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Do You Really Need All Those Stores? Gut Check Time

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Microsoft just announced it was closing all its retail stores. While this was viewed with shock among some consumers, a closer look tells an interesting tale.

Microsoft has changed. It has moved from a company selling shrink-wrapped software (which wasn’t a terrible strategy - God knows, it became the world’s most valuable company for a time), to a company that innovates in the world of B2B.

Think about the company’s commercials you’ve seen on TV over the past couple of years. Common talks about the benefits of Microsoft AI. That’s not for consumers. It’s ultimately meant to let us know that Microsoft is both cool and innovative. For business.

In the world of retail, at minimum, Azure is becoming a viable alternative to AWS (with a lot of enabling software as well). I’m surprised how many vendors are moving to the platform. It really does beg the question: was there value in having wannabe Apple stores? Or even cooler-than-Apple-stores? The answer is likely no.

The PC wars are over. Apple has its share, Windows has its share. Windows 10 works (Microsoft finally pried Windows 7 out of my cold, hard hands). Microsoft Surface is a viable product, not just for consumers, but in the business space. Microsoft phone is dead. So why exactly did Microsoft need stores? To show off X-box? Gamers will do that on their own dime. As will other retailers.

Why not close the stores at a time when no one would or could blame you? After all, Apple has its stores, and they close and open and close again based on the current state of the pandemic. What an expense! And what risk for employees and customers! Who needs it? Microsoft clearly decided it didn’t.

A very long time ago, I learned that all kinds of “sins” could be buried in the world of purchase accounting. Mergers and acquisitions create costs. And clever CFOs dump all kinds of losses into the category of “purchase accounting.” Of course, the combined entity still must ultimately perform, but purchase accounting was sort of a one time “get out of jail free” card for the acquirer.

Here we are in the most God-awful of circumstances. Far from dissipating in the summer heat, COVID-19 cases are rising. Where I live, in Miami, they’re rising exponentially. It’s scary and it seems that people are divided into three groups:

  • Those who avoid most everything. Social distancing can’t be guaranteed, and neither can people be relied upon to wear masks
  • Kids who want to have fun. It’s summer. Wearing a mask at the beach, in a bar or even walking around seems, on the surface, to be a tough ask. This has been a slog. And so we see the average age of infections falling into the mid-30’s
  • Citizens doing their due diligence and wearing masks, regardless how warm

I fall somewhere between the first and third groups. I don’t go shopping at all. I do need to get off my property sometimes, so I’ve been going to almost empty places to do things like kayaking. But dang, it’s hot in Miami. And when I took a sojourn out and about yesterday, I was shocked at how few people were wearing masks. Avoiding them is the name of the game. And so, I still will not go shopping at all. Period.

So, if I were a retailer, and knew that I had really over-stored myself, or that some of my stores were not generating a profit, you can bet I’d start closing them, and roll all the losses associated with that into “COVID accounting.” I haven’t seen anyone’s P&L’s, but you can be sure there will be one-time extraordinary charges associated with the COVID pandemic. Macy’s laid off 20% of its home office staff and is closing at least 125 stores. COVID-related. GNC declared Chapter 11 and is closing over half its fleet. COVID.

I’m not saying some of these things are not COVID-related. Of course, they are. And we know nothing about the future course of the pandemic, given people’s unwillingness, particularly in the US to do what health officials ask.

It’s time for each retailer to ask itself, “Do we need all those stores? Did we over-expand? Do we have an opportunity to trim the fat of those extra stores?”

Realistically, the human toll is God-awful. The economy is in the tank, and despite a spurt of May sales, I just don’t see any kind of sustainability at this point, at least not in the US of A, or even the UK, for that matter. Someone wrote that Lululemon was having great sales despite its stores being closed. Well, duh. What other kinds of clothes will people wear when they don’t have to go to an office? I’m on a constant t-shirt hunt, myself. That’s it. My dry cleaning is still sitting on my chair waiting to go. It has been sitting there for five months now. I’m in no hurry.

There will be re-building ahead one of these days. And hopefully jobs will be available to those who are ready and able to work. We will have to really get the economy going, and that will generate jobs across a variety of areas, both skilled and unskilled. But in the meanwhile, do you really need all those stores? This might be one time when you can avoid a lot of messes. Think about it.

 

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Articles & Opinions June 30, 2020
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