Microsoft’s 11-year retail push quietly fizzles out.
Microsoft (NASDAQ:MSFT) recently announced that it will permanently close all of its brick-and-mortar Microsoft Stores worldwide. It will also convert its four stores in New York City, London, Sydney, and Redmond, Washington into "Experience Centers" that showcase its products instead of selling them.
The closures were reportedly planned last year, according to The Verge, but significantly accelerated by the COVID-19 pandemic. The company already shuttered all its "Specialty Store" mall kiosks last year. In a press release, Microsoft VP David Porter noted that the tech giant's "product portfolio has evolved to largely digital offerings, and our talented team has proven success serving customers beyond any physical location."
Microsoft stated that it wouldn't lay off any staff as part of the reorganization, and that it would continue paying its retail employees as they transferred to remote sales, training, and support positions. It also said it would "continue to invest in its digital storefronts" to reach over 1.2 billion people monthly in 190 markets.
Let's see how this strategic shift will impact Microsoft, and why it has failed to replicate Apple's (NASDAQ:AAPL) success in brick-and-mortar retail over the past decade.
Will these closures dent Microsoft's earnings?
Prior to the pandemic, Microsoft operated 72 stores in the U.S., seven stores in Canada, and one each in Puerto Rico, the U.K., and Australia. Microsoft doesn't separately disclose its sales from those retail stores.
However, Microsoft expects the closures of its stores to result in a pre-tax charge of $450 million, or $0.05 per share, in its fiscal fourth quarter, which ends on June 30. Those charges will primarily include asset write-offs and impairments.
Back in April, Microsoft guided for 6% to 9% year-over-year revenue growth in the fourth quarter, but didn't provide any earnings guidance. Analysts expect its revenue to rise 8% to $36.5 billion, but for its non-GAAP earnings to grow less than 1% to $1.38 per share.
Microsoft's write-offs and impairments will be excluded from its non-GAAP earnings, so the store closures alone wouldn't cause it to miss analysts' expectations. However, they'll still take a bite out of its GAAP earnings, which hit $1.71 per share in the year-ago quarter.
Why couldn't Microsoft follow Apple's lead?
Microsoft opened its first retail stores in 2009, eight years after Apple launched its first Apple Stores.
The brand appeal of Apple's products over the past decade -- including the iMac, iPod, iPhone, and iPad -- turned Apple's retail stores into major attractions in otherwise struggling malls. Apple has also consistently generated higher sales per square foot than any other American retailer in recent years.
Apple's stores were so popular that malls granted them sweetheart deals to move in. Back in 2015, Green Street Advisors claimed that Apple paid less than 2% of its sales to malls, compared to an average cut of 15% for other typical tenants. Microsoft, whose stores lacked Apple's brand appeal, likely couldn't generate comparable sales or secure similar deals with malls.
苹果的门店如此受欢迎，以至于各大购物中心都以私下交易的方式让它们进驻。早在2015年，绿街顾问公司（Green Street Advisors）就曾声称，苹果向购物中心支付了不到其2%的销售额，相比之下，其他普通租户的平均折扣为15%。微软的商店缺乏苹果的品牌吸引力，因此可能无法产生类似的销售额，也无法与商场达成类似的交易。
Microsoft's hardware business has improved significantly in recent years under CEO Satya Nadella, with new Surface devices and Xbox consoles attracting new buyers. However, these products were also widely available at other retailers, and Microsoft's store-based community events arguably couldn't solidify its stores as "hangouts" as Apple did with its Genius Bar and free classes.
近年来，在其首席执行官萨蒂亚•纳德拉(Satya Nadella)的领导下，微软的硬件业务得到了显著改善，新的Surface设备和Xbox控制台吸引了新的买家。然而，这些产品在其他零售商中也随处可见，并且微软基于商店的社区活动也不能像苹果的Genius Bar和免费课程那样巩固其商店的“hangouts”地位。
The right decision, but a missed opportunity
Microsoft's decision was the right move, since there wasn't a reason to continue losing money on brick-and-mortar stores throughout the retail apocalypse and COVID-19 crisis when it sold all its products online.
The closures won't meaningfully impact Microsoft's long-term growth, but they mark a missed opportunity to follow Apple's lead in strengthening its brand with retail hangouts. They'll also reduce the number of places where Microsoft can showcase its new and upcoming hardware products.
Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Leo Sun owns shares of Apple. The Motley Fool owns shares of and recommends Apple and Microsoft and recommends the following options: long January 2021 $85 calls on Microsoft and short January 2021 $115 calls on Microsoft. The Motley Fool has a disclosure policy.
特蕾莎·克斯滕是微软子公司LinkedIn的一名员工，也是Motley Fool公司的董事会成员。Leo Sun拥有苹果公司的股份。Motley Fool拥有Apple和Microsoft的股票并向其推荐，并建议以下选择：2021年1月下旬，向微软发出85美元的看涨期权，以及2021年1月上旬给微软带来115美元的看涨期权。