The reported closure of Microsoft’s brick-and-mortar stores managed by authorised retail partners in China has raised questions about the tech giant’s strategy in the world’s second-largest economy and whether the move is counterintuitive when the market’s consumer electronics sector has seen a sign of recovery.
“Microsoft is undergoing a strategic shift in its retail operations in Mainland China, as indicated by their response to media reports about the potential closure of their authorised physical retail outlets in the region,” Vijay Sarathi Gollipalli, research manager of retail at IDC Asia Pacific, told Inside Retail.
“This strategic shift hints at a possible emphasis on strengthening online sales channels and optimising partnerships to better cater to the Chinese market.”
The move comes four years after the company closed its physical stores in other markets around the world and turned its New York City, London, Sydney and Redmond locations into experience centres, as part of its strategic change in retail operations. The China business wasn’t influenced by that decision as the business was operated under a franchise model.
The recent move “reflects Microsoft’s assessment that its previous retail strategy was not well-suited for the Chinese market,” Gollipalli said.
The company said in a statement it will continue to operate in Mainland China through its website, certain retail partners and online stores on Taobao and JD.com. However, it did not disclose the number of authorised retailers affected by the decision.
“By exiting physical retail, Microsoft aims to streamline operations for greater efficiency and focus on higher-margin products and services. The strategy aligns with Microsoft’s global retail plan announced in 2020, which involved closing most of its physical Microsoft Store locations worldwide,” the research manager said.
“The company may now focus on prioritising selling enterprise software, cloud services, and solutions directly to business customers, seeing more opportunity in this segment,” Gollipalli said. “Overall, the shift represents a tailored approach to local market dynamics and an emphasis on optimising operations while ensuring product availability through online channels and select partners.”
Microsoft’s presence in China represents a mere 1.5 per cent of its global revenue, a surprisingly humble figure given China’s market potential.
According to Daxue Consulting, China was projected to generate the highest revenue in the global consumer electronics market, US$228.3 billion, in 2023. Revenue from consumer electronics in China is expected to reach US$252.6 billion in 2028 with a compound annual growth rate (CAGR) of 2.4 per cent.
With major brands scaling down third-party retailing models to take over control in overseas markets, the question is, what is the future for authorised retail partners?
“Authorised retail stores remain relevant in China due to their ability to assure product authenticity, provide immersive shopping experiences, and support omnichannel strategies,” said Gollipalli. “They foster consumer trust, enable personalised customer engagement, and integrate advanced technologies like AI and AR.”
The expert said while Chinese consumers are increasingly tech-savvy, many still value the reassurance and quality service of physical stores. Regional disparities also play a role, with physical stores being more crucial in rural areas where e-commerce infrastructure is less developed.
Accounting and strategic advisory MSA said in its report, ‘Consumer Electronics in China: Market Trends and Future Outlook’, that brick-and-mortar stores remain significant in China as many customers still prefer to visit physical stores to see and test electronics before buying.
“However, online sales are rapidly increasing. In 2022, 57.8 per cent of home appliance sales were online, indicating a clear shift towards e-commerce,” the report said.
According to IDC’s Global Retail Survey 2023, approximately 50 per cent of retailers in China plan to invest in mobile devices and wearables for store associates over the next three years.
“These investments will focus on enhancing clienteling, providing real-time inventory and fulfilment information, reducing queues, enabling mobile POS, and supporting employee task management and self-service. This is a crucial part of their strategy to improve in-store and on-premises operations,” Gollipalli said.
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