Microsoft Juggernaut May Find Apple Unsquashable at Retail

Last Updated Jul 24, 2009 1:53 PM EDT

Apple stores continued onward and upward in the latest quarter, but Microsoft took another step toward challenging its rival's retail ascendancy.

In Apple's third quarter conference call Tuesday, Peter Oppenheimer, senior vice president and CFO said, as transcribed by SeekingAlpha:

The stores recognized $1.5 billion of revenue during the quarter, compared to $1.45 billion in the year-ago quarter. Our stores sold 492,000 Macs compared to 476,000 Macs in the year-ago quarter, and about half the Macs sold in our stores during the June quarter were to customers who never owned a Mac before. We opened six new stores during the quarter, bringing us to 258 stores, and we also completed 27 store remodels.
Not all the news was good. With an average of 254 stores operating in the third quarter, unit average revenue was $5.9 million compared to $6.8 million in the year-ago quarter, which could mean some unit-level cannibalization is occurring or it could simply represent an overall sales shift toward comparatively less expensive products -- iPhones versus laptops -- or within the product line. Even if that is the case, ancillaries count for quite a bit as the owners of Mac equipment start purchasing software through its various online shops, including iTunes and the Ap Store. A call to Apple seeking clarification on the result was not returned. Anyway, Apple's real-life stores keep rolling them in, hosting 38.6 million visitors during the quarter, the company stated, 22 percent more than in the year-ago period.

In addition, Oppenheimer added:

We successfully launched the new and improved one-to-one program and hosted a record 667,000 personal training sessions during the quarter. We remain on track to open a total of about 25 stores during fiscal 2009 and to complete the remodel of 100 stores to our new design. We are also looking forward to opening our first store in France during the holiday quarter.
Overall, Apple's quarter was so good, Citigroup analyst Richard Gardner called it "irreproachable" in a research note. Morningstar analyst Rick Hanna noted that Apple's ability to keep merchandise moving demonstrated the ongoing value of the sales floors it operates, asserting, "We believe the company's retail store is also a powerful means to reinforce its brand and expose new consumers to its broad product line."

Which has got to tick off Microsoft. In fact, it clearly has, to the extent that the company took another step in its own retail offensive, hiring George Blankenship, a former Gap executive who also had a hand in the launch of Apple's retail arm in 2001. He should be instrumental to Microsoft's fall launch of its own emporiums.

Microsoft has been tapping retail executives for a while, displaying a particular penchant for managers with Wal-Mart experience. In 2005, it hired former Sam's Club CEO Kevin Turner for the position of chief operating officer. Early this year, Microsoft appointed former Wal-Mart vice president and general merchandise manager of entertainment David Porter as corporate vice president of retail stores, charging him with, among other duties, the development and opening of its own outlets. Porter reports to Turner.

Microsoft has reiterated an intention to open stores more than once recently, even saying it would debut locations immediately adjacent to Apple's own boutiques. Microsoft has the money and is getting the talent, but it might find challenging Apple's retail operation daunting. Even Disney had a hard time in the retail business, which takes more than money and talent to get right. Given its occasional difficulty in serving the consumer, which is something the Vista situation demonstrates, Microsoft could have a tough go of it.