Will Retail Stores Make Google Inc. As "Cool" As Apple Inc.?

By Markets Fool.com

Google recently took baby steps into the brick-and-mortar retail space with its first "shop within a shop" in Currys PC World in London. The store replaces Google Chrome Zone, a smaller section for Chromebooks that launched in 2011.

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Google's first "shop in shop" in London. Photo source: Google.

Google's new store showcases a wide range of Android and Chrome OS devices and helps customers learn how to use them at classes and events. Google also plans to host "Virtual Space Camps" at the stores to teach children the basics of coding. The company plans to open two more "shop in shop" stores in the U.K. later this year, but it's unclear if stand-alone stores will follow.

Google's interest in the retail space isn't surprising, since Apple and Microsoft already operate brick-and-mortar stores. Apple CEO Tim Cook recently announced that Apple now has 453 stores worldwide, and that over 120 million customers visited them in the fourth quarter of 2014. Microsoft currently has 111 retail stores worldwide.

Can Google replicate Apple's success?
There has been plenty of speculation about Google countering Apple's retail blitz, which started in 2001. Back in 2013, reports claimed that Google would launch retail stores across the U.S., but that never happened. Last year, Google sent its unfinished barges, originally intended to be floating retail showrooms, to the scrap yard.

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But this time, things might be different. Google's U.K. marketing director, James Elias, noted that retail is still an essential way to reach potential buyers. In a statement, Elias stated:

The pace of innovation of the devices we all use is incredible, yet the way we buy them has remained the same for years. With the Google shop, we want to offer people a place where they can play, experiment and learn about all of what Google has to offer.

Apple also tested the "shop in shop" format back in the late 1990s before building stand-alone stores. After adding an Apple shop-in-shop to CompUSA's store in downtown San Francisco, Mac sales surged from 15% of store sales to 35%.

Today, stand-alone Apple Stores are so popular that they actually lift mall sales by 10%, according to Green Street Advisors. That boost gives Apple the power to negotiate below-market rental fees from mall operators. If Google can secure similar deals by boosting mall traffic, its retail locations could promote its devices at a minimal cost.

Why Google is hesitating
Yet the key difference between Google, Apple, and Microsoft is
hardware production. Google specializes in software, but it only manufactures a few devices -- such as the Chromecast and Chromebook Pixel -- on its own. The majority of Android and Chrome devices are manufactured by OEM partners like Samsung, HTC,and Acer.

By comparison, Apple manufactures all of its iOS hardware, and Microsoft's hardware footprint now encompasses Xbox One consoles, Surface tablets, and Lumia phones. Therefore, selling hardware through brick-and-mortar stores puts money in Apple and Microsoft's pockets, but only a handful of devices generate any revenue for Google. Instead, Google monetizes Android and Chrome devices through search revenue, ad revenue, and app sales.

An Apple Store and a Microsoft Store. Source: Wikimedia Commons, Mikhail Shcherbakov (L), Collins (R).

Therefore, stand-alone retail stores would be a great way to publicize Android and Chrome devices, but the return on investment will probably be substantially less than at Apple or Microsoft stores. That's probably why Google is taking baby steps with Chrome Zone and shop in shops instead of launching big stand-alone stores.

Google's future in retail
Despite those issues, I believe stand-alone Google stores can succeed if it jointly launches them with OEMs.

For example, Google can open the store, then rent out floor space to OEMs to set up their own shop in shops. Samsung, the top Android and Chromebook maker, previously set up "Samsung Experience Shops" inBest Buy stores to boost brand recognition. Samsung opened up stand-alone stores worldwide as well, but it shut down its flagship London location last December, presumably because of the poor performance of its mobile business over the past year. However, Samsung would likely be willing to sign a lighter brick-and-mortar deal with Google to increase its retail presence.

For now, Google will likely play it safe and stick with shop in shops instead of expanding into stand-alone stores. But if it expands to malls and beyond, I believe Google stores might become every bit as hip as (if not hipper than) Apple stores.

The article Will Retail Stores Make Google Inc. As "Cool" As Apple Inc.? originally appeared on Fool.com.

Leo Sun owns shares of Apple. The Motley Fool recommends Apple, Google (A shares), and Google (C shares). The Motley Fool owns shares of Apple, Google (A shares), and Google (C shares). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.