Why Google NEEDS To Open Retail Stores

by Brad Moon | February 20, 2013 12:00 pm

Why Google NEEDS To Open Retail Stores

Next time you’re at the mall and swing by stores like J.C. Penney (NYSE:JCP[1]) and Abercrombie & Fitch (NYSE:ANF[2]), you might want to browse through Google (NASDAQ:GOOG[3]) as well.

Sounds odd, right?

Maybe for now. But rumors are indeed circulating that Google is planning to launch its own retail stores[4]. Nothing is confirmed yet, but analysts are taking the speculation seriously … and the move would make perfect sense.

Back to Bricks

There have been some interesting changes in the retail landscape over the past decade. Take bookstores, for example. As books have gone high-tech thanks to e-readers like Amazon’s (NASDAQ:AMZN[5]) Kindle, traditional bookstores have come under immense pressure. Barnes & Noble (NYSE:BKS[6]) is hanging in there but closing down stores[7], while competitors like Borders have gone the way of the dodo[8] thanks to the shift.

In the technology world, though, the shift in retail is heading in the opposite direction. Giants like Apple (NASDAQ:AAPL[9]) and Microsoft (NASDAQ:MSFT[10]) — both of which have long operated successful webstores to sell their gear — now have physical locations … and keep adding more.

Apple is the leader in this respect, first launching retail stores back 2001 and now boasting some 400 stores worldwide. According to The New York Times, Apple’s retail stores took in more money per square foot[11] than any other U.S. retailer in 2011, nearly doubling the numbers of second place Tiffany (NYSE:TIF[12]), while moving $16 billion in merchandise worldwide.

Microsoft has also ramped up its physical retail presence to launch the Surface line of tablets, opening 51 stores in 2012[13] (although some of those were temporary “pop-up” stores that may disappear) and planning more for 2013.

Google joining the retail club is just part of this larger trend … and also fits with the shift taking place within the company.

Stores Are for Selling

Back in August, I noted that Google’s increasing involvement in hardware sales[14] was bound to make its stock more volatile; the company will be dealing more and more with cyclical product releases and fickle consumers. One of the methods to combat volatility and to boost the sales of gadgets, though, is to make them available in stores.

When asking someone to drop hundreds of dollars on a tablet or phone, the odds of sealing the deal go up if they have the opportunity to play with it first … and if they can walk out the door with their new toy instead of waiting for it to be delivered. If it’s only available online, tech enthusiasts and early adopters will still find and buy it, but a large percentage of consumers won’t.

The first step for many consumer electronics manufacturers in this regard is retail partnerships. Smartphone makers, for example, largely rely on wireless carriers to display their products. The next level is the store-within-a-store, where the manufacturer pays to have a branded booth at retailers such as Best Buy (NYSE:BBY[15]). The manufacturer’s products are exclusively showcased and specially trained staff are on hand. Apple went this route, as have Microsoft and Google.

However, Apple proved that when your products reach a critical mass, a dedicated retail store is the way to go.

The Next Apple

At an Apple Store, nothing is available that isn’t sold online by Apple or at a variety of other stores. But at an Apple Store, a shopper experiences all of Apple’s products in an optimal environment.

“Geniuses” are on hand to expertly demonstrate everything and potential buyers can see precisely how the movies they buy from the iTunes Store are stored on their iMac, shared with their iPod Touch, iPhone or iPad and wirelessly streamed to their Apple TV. Someone who wanders into an Apple Store to pick up a new iPad Mini is likely to leave with a MacBook Pro and an Apple Airport wireless router too. And even if they don’t buy an iPhone, they’ve seen how it meshes with everything Apple, so there’s a much better chance they’ll choose the product down the line.

When Google sold the occasional Nexus smartphone, it didn’t need its own retail store. However, with the broad range of products it’s begun to push — smartphones, tablets, set-top TV boxes, the ChromeBook and so on — Google needs a place where consumers can see and touch everything to maximize sales. Google’s Android and Chrome operating systems are developing into ecosystems and being able to showcase the connectivity between devices is critical. Consumers need to experience it firsthand in order to feel they need to buy it.

Plus, let’s not forget that the line up outside an Apple Store prior to a product launch[16] has become the go-to media method for judging demand for the new release. How many more iPhones and iPads do you suppose that Apple has sold because people saw the photos of those lines and figured that Apple must be releasing something worth buying?

No store, no photo op, no hype.

The Bottom Line

Opening retail stores isn’t a case of Google “copying” Apple or Microsoft. It’s just good business sense. If Google is to transition from being a technology company to also being a successful consumer electronics company, a move to retail stores is the next step towards achieving mass market sales.

As of this writing, Brad Moon did not own a position in any of the aforementioned securities.

Endnotes:
  1. JCP: http://studio-5.financialcontent.com/investplace/quote?Symbol=JCP
  2. ANF: http://studio-5.financialcontent.com/investplace/quote?Symbol=ANF
  3. GOOG: http://studio-5.financialcontent.com/investplace/quote?Symbol=GOOG
  4. planning to launch its own retail stores: http://investorplace.com/2013/02/get-ready-for-google-stores/
  5. AMZN: http://studio-5.financialcontent.com/investplace/quote?Symbol=AMZN
  6. BKS: http://studio-5.financialcontent.com/investplace/quote?Symbol=BKS
  7. closing down stores: http://investorplace.com/2013/01/barnes-noble-plans-to-shutter-13-of-stores/
  8. gone the way of the dodo: http://investorplace.com/2012/01/the-end-of-the-big-box-era/
  9. AAPL: http://studio-5.financialcontent.com/investplace/quote?Symbol=AAPL
  10. MSFT: http://studio-5.financialcontent.com/investplace/quote?Symbol=MSFT
  11. more money per square foot: http://www.nytimes.com/2012/06/24/business/apple-store-workers-loyal-but-short-on-pay.html?_r=0
  12. TIF: http://studio-5.financialcontent.com/investplace/quote?Symbol=TIF
  13. opening 51 stores in 2012: https://www.microsoft.com/en-us/news/presskits/retailstores/
  14. increasing involvement in hardware sales: http://investorplace.com/2012/08/why-hardware-will-make-google-more-volatile/
  15. BBY: http://studio-5.financialcontent.com/investplace/quote?Symbol=BBY
  16. line up outside an Apple Store prior to a product launch: http://bgr.com/2012/09/17/iphone-5-line-photos-5th-ave/

Source URL: http://investorplace.com/2013/02/why-google-needs-to-open-retail-stores/
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