As Microsoft hires top retail experts, critics raise red flags, claiming that the company is copying Apple’s stylish stores rather than out-innovating the Mac maker. The Redmond-based software giant, however, remains adamant that the experience alone will sell well enough to cover the high costs of running a large-scale retail operation, including leasing heavy-traffic locations at a premium.
Microsoft has clearly embarked on an expensive adventure with no fast return on investment. That doesn’t matter as the company’s retail vision is a long-term one.
The company’s latest high-profile hire includes George W. Blakenship, 56, retail expert credited for securing prime locations for Apple’s stylish retail stores, TechFlash learned. Microsoft is also seeking retail talent on its website, like a store manager.
Microsoft has shared little detail about its retail efforts thus far beyond officially confirming the fact that some stores will open “right next door to Apple stores,” indicating high-traffic locations across the nation’s biggest cities. When Microsoft went public with the retail strategy this January, the company said the first stores would open this fall.
According to the TechFlash report citing a Microsoft representative, Blakenship is already helping Microsoft pick prime locations. The executive provides an assistance as a consultant rather than working in a full-time capacity. Blakenship’s input will be critical due to his astounding track record.
Blakenship worked as Gap’s VP of real estate strategy before joining Apple as VP of real estate in 2000. During his Apple tenure, he helped senior VP of retail Ron Johnson define the retail strategy. In addition, Blakenship was instrumental in securing high-traffic locations for Apple’s brick-and-mortar stores. In 2002, he became senior advisor with Vectiv Corporation, a company that provides store lifecycle management enterprise software.
Prime locations are key in retail. Picking one is only half of the story, though. Negotiating terms with property owners, cutting deals, and managing paperwork - in short, making things happen - is where Blakenship excels. Here’s how his former chief Ron Johnson described to a group of investors in 2006 what prime locations meant for Apple’s retail strategy:
“If you want to enrich their lives, you can’t be in a parking lot, off a highway. You gotta be where they live their life. You gotta be right where they work, where they play, where they live, where they shop. The only way to enrich their life is to be part of their life. They’ve got to walk 10 feet to your store, not drive the car 10 miles. That’s what enriching lives would take.”
The ifoAppleStore warned that Microsoft’s new consultant has brought with him Apple’s secret retail recipe:
“Blankenship was among the earliest of Apple’s retail store employees, arriving shortly after Johnson (senior VP of Apple’s retail business). He was there when Johnson began to clarify his vision of how the stores would operate and what they would look like, and where they should be located.”
Should Microsoft build stores in times of recession?
Some think Microsoft is just copying Apple's stylish stores. Pictured above: Glass staircase inside Apple's flagship Fifth Avenue store in the center of Manhattan.
Many think Microsoft shouldn’t have engaged in retail during this tough economic climate, especially knowing that Dell and Gateway escaped their respective retail adventures. On the other hand, Microsoft should invest now that the real estate is under pressure amid a grim macroeconomic environment, which brings the prices down.
It’s unclear if Microsoft can justify running a large-scale retail operation on selling the experience alone. Critics warn that Apple stores leverage the experience to lure people into buying premium-priced products. Although the recession is knocking on Apple’s door, too, its retail stores are still generating huge foot traffic and money.
Apple plans to open 25 new stores in fiscal 2009, half of which will be outside the U.S. Apple stores generated $1.471 billion in revenues from Mac sales in the second quarter. Over 50 percent of customers who visit Apple stores have never owned a Mac before. Although this is a 15 percent decrease in both revenue and units from the year-ago quarter, the number of visitors ballooned to 39.1 million, up from 33.7 million visitors a year ago.
With an average revenue per store $5.9 million, down from $7.1 million a year earlier, and a retail margin at $308 million, Apple stores make enough money to cover the premium attached to high-traffic locations.
Microsoft stores should focus on products
Our own John Brownlee is convinced that Microsoft’s decision to open stores next to Apple’s can’t go over particularly well. “It’s being something like opening a Walmart next to a Neiman Marcus,” he said. A prototype store image leaked from Microsoft Retail Experience Center, a 20,000 square foot private retail center at Redmond, suggests the company will focus on showing what PCs can do, promoting high-profile software like Windows 7, and helping people troubleshoot their PCs.
Apple store in Sanlitun, China.
But Microsoft has plenty of other products to offer, both own and OEM’s: Windows Mobile smartphones, Zunes, Xbox 360s, loads of games and third-party peripherals, keyboards, mice, home media servers, media center peripherals, web cams, headsets, etc. Each of these could have a thematic appearance rather than being an array of mismatched items.
Microsoft will allegedly leverage stores to advertise key brands, like the Zune and Xbox 360. We don’t know, however, if the company will actually sell these products or send customers to OEMs in order to avoid taking away from its other retail channels. One thing is certain: People won’t walk into a Microsoft store to grab a copy of Windows or Office.
Microsoft had a retail store before Apple
Microsoft opened its own store before Apple, in 1999, but it closed down after two and a half years.
You could be forgiven for thinking that Microsoft is wrong focusing on a controllable street presence whereas it could be selling a full range of own and OEM’s products.
You could be also forgiven for thinking that Microsoft is copying Apple’s stylish stores but watchful readers will disagree, warning that Microsoft had its own store before the Mac maker opened the first Apple store.
In 1999, the 8,500 square foot microsoftSF store opened for business at the Metreon in San Francisco. The store’s interior used art installations to create a computer boutique atmosphere.
It sold mostly boxed software and merchandise, but there was also a showcase room that demoed Microsoft’s WebTV platform. Microsoft closed down the store two and a half years later.This time, things should be different.
This time, it’ll be different
In addition to Blakenship, other high-profile hires indicate that Microsoft is re-entering the retail business on a much broader and longer-term scale. An earlier appointment of David Porter as corporate vice president of retail stores certainly indicates seriousness on Microsoft’s part.
Porter had been building WalMart’s retail businesses for 25 years prior to joining DreamWorks Animation SKG as head of worldwide product distribution. With seasoned veterans like Porter and Blakenship, Microsoft’s stores should be stylish and shiny, likely staying with us for a long, long time. Let’s just hope they don’t do a brown store.
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