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Can Microsoft rival Apple in retail?

BusinessFeatures
by Tim Bajarin, 26 Nov 2012Features
Can Microsoft rival Apple in retail?

Microsoft already has around 60 retail stores in the US, and a few in Canada too. Two weeks ago, I visited the Microsoft Store in Santa Clara's Westfield Valley Fair shopping centre. Like a few other Microsoft Stores, it is strategically positioned across from an Apple Store, and I suspect that Microsoft is hoping to lure away some potential Apple customers.

Luckily, there are seats right outside the Microsoft Store, so as I waited for my wife who was off shopping, I planted myself in a cushy chair and watched people come and go through Microsoft's doors. The first time I did this, it was mid-week, three days after the store had opened to much fanfare. I watched the store for 45 minutes that day and during that time, Apple hosted about 130 customers while Microsoft had only about 12 visitors. Even more troubling, the 12 that did go in came out empty-handed, whereas well over 20 people left the Apple Store carrying iPads, MacBooks, and even two iMacs.

But this was before the launch of Windows 8 and Microsoft's Surface tablet, so this time I correctly assumed the Microsoft Store would have a lot more customers; I counted about 40 in the store. However, during my 45 minute people-watching span, not one person left the store with a Microsoft product. Across the way at the Apple Store, about 120 people milled around inside and 30 customers waited outside to pick up pre-ordered iPad minis and new fourth-generation iPads. I counted at least 35 people carrying Apple products out of the door.

The good news for Microsoft is that the people who were in the store were checking out the Surface, Windows 8, and many of the laptops and touch-based Ultrabooks on display. The bad news, though, is that most of them were merely Looky Lous, drawn in 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 six Microsoft Store employees standing around trying to look busy.

Now, I realise that Microsoft is new to the retail game while Apple has been perfecting its store concepts for more than 10 years. I'll admit, too, that my "research" was not scientific in any way but merely my observations, though I am a 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 I doubt its numbers were anything close to what Apple sold across the way.

But regardless of what Microsoft sold that day, having its own retail store is critical given the competitive landscape. I understand the company will open at least a dozen new stores worldwide in 2013 and more in the future. Of course, it's pressured to do so because of the extreme success of the Apple Store. More importantly, Apple Stores have reprogrammed how consumers think about buying tech products and receiving personal customer service after a purchase.

The impact of Apple stores

I don't think we can underestimate how the Apple stores have impacted retail in general. The idea of having a salesperson on hand with an iPhone payment device to check a customer out instantly is revolutionary. And if you have the new Apple Store app on your iOS device, you can even check yourself out now.

The man behind Apple's stores, Ron Johnson, is now JCPenney's CEO and is trying to apply this same kind of customer experience to a very old retail model. While he is having trouble making the company more user-friendly, I have no doubt that he will eventually succeed in changing JCPenney's retail model by redesigning stores and restructuring its shopping experience.

Microsoft's retail stores are important not only for the company but for the industry as a whole. None of its partners, except Sony, have the money or the wherewithal to open its own stores. Thus, they are relying not just on Microsoft becoming a dedicated retail outlet for their products, but also for supplying trained salespeople who know the products and can intelligently sell them. That part of Microsoft's retail experience is still lacking at the moment since a lot of the salespeople I have talked with in the stores are under-informed about the products they are selling.

This will always be a problem for Microsoft retail stores since they carry dozens of different laptops, tablets, and smartphones, making it difficult for salespeople to know each product intimately. In Apple's case, there are just a few key products with iOS and a few key products with the Mac OS so while it has many products in the mix, that mix is ten times smaller than Microsoft's. Consequently, Apple's staff knows the products inside out, and I am often surprised that even a non-Genius employee can answer my technical questions.

When it comes to retail, Microsoft has no choice but to keep these stores going to expand its potential reach. Most of its partners need Microsoft to serve as the only Windows-focused retail outlet that can represent them properly. I am actually bullish about the future of Microsoft's stores, especially if the company starts to create its own branded products, and its staff becomes more familiar with its offerings so as to match Apple's customer service experience. Also, the stores are beautifully designed and I have no doubt that they will eventually attract a strong stream of customers who still want and need Windows-based products as well as the Xbox and Surface.

I have no clue when these stores will be profitable, but Microsoft's retail gamble is in full swing and it must push onward if it plans to gain any ground on Apple.

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