Microsoft abandons retail stores destined to compete with Apple: is the Surface line of gadgets next?

Microsoft Corp.’s permanent closure of its retail stores during the global coronavirus pandemic is not surprising given the insignificant amount of revenue the stores contributed to the company, but it may be a sign that the Surface hardware business may be finally chopped. to block.

Microsoft MSFT,
announced on Friday that it will close all of its physical stores in the U.S. and will be charged $ 450 million as a result. The company said its sales growth has moved online, even more so during the current pandemic.

“Our hardware and software sales have continued to change online as our Microsoft product portfolio has evolved to digital products including Microsoft 365, gaming and entertainment,” wrote David Porter, corporate vice president, Microsoft Stores, in a publication of Blog. “We have seen strong growth on and on our Xbox and Windows digital storefronts reaching up to 1.2 billion monthly customers in 190 markets.”

Microsoft dabbled in retail in 2009, ignoring a failed effort during the dot-com boom, with a store in Scottsdale, Arizona, scheduled in conjunction with the launch of its Windows 7 operating system. It finally opened a new store in Silicon Valley in 2011, heavily influenced by AAPL of Apple Inc.,
aesthetic design and focus. One consumer product that I was launching at the time was the unfortunate Windows Phone.

Since 2011: Microsoft store is a poor man’s Apple

Soon, Microsoft had another line of products to launch in its stores. In 2012, former CEO Steve Ballmer introduced the Surface tablet that worked like a laptop and has evolved into a product line, including an upcoming dual-screen Surface Duo that will include a mobile phone and fit in your pocket.

Since then, there have been many changes at Microsoft, especially at the top, with the appointment of Satya Nadella as CEO of the company in 2014. Nadella’s focus on cloud computing has rejuvenated the software giant, which a Once it was heavy, it now has a mind boggling market cap of about $ 1.5 trillion.

Under Nadella, many companies have thrived on high growth rates, but not Surface. As Microsoft heads to the end of its fiscal year, Surface has shown annual sales growth of -4%, 6%, and 1% in the first three quarters of the year. In the first fiscal quarter, it was the only one of the 11 businesses Microsoft exploited that declined year-over-year.

However, the loss of retail stores may not be a burden on Surface. Dan Ives, an analyst at Wedbush Securities, said the amount of revenue from retail stores is probably around 2% of the company’s total consumer sales. He believes the Surface line will continue in the future, but the lack of a retail presence could affect future sales.

“No retail stores is a blow to future laptop sales given its importance within stores,” Ives told MarketWatch in an email.

Maribel López, principal analyst at Lopez Research, said she believes Surface will continue to live “not because Microsoft plans to crush the competition, but rather because it keeps developers up-to-date on what is needed for the various markets.”

“Microsoft has been more successful on devices than any ODM [original device manufacturers] He thought possible, “López said.” Their presence in the market forces the MDGs to innovate and forces Microsoft to understand the balance between requirements and innovation. “He added that the industry watches Surface and its developments very closely.

The surface is likely to live for a time. Microsoft will continue to sell Surface with its retail partners like Best Buy Co. BBY,
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and Walmart Inc., WMT,
with more than 7,000 locations in the US alone, for customers who want to experience all of their products in person, including Surface. The company also said it plans to “reimagine” some of the company’s spaces, such as London, New York, Sydney and Redmond, Washington, as hubs for all of its clients.

“We will continue to share engineering, sales, support, vision centers, executive information centers and commercial spaces to achieve maximum impact for our customers and our company,” said Porter of Microsoft in his blog post. It will also continue to invest in its virtual store fronts and video sales and workshops. Microsoft declined to discuss the future of the Surface line in detail on Friday.

However, if Surface isn’t well enough to support retail stores, why are other costly efforts worthwhile as it reduces margins and growth in other areas? Even if Microsoft doesn’t give up on Surface soon, expect it to spend a lot less to develop and support its own devices in the years to come.