At the end of June, Redmond, Wash.-based Microsoft announced what it described as a "strategic change" in its retail operations. While there is no doubt that the current pandemic contributed to the announcement, it was in the cards for some time. Microsoft, the statement read, is closing its retail outlets and moving online.
Microsoft Shifts Retail Online
Four outlets — one New York City store along with those in London and Sydney and an on-campus location in Redmond — will be repurposed as Microsoft Experience Centers where products will presumably be shown. And that will be the extent of the company's physical retail presence.
Retail will in the future be done online, the statement said. Microsoft's retail team members will continue to serve customers from Microsoft corporate facilities and remotely provide sales, training and support. The company will also continue to invest in its digital storefronts on Microsoft.com.
Rethinking the Physical Store
The closing of Microsoft store locations will result in a pre-tax charge of approximately $450 million, but for a company of that size it is a small price to pay for such a change in direction. For many the closure was a sign of the times, indicative of a broader trend to wind down physical stores. But is it a sign of the end of brick-and-mortar retail? Many people think not.
Sarah Cascone, director of marketing at New York City-based Bluecore, said Microsoft’s decision to close retail stores reimagines the role of a store from a commerce channel to an experiential channel focused on helping shoppers discover, learn and try Microsoft products as opposed to today’s status quo of stocking inventory for a limited number of products.
This comes after years of Microsoft product sales moving to digital channels and is in line with the brick-and-mortar store re-programming happening across all brands.
“This environment is forcing brands to accelerate a permanent digital-first strategy and recast the role of physical stores to marketing channels," Cascone said. "Microsoft’s shift from retail stores to Experience Centers is an example of this, providing an outlet for shoppers to touch, feel and discover new products in-person, with the purchase occurring online.”
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The Value Of Retail Outlets
This may not be the case for all retail brands, though. While even more traditional retailers now need to adopt an online-first approach, retail stores will continue to provide value, said Samuel Hurley, co-founder at London-based ecommerce SEO specialist NOVOS.
This is particularly true for big-ticket items like furniture or housewares where the customer may want to visit a local showroom to see the product in person before ordering online. The same approach can be applied to fragrances and cosmetics. Digital adoption has accelerated through COVID-19 but many customers still have a preference to try the fragrance or have the experience of buying it from a traditional retailer.
“In short, the traditional retail space will always offer valuable customer experience and bring the brand/products to life that online simply cannot do,” Hurley said.
He cites the example of Warby Parker, the popular sunglasses brand, which recently announced that it is opening its stores with hygiene measures in place and may actually pursue more retail space going forward.
COVID-19 As Catalyst For Change
While the pandemic has had an enormous effect on physical retail more than anything, it has acted as a catalyst for change rather than a nail in the coffin, said Vic Drabicky, founder and CEO of New York City-based digital marketing consultancy January Digital. The US, he said, has been over-stored for a long time with nearly eight times the retail square feet per capita when compared to the UK and Japan.
The pandemic has forced stores to close and created difficulty for brands, landlords and everyone in between. But the large majority of purchases still happen in store, meaning stores aren’t going to go away. While there will be a material change in the number of stores, it's very premature to say goodbye to physical retail.
As a case in point, progressive retailers are cutting under or low performing stores but also looking at ways to reinvest those savings into higher performing stores – rethinking everything from checkout to store design to customer service and inventory selection. “Those brands that can quickly make this shift while offering a strong e-commerce experience are set to far surpass those that are not as agile,” Drabicky said.
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Shopping Is Social
The primary focus of retail stores was always the customer, said Steven Selikoff founder of Seattle-based Product Development Academy. Selikoff was business manager at Microsoft worldwide sales and marketing when the first Microsoft store was launched but is not affiliated with the company now.
Microsoft is obsessive about their customer, he said, and the only reason and rationale behind the closures is to address changes in customer shopping behaviors and in the customer experience resulting from changes in shopping patterns.
The pandemic has dramatically hurt physical retail stores but retail stores are not dead, he said. "Microsoft’s products are not representative of physical products as a market sector," he said. "The in-store shopping experience in America is a unique one. Online retailers have shown that they are not a substation."
Amazon demonstrated it was not up to the task of stepping in for the shuttered retail stores. The pandemic was custom made for Amazon to hit a home run out of the park.
“Amazon stumbled," Selikoff said. "It showed that just like any other retailer, it was vulnerable. Workers got sick. Deliveries were delayed. Inbound shipments of non-essential items were put on hold for months and in some places, products were not fulfilled for weeks. Eventually its obligations were met but Amazon proved it was not infallible."
People will return to in-store shopping just as they rushed to return to restaurants and barber shops when restrictions were lifted in some states, Selikoff said. In-store shopping is a social and emotional experience, one that many U.S. consumers crave. The economy will be weak for a while and when brick-and-mortar stores reopen, there will be some changes.
“Some stores and chains will never recover from months of zero revenue. Stalled inventory will be a challenge for all retailers. Shoppers may spend less. But physical retail stores will return,” Selikoff said.
Microsoft's announcement is evidence of that. While Microsoft is closing physical retail outlets the company is leaving four Experience Centers open. The fact of the matter is people like the social experience of shopping and it seems unlikely that even COVID-19 is going to put an end to that.