Microsoft’s Retail Gamble

Over the weekend, I went to Microsoft’s large store that is in the Westfield Shopping Center in San Jose. Like a few similar Microsoft stores, it is across from an Apple store and I suspect that Microsoft is hoping to lure some potential Apple product buyers away from Apple with this strategy.

Luckily, there are seats right outside Microsoft’s store, so as I waited for my wife, who was off shopping, I planted myself in these cushy chairs the mall has and just watched people come and go through Microsoft’s doors. The first time I did this was mid week, three days after the store opened to much fanfare. I watched the store for 45 minutes that day and in that time frame, Apple hosted about 130 customers while the Microsoft store had only about 12 visitors. Even more troubling at the time, the 12 that did go in, came out empty handed, while well over 20 people left Apple’s stores with iPads, Macbooks, and even two iMacs were sold.

This was before the launch of Windows 8 and Microsoft’s Surface tablet. So this time I assumed that the Microsoft store would have a lot more customers, and they did. I counted about 40 in the store this time. However, during the 45 minutes I sat out front of the store, I saw nobody leaving the store with any Microsoft product at all. But across the way at Apple’s store they had about 120 people inside and a line of 30 outside waiting to pick up preordered iPad Mini’s and the new iPad 4. And I counted at least 35 people carrying Apple products out the door while sitting there.

The good news for Microsoft is that people who were in the store were checking out the Surface, Windows 8 and many of the laptops and touch based ultrabooks that were on display. But the bad news is that most of them were Looky-Lou’s, drawn in mostly to see the new Windows 8 touch OS and the much advertised Surface. Also, while every salesperson in Apple’s store was engaged with a customer, I counted 6 Microsoft store employees standing around trying to look busy.

The Changing Retail Frontier

Now, I realize that Microsoft is new to the retail game, while Apple has been perfecting their store concepts for over 10 years. And my “research” was not scientific in any way and was just observations by me, a pretty seasoned market researcher trained to observe consumer buying patterns and usage models. I am sure that Microsoft sold many products of various sorts during the day, but by comparison with the Apple store across the way, I doubt it was even close to the daily sales Apple had in that store or any other store Apple has around the world.

Regardless of what Microsoft made that day in products sold, having their own retail stores is critical to them given the competitive landscape. I understand they will open at least a dozen new stores world wide in 2013 and more in the future. Of course, the competitive reason for doing so is because of Apple’s extreme success with their stores and how it has affected Microsoft’s fortunes. More importantly, Apple’s stores have reprogrammed how consumers think about buying tech products and getting personal service once they buy an Apple product.

In fact, I don’t think we can underestimate how the Apple stores have impacted retail in general. The idea of having a sales person standing there with an iPhone payment device and instantly checking a person out is revolutionary. And if you have the new Apple Store software app on your IOS device, you can even check yourself out now.
The man behind Apple’s stores, Ron Johnson, is now CEO at JC Penny’s and is trying to apply this same kind of store experience to a very old retail model. While he is having trouble getting this company to move quickly to be more user friendly, I have no doubt that he will eventually be successful in changing JC Penny’s retail model with new store designs as well as how people are eventually serviced.

Microsoft’s retail stores are important for them and the industry for another reason. All of their partners, except Sony, don’t have the money and the wherewithal to do their own stores and need to rely on Microsoft to become not only a dedicated retail outlet for their products, but to also serve as trained sales people who know the products and can intelligently sell them.

This will always be a problem for Microsoft retail since they carry dozens of different laptops, tablets and smartphones making it more difficult for their salespeople to know the products they sell intimately. This in fact has proven difficult in many big box retailing organizations as well with a highly diversified and fragmented product offering. In Apple’s case, they have key products with iOS and key products with the OS X and while they have many products in their mix, that mix is 10 times smaller than what Microsoft can sell through their stores. Consequently, Apple’s staff knows their products in and out and I am often surprised that even the non-genius staff can answer tough questions when I have gone into their stores and needed an answer about a problem I might be having at any given time.

When it comes to retail, Microsoft has no choice but to keep these stores going and expand their potential reach. And for most of their partners, they need Microsoft to serve as the only Windows focused retail outlet that can represent them properly. I have no clue when these stores will break even and be profitable, but Microsoft’s retail gamble is in full swing and they can not turn back if they plan to gain any ground on Apple and Google.