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Why Microsoft is bailing on retail

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It was one of those Friday announcements that I didn’t get around to hearing about until the next morning: Microsoft, at what almost any other company would call great expense, is closing its 83 retail stores, most of which are in the United States. It’ll cost Microsoft $450 million, or 5 cents per share in terms of earnings, to shutter the snazzy outlets.

I have long been bemused and fascinated by the software company’s stores. In 2015, a day after I saw Hamilton on Broadway, I checked out the new flagship store in New York City. My takeaway: Microsoft’s shiny retail space looked an awful lot like an Apple store, but with fewer people.

Over the years I assumed Microsoft thought of its stores not so much as money makers but as marketing vehicles. It could show off its quite good Surface tablet and laptop lines and evangelize to consumers and small business owners—people who sometimes are willing to become corporate computer users—its ubiquitous Office productivity software.

Last year I bought one of those laptops myself, making repeated visits to the lavish store in downtown San Francisco. Each time I marveled at all the time the Microsoft store employees spent with me, especially in contrast to the wait-over-there curtness anyone who has shopped in an Apple store has experienced.

My observation was probably telling. Pricey outposts that aren’t commercial engines can only last so long. Microsoft has come to the same conclusion about digital transformation it is selling to its customers: It can serve them just as well online. Investors either yawned or cheered the news. “I didn’t get one phone call or email from clients,” says Brent Thill, who follows Microsoft for the investment bank and brokerage Jefferies. “Investors will be encouraged they are getting out of a low-margin business and focusing on higher-margin businesses.”

That Microsoft was willing to bite a half-a-billion-dollar bullet to rid itself of its stores speaks volumes to what money pits they were. (They closed during the pandemic.) The company “politely” declined to make executives available for an interview. Its euphemistically titled post on LinkedIn (which Microsoft also owns)—A New Day for Microsoft Store—by David Porter, the company’s top retail executive, drew more than 150 comments by mid-afternoon on Monday. Many lamented the branding opportunity Microsoft is foregoing. Kevin Turner, a former Microsoft chief operating officer, termed the news “a sad day for Microsoft consumer (sic) and Microsoft Surface as well as the Microsoft customers you served.”

Adam Lashinsky

@adamlashinsky

adam.lashinsky@fortune.com

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