NEWS  /  Analysis

Microsoft Shuts Down Its Brick-and-Mortar Stores in China

By   xinyue  Jul 02, 2024, 12:39 a.m. ET
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A Microsoft spokesperson said on Tuesday that the company continuously evaluates its retail strategy to adapt to changing customer needs. They confirmed the decision to consolidate their channel approach in Chinese mainland.

AsianFin--U.S. tech giant Microsoft announced on Monday it is streamlining its sales channels in Chinese mainland to better meet dynamic customer demand, in response to reports circulating on social media about the closure of all authorized offline stores.

A Microsoft spokesperson said on Tuesday that the company continuously evaluates its retail strategy to adapt to changing customer needs. They confirmed the decision to consolidate their channel approach in Chinese mainland. Customers will still have access to Microsoft's complete range of consumer products and services through retail partners and Microsoft.com, the spokesperson added.

According to a report from jiemian.com, the strategic adjustments are aimed at Microsoft's global Surface laptop series, which has seen declining consumer acceptance.

Some Chinese netizens on social media platform Xiaohongshu had claimed that Microsoft plans to shut down all authorized physical stores in Chinese mainland, retaining only its official online store and its presence on JD.com, a major Chinese e-commerce platform.

Microsoft's offline stores primarily sold products such as the Surface series laptops and Xbox game consoles. Back in 2020, Microsoft announced permanent closures of its global offline retail stores due to the pandemic, shifting focus to its online store on Microsoft.com and maintaining physical stores as "Microsoft Experience Centers" in London, New York, Sydney, and Redmond, Washington. The closure of these stores was estimated to cost $450 million, with no plans for layoffs.

After the pandemic, Microsoft's hardware products have been lackluster in sales performance. According to Microsoft's financial report for the third quarter of fiscal year 2024 released in April, quarterly revenue and net profit increased by 17% and 20% year over year, respectively, but the Surface and Xbox businesses recorded slow growth.

Specifically, device revenue continued to decline by 17% year over year in the third quarter, and excluding the recent acquisition of Activision Blizzard, Xbox content and services saw only a 1% rise.

Since the beginning of 2024, a global downturn in consumer electronics has persisted. Although Microsoft recently launched a new Surface with Qualcomm Snapdragon chips in May, device revenue has continued its downward trend for 12 consecutive months.

Prior to this, there were already signs of Microsoft shrinking its hardware business. In 2022, Microsoft discontinued its high-end laptop product, the Surface Book, released in 2015, known for its unique hinge and detachable design, with prices in China starting at 12,000 yuan.

Surface's performance has been underwhelming. Its strengths include a detachable design, touchscreen support, and pen input, but issues such as difficulty in repair, mediocre performance, high heat, and loud noise remain unaddressed.

Due to its high price and average user experience, the sales of Surface have been lackluster since its launch. According to research firm Gartner, Microsoft's share of the PC market with Surface laptops has never exceeded 2.1%.

Apart from business considerations, Microsoft has recently made several operational adjustments.

In May 2024, reports indicated that hundreds of Microsoft employees in China received internal emails about potential transfers to Australia, Ireland, and other locations. Microsoft responded by stating, "This is an optional internal transfer opportunity for some employees and will not impact our operations in China."

In June 2024, Microsoft President Brad Smith testified at a U.S. House hearing, mentioning that Microsoft's revenue in China accounts for approximately 1.5% of its total revenue, and efforts are underway to reduce its engineering operations in China.

Analysts noted that Microsoft's actions do not necessarily reflect the broader sentiment of U.S. companies operating in China. For instance, Apple has recently launched its highly anticipated augmented reality device, the Vision Pro, in China, marking one of its initial launches outside the U.S.

Additionally, multinational food and beverage giant PepsiCo recently broke ground on its first food production facility in Xi'an, Shaanxi province, with an estimated total investment of $180 million. This marks PepsiCo's fifth significant investment in China over the past five years, according to the Xi'an provincial government.