Windows Stores: A Win-Win Development

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Have you ever been to an Apple (NASDAQ: AAPL) store? You walk in, computers are on one wall, tablets on the other, iPhones and iPods in the middle. Every device is functioning and ready to be experienced by curious customers perusing through the non-aisle layout. Apple makes you want its products before you walk in, and it turns out that another company is after the same aura.

Last week, Best Buy (NYSE: BBY) and Microsoft (NASDAQ: MSFT) announced that Best Buy would be opening 600 Windows mini-stores inside Best Buy stores around the country. It looks to me like Microsoft is taking a page out of Apple’s playbook. And why not? If a strategy works, it is only a matter of time until others emulate it.

Hitting the mark

In 2011, Apple sold $16 billion from its retail stores alone - 15% of its total revenue. Apple has 390 retail stores, which means that each store generates about .04% of total revenue. Moreover, Apple is the top American retailer when it comes to sales per square foot, with sales of $6,050 per square foot in 2012. Compare that to Best Buy, with sales of only $823 per square foot in the same year. By opening mini-stores, Microsoft is separating itself in order to obtain its own exclusive slice of the square footage pie.

What drives Apple’s sales? Apple stores are cool. They go right along with the company's persona--the stores fit the brand. I can walk into an Apple store and spend hours exploring every device. I can make a call on the iPhone, watch a movie on the iPad, or surf the Web on the newest MacBook. The products are arranged in a way that is easy to navigate and understand. On top of that, a knowledgeable employee is always ready to help.

Simple. Sleek. Brilliant. Somehow, the store makes me want the devices even more. For Apple, it’s mission accomplished.

Needing a lift

Microsoft desperately needs a spark to boost its oft-maligned brand. Microsoft’s newest operating system, Windows 8, performed poorly out of the gate. In the fourth quarter of 2012, Microsoft’s mobile market share in the US also went down following the release of Windows Phone 8.

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Microsoft’s disappointing year in smartphones is a big reason that the company’s profits were down 26% to $16.9 billion in 2012.

Microsoft needs to freshen up its image. With the highly anticipated Xbox One set to be released in November, the mini-stores are the perfect way to get consumers thinking about Microsoft. It also gives the firm a sleek place to sell the highly-anticipated console. Add in the minimal building costs (Microsoft’s costs will be minimal because the firm doesn’t have to build new stores – Best Buy will simply make a few alterations), and we have a formula for success.

Making the right moves

Since new management took over last year, Best Buy has been going north. So far in 2013, the company's stock has increased by 161%.

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The new Windows stores are another step in the right direction. The mini-stores are a way for Best Buy to further distance itself from retail giants such as Wal-Mart (NYSE: WMT). Wal-Mart is known for its low prices, but not for the buying experience it offers. Wal-Mart simply wants to get as much product on its shelves as it possibly can.

When was the last time you went into Wal-Mart because you enjoy going into Wal-Mart? The department store is cheap and fast, the main reasons that its profits margins were only 3.65%, 3.54%, and 3.91% in 2012, 2011, and 2010, respectively. Selling necessities on low margin is not what Best Buy is looking for, however.

Best Buy is concerned about the quality of its products and the customer service it provides. The company wants to sell you an entertainment experience. Accordingly, the mini-stores will feature employees specifically trained to sell Windows products, further enhancing the buying experience for customers. Amidst a recent slide in revenue – Best Buy’s first quarter revenue was down 9.6% from a year earlier –Best Buy is focusing on improving its core attraction: high-end electronics.

Final thoughts

I think that the deal is a win-win for Microsoft and Best Buy. Both brands need a facelift, and the new mini-stores signal to consumers that these two are committed to keeping up with changing marketing trends.

Although consumer buying habits are rapidly moving to the Web, recognizable retail stores are still one of the most powerful things a company can have for its brand. Watch out, Apple, because the rest of the world is catching on.

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This article was written by Randy Holcombe and edited by Chris Marasco. Chris Marasco is Head Editor of ADifferentAngle. Neither has a position in any stocks mentioned.The Motley Fool recommends Apple. The Motley Fool owns shares of Apple and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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