Microsoft Shuts Shop Windows: Tech firm permanently closes all stores

July 15, 2020

2 min read

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What's going on here?

The software giant is permanently closing the 83 retail locations of its Microsoft Store, except for four locations which will be “reimagined” as experience centres that no longer sell products. The move will result in a pre-tax hit of $450m.

What does this mean?

Microsoft plans to focus on serving customers online, with retail staff working remotely from corporate facilities. All current retail employees will have the option of remaining with the company in different roles – providing sales, training and support. Microsoft intends  to continue investing in its digital storefront at microsoft.com, which it says reaches more than 1.2bn people every month in 190 markets.

This shift towards online services is epitomised by the myriad of virtual workshops now on offer; one can learn about everything from Microsoft Teams video conferencing to coding on the Minecraft video game. According to Microsoft, since its retail locations closed in March due to COVID-19, it has hosted more than 14,000 online workshops.

Microsoft plans to “reimagine” spaces in four key locations: it will operate Microsoft Experience Centres in London, New York, Sydney and its Redmond campus location. The tech titan has described the decision as a “new approach to retail”.

What's the big picture effect?

The pandemic has seen a record number of commercial tenants refuse to pay rent: this quarter, commercial landlords in the UK only managed to wrestle 14% of rent due. It’s not hard to see why: lockdowns have shuttered shops and restaurants, forcing many UK retailers, such as Cath Kidston and Debenhams, into administration. Across the pond, companies like  J Crew and JCPenney have joined the growing club of bankrupt US companies. 

Many of Microsoft’s retail stores are found in shopping centres and malls. As more businesses  emulate the tech titan and reduce their physical footprint, landlords will face increasing difficulty in paying  the debt owed on their mortgages. Intu Properties (the UK’s largest shopping centre owner), for example, has recently entered administration after failing to renegotiate £4.5bn in debt. The damage done to landlords will also negatively impact the value of commercial real estate. Real estate practices in law firms may see a shift in fee-work from retail to other forms of commercial property, such as large-scale private residential. There may be client pool issues with firms vying for fewer clients.

Microsoft’s departure from retail, coupled with Amazon’s recent $1.2bn purchase of autonomous vehicle startup Zoox, suggests a perfect storm is brewing. Autonomous delivery will likely ramp up the pressure on shopping centres and malls. Even cheaper transport of goods to people’s homes reduces the likelihood that they will shop in person. All the signs point to the end of (one chapter of) the global love affair with commercial property. Though the pandemic is not the direct cause, it has accelerated the shift in retail we are seeing. Coronavirus has ultimately led Microsoft to reassess whether online and physical retail can profitability co-exist for the tech giant, and decided the answer is no. We will have to wait and see whether other businesses arrive at the same conclusion.

Report written by Deniyi Coker

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