Microsoft bets stores can boost Windows products

Walking into the Microsoft Store is a bit like picking up a Windows 8 device. Tablets, mobile, gaming and accessories are separated into dedicated “bays,” each arranged to mirror the colorful tiles of the new Metro home screen that replaces the traditional desktop in the latest Windows operating system.

The new Microsoft Store in St. Louis is a sight to behold, wrapped in a megascreen of 72 individual 46-inch TVs. But, like the operating system they’re based on, the stores haven’t yet bowled over consumers.

Jeff Green, president of Phoenix-based retail consulting firm Jeff Green Partners, estimates each Microsoft Store generates an average of $1,500 in annual revenue per square foot. That’s two to three times the average revenue of other mall tenants, Green said, but it’s also three-quarters less than its white-walled competitor down the corridor.

“Everyone expected them to be Apple,” Green said of Microsoft’s retail effort. Despite the fact that the typical Microsoft Store outperforms most other retailers, “there’s no place to go but to be disappointed.”

Microsoft Corp. has already opened 36 stores across the United States, Puerto Rico and Canada. The tech giant has plans for seven more in June.

Sporting an orange T-shirt, store manager Mark Frederickson was a pop of color as he glided between display tables a day ahead of the St. Louis store’s opening earlier this month. He plucked a phone from its stand and it was suddenly no surprise that he is a 10-year veteran of the mobile industry.

Navigating through the phone’s features with pinches, presses and swipes, Frederickson touted the unified workspace Windows 8 offers. For example, he can create a document in OneNote, push it to SkyDrive, and access or edit it from any other Windows 8 device, all in a few gestures.

But most Windows users have yet to experience that functionality. Tech blog The Next Web reports only about 4 percent of them have adopted Windows 8, and uptake has been significantly slower than its predecessors’.

That’s where the Microsoft Store comes in. Offering workshops, meeting space, community outreach and, of course, the latest from Redmond, Microsoft’s retail effort is a means of cultivating a total Microsoft lifestyle.

For that lifestyle to take hold, Microsoft needs buzz. It made waves last spring by challenging customers with competing devices and services to best the Windows products for a chance to win cash and prizes.

This summer, employees will hand out passes to see exclusive performances. Rapper Ne-Yo will make an appearance at the St. Louis Galleria, and big names such as Macklemore and Weezer are slated for openings later in June.

Whether stores and these challenges can convert play into sales, however, remains unclear.

According to IDC data, shipments of the Surface RT tablet lagged behind expectations after its October 2012 launch. Microsoft’s share of the tablet market didn’t get much bigger in the first quarter of 2013, either, even with the release of the Surface Pro in February.

“It hasn’t been a failure, but it hasn’t lit the world on fire,” Edward Jones technology analyst Josh Olson said of Microsoft’s mobile debut.

Still, with his eye on future products in the pipeline, Olson maintains a buy rating on the stock, which has gained 31 percent this year.

Microsoft hasn’t released hard numbers from its retail sector, but if market performance is any indicator, “stores haven’t helped that much,” Olson said.

Apple, by contrast, posted sales of almost $19 billion from its retail segment in fiscal year 2012. It has 406 stores worldwide.

Microsoft acknowledged in May that it overshot the tablet market in respect to price. The Surface Pro and RT start at $899 and $499, respectively, with Frederickson adding that tablet options as low as $449 will be available in-store.

Olson expects that price point to fall even lower.

Jonathan Adashek, general manager of Microsoft’s communications strategy, sales &marketing services group, declined to say whether Microsoft has plans to release a cheaper member of the Surface family. In the meantime, Acer revealed an 8-inch Windows 8 tablet for $345 at Computex last weekend, according to Engadget.

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