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Microsoft Digs Deeper Into Retail

Microsoft (NASDAQ: MSFT  ) announced this week that it will open five new stores in 2013, in addition to the six it already announced back in December. The new stores allow Microsoft to represent its own products to consumers, but the company has an uphill battle to win over retail customers.

Microsoft has a total of 51 stores (some are pop-up specialty stores), which is about two-thirds of the way to the company's goal of opening 75 stores by 2014. The company announced the five new stores will open in the following cities by this summer:

  • Natick Mall, Natick, Mass.
  • Ala Moana Center, Honolulu, Hawaii
  • Pioneer Place, Portland, Ore.
  • The Somerset Collection, Troy, Mich.
  • Woodfield Mall, Schaumburg, Ill.

Microsoft significantly trails Apple's (NASDAQ: AAPL  ) 250 retail stores in America, but that's to be expected considering Apple opened its first retail store back in 2001. Apple opened up 28 international stores last year and Microsoft has only four international stores as of right now, with one more scheduled to open next month. Apple plans to open about 35 stores in 2013, making it even more difficult for Microsoft to catch up.

Just a few days ago, the Surface Pro was introduced at some Microsoft retail stores and customers were able make reservations to purchase the product at the retail locations. The lack of Microsoft stores hurt initial sales of the Surface tablet because the product was launched exclusively at the company's limited retail locations. If Microsoft decides to launch future products in the same way, then the company could definitely benefit from increased store locations.

What's still to be determined is whether Microsoft will enjoy the same success Apple stores have brought the Cupertino company. Microsoft hasn't released any information that helps investors know how its stores are doing, so it's difficult to predict how the new retail locations will help Microsoft in the near future.

In a financial analyst meeting back in 2010, Microsoft CEO Steve Ballmer said this about the company's first steps into retail:

The goal here is not, per se, to sell all the world's PCs, but we do sell PCs in the store. But much as we engage on the enterprise side, in consulting, in services and support in order to make sure that we can be at the leading edge, we can really get close to our consumer, the customer, the enterprise. We want to do the same thing with the consumer customer with devices. We want to be absolutely sure that you can see the latest and greatest not because we're going to dig some big profit hole. I don't believe in that, Kevin doesn't believe in that, but in a way that may not be the number-one profit driver for the company, but certainly that doesn't lose money, we have a touch point and a distribution point and a showcase point with consumers.

From that statement it appears Ballmer isn't as concerned with profits from the stores (although he obviously doesn't want to lose money) as he is with making the stores a showcase for new Microsoft products and an entry point for potential customers. Investors should consider more than just the numbers side of Microsoft's retail play, though. Even if we could look at sales from the Microsoft stores, which we can't as of yet, it wouldn't paint the entire picture of what Microsoft is looking to accomplish in retail. Whether people make purchases in the stores or go online to buy the products may not be so important right now. Microsoft needs people to touch and feel products like the Surface and identify with Microsoft's brand.

A 2012 report by Intrabrand put Microsoft in the top five of most recognizable brands in the world, but the company placed it behind Apple and Google. In the tech world, that's not a good position to be in. Microsoft's retail stores are a way for the company to reinvent how current and potential customers perceive the company, while showcasing the best of what Microsoft has to offer. Time will tell whether the retail push will pay off for the company, but with stores showcasing impressive new products like Windows Phones and the Surface tablet, the stores are step in the right direction.

It's been a frustrating path for Microsoft investors, who've watched the company fail to capitalize on the incredible growth in mobile over the past decade. However, with the release of its own tablet, along with the widely anticipated Windows 8 operating system, the company is looking to make a splash in this booming market. In this brand-new premium report on Microsoft, our analyst explains that while the opportunity is huge, the challenges are many. He's also providing regular updates as key events occur, so make sure to claim a copy of this report now by clicking here.

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  • Report this Comment On February 09, 2013, at 9:44 AM, EddieLomax wrote:

    Having their own stores is cool, but I wonder here if a better first step would be to rent/share space with an established company.

    Sony could be a good partner here, maybe PCWorld too.

    Otherwise I remember how companies would get involved with a big department store (Silica in the distant past, and Virgin travel today).

    I'd treat the venture as part sales and part advertising so it would be a big win even if it lost millions each year. As the way I see shops is they are big giant 24/7 adverts for companies products in the right place in a way that a webpage can never be.

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