Microsoft Encroaches on Apple's Turf -- Literally -- With Huge New Flagship Store - TheStreet

Microsoft (MSFT) - Get Report wants the world to know that Apple (AAPL) - Get Report isn't the only tech giant that has eye-catching stores selling cool gadgets.

And to get that point across, the company is opening its largest retail store ever on Monday, just a few blocks away from Apple's own flagship store on 5th Avenue in New York City.

At a gargantuan 22,000 square foot and five floors, the store features Microsoft's Surface tablets positioned on rich wood tables, the ability to play Xbox One on huge digital screens and the opportunity to snag some free advice on how to better use finicky Excel. On Nov. 12, Microsoft will also open a smaller, 6,000 square foot flagship in Sydney, Australia as a means to capture tourists visiting the country from Asia.

The two new flagship stores will serve several purposes for Microsoft. The first is to simply sell some tech gear to tourists and those native to the area. "One reason we built these stores is to showcase the first-party products we do have," said Microsoft Stores COO David McAughan in an interview.

Video walls are featured prominently throughout Microsoft's new flagship stores.

Image placeholder title

Microsoft will also utilize the vast space to sell the best offerings from key third-party vendors such as Dell. For example, the store's third floor will house a Dell "experience shop," where customers will be able to shop the tech manufacturer's latest products and receive one-on-one service.

The final aspect to the flagship stores is to have them serve as worldwide marketing vehicles. "We think we are at that point in time where we think we have a real story to tell -- Fifth Avenue is an international destination, so it gives us a great leverage point to talk to customers around the world and in Sydney, it's also an international destination for Asians -- so we can showcase what the Microsoft brand is all about," explained McAughan.

Microsoft employees will show you how to play Minecraft like a pro.

Image placeholder title

The New York City store, for example, will be the only Microsoft retail store to display the company's augmented reality headset, the HoloLens, which costs $3,000 and won't begin shipping to developers until early next year. At some point, McAughan says the store's fifth floor will be used to run demos of the HoloLens, in addition to hosting Xbox gaming events.

Microsoft is well behind Apple in getting its brand's message out via fancy retail stores. For years, Apple has won plaudits for the sleek design of its stores and services such as the Genius Bar. And on Wall Street, Apple has been embraced for how quickly it has rolled out the eye-catching and mega-profitable stores around the globe. Apple Stores generate the highest sales per square foot of any retailer in the U.S.

Microsoft currently boasts only 111 retail stores worldwide compared to 456 for Apple. Its first store opened in Scottsdale, Arizona in 2009, when Steve Ballmer was still CEO, while Apple launched its first store way back in 2001. A total of nine Microsoft retail stores are projected to open this year.

Microsoft declined to disclose the financial performance of the store network.

"Apple has done a great job" with its retail stores, conceded McAughan. But the Microsoft executive stressed the company was not simply copying the look and feel of Apple's stores. "The video wall is a distinctive element -- the other thing we have incorporated very intentionally is a lot of wood, which we think gives a sense of warmth," said McAughan, adding that Microsoft "is about putting the customer at the center, not our product, not their data."

Although Microsoft is following Apple onto Fifth Avenue, one place it's not yet ready to plant a flag in and go head-to-head with Apple via a big retail store is China. Said McAughan, "we are not just about volume but also quality -- our focus right now is on this store, soon to be on the Sydney store; [we want to] get them up and running and have success with them and we'll see what happens after that."

Meanwhile, Apple continues to open up retail stores in China, in particular flagships, to tap into strong demand for iPhones and Apple Watches. By the middle of 2016, Apple will have 40 stores in China, up from 22 today. Apple CEO Tim Cook has said that China will eventually be Apple's largest market.