, she always gets her problem solved.
If Microsoft isn’t going to do it right, don’t do it.
Microsoft retail stores were more of a distraction than they were a benefit to the organization. Some consumers used those stores to try new products, but with the exception of the gaming products, very few new customers were likely acquired.
In addition, many of the consumers who would purchase at Microsoft stores would likely have purchased at a retailer such as Best Buy instead, if the Microsoft stores were not available. I think the expensive partner retail distribution of Microsoft really does mean that the company doesn’t need to run their own stores in order to get impact.
What you get with stores is headaches — staffing, rent, traffic — all the factors that have become such a headache during the start of the COVID-19 era.
One of the key benefits Microsoft had with their own stores was that they were able to control every part of the customer experience. Selling through other people’s physical stores does not offer the same level of control.
I would love to see the rationale behind this – I can only guess that it is primarily because their focus going forward is corporate customers rather than consumers and the consumer segment simply does not have sufficient revenue potential to justify stores in the same way that it does for Apple.
The money saved could be put to other uses, for example mobile demo suites/set ups in order to target the educational and corporate markets.
The narrative that this effort failed because it was an attempt to “copy” Apple is ludicrous. Offline stores offer a unique and powerful channel for developing a deeper brand relationship than almost any other channel. The failure, in this case, doesn’t mean the channel isn’t effective, just that it wasn’t utilized effectively. Microsoft will come back offline in the future, and while the specifics will change, the attempt to maximize the value of an offline presence will be the driving force.
In 2009, Microsoft really was at a disadvantage versus Apple, as Apple had very successfully built a direct-to-consumer channel with its own Apple stores. Microsoft was trying to pivot from a B2B to a B2C company, and was mostly dependent on wholesale partners to tell its story. So opening a chain of retail stores had significant upside, and followed the successful Apple strategy.
In 2020, Microsoft needs a direct-to-consumer strategy more than ever, but B2C no longer requires stores, and it certainly doesn’t require stores in malls (which are experiencing rapidly eroding traffic). Also wholesalers, like Best Buy, are far more open to Microsoft stores-within-a-store in 2020 than they were in 2009. So Microsoft can deploy a Microsoft-owned experience to Best Buy’s traffic, which has much better buying intent for Microsoft products than a Class B regional mall does.
The majority of Microsoft stores probably had a challenging ROI pre-COVID-19, and then when you lop off 20-50 percent of their traffic thanks to COVID-19, they just don’t work. So Microsoft is smart to pivot, but they still have a lot of work to do to build a great digital D2C presence on the web.
Even in this new world flagship physical spaces still make sense, and Microsoft is keeping five or six flagship locations. Microsoft was actually running a great flagship experience store in the San Francisco Metreon in 1999 (two years before Apple owned its first store).
Microsoft has been making notable headway in its online support and product marketing, I believe, based on a recent experience setting up a new Win10 laptop.
I’ve never had an opportunity to shop in one of their retail stores and the one location here in Tucson has already been shuttered.
Jason: Yours is perhaps the most thoughtful comment today. I believe MS can and should redirect its retail resources toward elevating its remote support experience to a first-class level. High on my list of desired services would be Outlook configuration and mobile device syncing.
Comparing with the Apple Stores: My single experience there led to a successful service outcome, but I found the atmosphere frenetic, not fun, and I am not eager to go back. I got the impression that the reason the store was so crowded was that users were struggling with problems, not making purchases.
Overall, I think MS made the wise choice in exiting the retail business. It will do better with seasonal pop-up stores, even pavilions at state fairs to expose consumers to the brand.
This is a smart move by Microsoft. They lack the hero product lines needed to draw consumers to stores and for those stores to be excellent for brand building.
It fits, too, with Microsoft’s most successful strategy: Let others stay on the ragged edge of innovation. Microsoft’s best move has always been to follow and take good ideas then implement them with superb execution.
I applaud Microsoft for this smart choice made under cover of the COVID-19 crisis.
Microsoft stores drove the introduction of their Surface products and allowed for physical presence. Microsoft would otherwise be selling Surface hardware online and through 3rd parties. The stores were experience centers. They were strategically placed near to Apple stores and other electronics vendors for appeal and had a clean-cut, minimalistic design.
The Surface products have done well with over $1.98B sold in the last quarter. The 80 stores Microsoft had developed served their purpose to introduce the product lines and ensure that consumers would be exposed. Going into nearby Microsoft stores, there were always gamers in the store playing on the latest Xbox or trying out the Surface computers in the store.
The stores served a strategic marketing purpose and successfully launched a product customers could touch and see with the tablet and PC-in-1. The value extracted, this is the perfect time to move to another model — until Microsoft plans to release its next experience-centric product line.
Those stores were a very weak knockoff of the Apple stores. It’s good they closed them as they were a laughing stock to most consumers. They are much better off through third party or DTC, unquestionably. Retail’s not that easy, right, Bill? Just ask Ron Johnson.
Microsoft had stores … who knew? Well, it’s probably not that extreme, but close to it: unlike Apple, MS is mostly known for software, which of course doesn’t only not need a physical presence, but seems like the antithesis of it; and while the “stores” concept was an attempt to change that focus — or really broaden it — I don’t think it ever really took off, so little gained, little (now) lost.
Microsoft may have selected the best time to shutter the retail locations. They have been closed for close to three or more months which means we, the public, are accostomed to having to do what we need by phone or online. I believe Microsoft is not the last to make this type announcement.
The sales through stores are secondary; stores are a place to create an experience with customers and bring them closer to the brand. I imagine that Microsoft’s hardware sales will continue to do just fine online (especially these days). I’d spend the time considering and working on how to create incredible customer experiences via a different physical venue or online to continue to create and build that connection.
I applaud this decision by Microsoft. I expect the vast majority of their retail store sales will translate. It’s very easy to leverage their experience stores to direct customers online as needed. Further, the retail support teams have demonstrated (for better or worse due to COVID-19) that they can service customers from anywhere. Why reopen physical stores to sell an overwhelmingly digital portfolio?
Smart call on the experience stores in key markets. It’s a great place to introduce new innovation, lead brand engagement, build relationships; and, if they do it right, inspire awe, with new and existing customers. This is all upside for Microsoft. They just need to deliver on the experience aspect of the new experience stores.