Why Amazon.com, Inc (AMZN) Needs Brick and Mortar

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One factor has been consistently underrated in Apple Inc. (NASDAQ:AAPL)’s recent rise to tech supremacy: its retail stores. Microsoft Corporation (NASDAQ:MSFT) accepted this fact a few years ago, and has been playing catch up, rolling out its own stores across the nation. Amazon.com, Inc.(NASDAQ:AMZN) would do well to follow suit.

Apple’s stores have been a key driver for the company
Apple’s stores are (almost) universally praised. Analysts are quick to trot out how Apple’s stores lead all other retailers in terms of sales per square foot. In fact, Apple-centric blog TUAW (via RetailSails) reports that Apple’s stores generate more than twice the same sales per square foot as its closest competitor, Tiffany & Co. (NYSE:TIF).

Amazon.com, Inc. (NASDAQ:AMZN)But that ignores the larger point. Apple’s retail strategy is incredible, but it doesn’t stand alone: It’s a fundamental part of Apple’s overall product strategy.

On Tuesday, Apple’s CEO Tim Cook addressed the Goldman Sachs tech conference. In his speech, Cook heaped lavish praise on his retail operation, going so far as to note that a trip to an Apple store is — to him — the equivalent of taking the popular anti-depressant drug Prozac. But he also hinted at the real point of Apple’s stores.

Apple’s stores act as the essential interface between the customer and the company. They provide a place for consumers to gather, test out new products and receive technical support. Apple’s products are known for their ease-of-use and durability. But without a place to learn and a Genius Bar to provide in-person repairs, it’s likely that the strength of both reputations would be much reduced.

Microsoft has learned it the hard way
Microsoft has learned two key lessons from Apple over the last decade.

With the launch of its Surface tablet, Microsoft followed Apple’s footsteps in producing its own hardware. Although the Surface’s reception has thus far been relatively tepid, the mere fact that Microsoft was going to produce its own hardware elicited a variety of incredulous responses, most notably from Acer’s CEO.

“We have said [to Microsoft] think it over. Think twice. It will create a huge negative impact for the ecosystem and other brands may take a negative reaction. It is not something you are good at so please think twice,” JT Wang told the Financial Times in reference to the Surface tablet.

Yet, lost in the shuffle over the excitement of the Surface, was the second lesson Microsoft learned from Apple: build your own retail operation.

Much of Microsoft’s early struggles with selling the Surface might be blamed on the fact that the Windows maker agreed to sell the tablet only either online or at its Microsoft retail outlets. Those outlets are still relatively few in number, and many of them were only temporary, “pop-up” stores back in October.

But Microsoft, perhaps seeing the potential success of its retail arm, announced in December that many of its then-temporary stores would be converted into permanent outlets. It seems Microsoft’s retail arm is here to stay.

Amazon should copy Microsoft
It’s becoming increasingly clear that Amazon is shifting from being the world’s largest online retailer to a full-on tech device maker.

As more goods shift from physical to virtual media (CDs to mp3s; books to ebooks; DVDs to video files), Amazon’s decision to create these products makes sense from a business standpoint. Yet its efforts will be hobbled if it does not enter the brick and mortar game.

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