Tech Companies Move To The Mall (AMZN)(AAPL)(MSFT)

There was a rumor, unconfirmed by Amazon (NASDAQ:AMZN), that Jeff Bezos’ company would open stores in the UK. It would follow Apple (NASDAQ:AAPL) and Microsoft (NASDAQ:MSFT) into the world of the mall or to the glitzy big city store on Fifth Avenue in New York City or Rodeo Drive in Beverly Hills. Amazon may use the stores as a place where people can pick up things that they order at Amazon.com, but the motivation for companies that do not need stores to open them is much broader than having physical locations that perform a function similar to a post office box.

Apple was the first big tech company to move into the store business. The consumer electronics giant expects to have nearly 350 locations by the end of next year. Apple makes money on its retail locations based on most analysts’ estimates, but the shops do a great deal more than make the company a modest return.

Apple’s stores are staffed by highly trained people who can show the broad sets of features that iPhones, iPods, and Macs have. It is very hard to do that only online and better than leaving it to a minimum wage floor-walker at a Best Buy (NYSE:BBY). The Apple brand is probably damaged by ham handed sales tactics and disorganized displays at its resellers. The Apple store, however, gives customers a taste of Apple at its best.

Microsoft’s motives for having retail outlets are probably the same as Apple’s. Window 7 is a complex piece of software which cannot be fully appreciated by most PC users. The firm’s Xbox 360 has hundreds of features and functions. Microsoft cannot reach even a tiny part of its base of if customers through its stores, but a small number of people can see the world’s largest software company demonstrate Microsoft’s best creations in the hands of people who are masters trained in the art of the operating systems and the game console.

It has begun to occur to other companies that rely on the internet for sales that showing customers a human face and allowing people to touch and feel products has a benefit beyond the very modest revenue it brings. The Amazon Kindle is a marvel of consumer electronics, but how many people see one or use it before they buy it at Amazon.com?

Visitors to an Amazon.com store are likely, in the age of e-mail and instant messaging, to each send their reactions to Amazon products to dozens if not hundreds of other people. The media flock to retail outlets to see the latest gadgets. The public relations benefits of having brick-and-mortar stores should not be underestimated. Disney (NYSE:DIS) learned that a long time ago and so did Nike (NYSE:NKE) and Sony (NYSE:SNE). People may get excited by buying a product online, but they are usually even more enthusiastic about seeing merchandise in person especially in the hands of someone who knows the products inside and out.

Apple, as usual, has set the pace for other consumer electronics and e-commerce companies. It did not make sense for the company to open stores, at least not in the minds of many experts on the retail industry. Good store locations are expensive. Beautiful stores are costly to build. Expert staff is expensive. No one may show up when the stores open. Apple ignored those risks or at least was not moved by them. The firm’s stores now have long lines on the days when the company launches new products.

The number of companies that have physical stores for the demonstration and sales of their products is going to grow. Apple’s success puts pressure its competition and other smart retailers who appreciate Steve Jobs’ genius. Dell (NASDAQ:DELL), Hewlett-Packard (NASDAQ:HPQ), and Cisco (NASDAQ:CSCO) may be next into the store market. Cisco seems an unlikely candidate, but it has now built a huge beachhead in consumer products, even though most of the people who buy these products do not know that. The Flip Video camcorder is built by Cisco. Linksys Wi-Fi products are in millions of homes. Cisco builds them, but how many people are aware of that. Cisco has made it clear that it wants to extend its brand beyond enterprise routers.

Technology and e-commerce companies are coming around to the thinking that branding often cannot be built entirely online. That may be obvious to people over 40-years-old who shopped at stores before the rise of broadband. E-commerce has not destroyed the utility of the physical store. It may actually have enhanced it in some cases, at least for companies like Apple that have discovered that seeing something and touching it are a part of the basic principles of marketing to consumers that were becoming lost in the digital age.

Douglas A. McIntyre