Chicago (IL) - Microsoft decided that it's had enough of Apple's retail success and is apparently flexing its muscles to enter the retail segment with brick-and-mortar stores if its own. The decision was officially announced yesterday and no further details were given as the company has yet to develop its retail strategy. One thing is certain, however, Microsoft is aiming to reduce its reliance on third-party retailers and wants stores of its own to exclusively push products like Xbox and Zune. Is Microsoft looking to add a little flash of its own?





The software maker's decision to enter the retail business might alienate their existing retailers who have been selling Microsoft's products so far. Additionally, it couldn't have come in a worse economic climate, though Microsoft bets it could succeed where all other computer retail stores have failed, bar Apple's.



This is not the first time the software maker has embarked on a retail adventure. In 1999, the "microsoftSF" store at the Metreon in San Francisco opened for business. Estimated at 8,500 square foot at the time, the store packed endless shelves of boxed software, but also a showcase room used to demonstrate capabilities of Microsoft's WebTV platform. Similarly to Apple's retail store, Microsoft's San Francisco store tried to look like a computer boutique, thanks to a little help of art installations. The store also sold various company merchandise. The experiment ultimately failed, and Microsoft closed it down two and a half years later.



Now, ten years later, Microsoft is willing to take another shot at the retail business, perhaps borrowing from Apple's success. According to Reuters, Microsoft appointed David Porter, ex-Wal-Mart manager and a former executive at DreamWorks Animation house, to lead its retail efforts. Porter has yet to create Microsoft's retail strategy, so very little is known at this point about the possible number of stores, their locations and what product lines they will be carrying -- although one could assume that Xbox 360 and Zune will be some of the highlighted hardware, along with a host of Microsoft software.



"We're working hard to transform the PC and Microsoft buying experience at retail by improving the articulation and demonstration of the Microsoft innovation and value proposition so that it's clear, simple and straightforward for consumers everywhere," said Microsoft's chief of operations Kevin Turner.



Although the company's second retail venture couldn't have come in worse times with depressed economy that has hit retail businesses hard, particularly specialized consumer electronics chains and computer stores-within-a-store concepts, the software maker would benefit from having its own space where it could completely control the display and sale of its game console and music player, as opposed to having no real control when it has to push products through retailers that often place Xbox and Zune side by side with rival products, such as Sony's PlayStation 3 or Apple's iPod.



At the same time, Microsoft may alienate its existing retailers who bring in most of the revenue because they might view the software maker's brick-and-mortar stores as a threat to their own chains. Another problem is that all computer retail stores have failed, with Apple's retail business being the only exception. The Cupertino-based Mac maker embarked into retail business in 2001, much to the dismay of analysts and Apple watchers who all spelled doom for its Apple Stores, but Apple hired Ron Johnston who had over 20 years of experience in retail and merchandising. Johnson, who served as vice president of merchandising for Target Stores previously, assembled a dream team that included Millard Drexler, ex-CEO of Gap, Sony's Allen Moyer and George Blakenship, also from Gap.

To date, Apple operates 251 retail stores, with 41 outside the U.S., that employ 16,000 employees and bring in over one quarter of Apple's overall profits. Apple's stores not only provide the company with street visibility, but also serve as a free consultancy. Steve Jobs has repeatedly said that over 50% percent of the customers who visit Apple Stores have never owned a Mac before.



Other attempts into the retail spaces have had no such luck. Dell's adventure ended in failure even before it really took off, as did Gateway's and Palm's efforts to sell their products in their own mini-stores. Some of the biggest retailer chains had mixed luck with their store-within-a-store concepts where they would allocate a dedicated amount of space inside select stores to sell products from computer vendors. Examples of this include Circuit City and CompUSA, which show that any such adventure in retail consumer electronics could spectacularly fail as consumers tighten their belt during tough times and, as a consequence, put consumer electronics at the top of their "spending cuts" list.