UPDATE 2-Nokia pulls plug on U.S. flagship stores

Thu Dec 10, 2009 8:11am EST

Related Topics

* Fails to replicate success of Apple retail stores

* Losing out in battle for cool smartphone customers

* Struggling in U.S. phone market

* Closing 4 stores: Chicago, New York, London, Sao Paolo

* Since Dec 2005 opened 12 stores in 'shopping capitals'

(Adds background on Apple rivalry, company, updates shares)

By Tarmo Virki, European technology correspondent

HELSINKI, Dec 10 (Reuters) - Nokia (NOK1V.HE) will close its only two flagship stores in the United States, in a sign its retail strategy of flashy brand-booster outlets is needing a refresh.

The world's biggest handset maker has suffered sharply in the economic downturn and is losing out in the battle for cool smartphone customers to Apple's iPhone, prompting it cut costs.

Nokia opened 12 stores in major cities around the world, hoping to replicate the success of Apple's (AAPL.O) retail stores, which have helped the U.S. gadget maker to boost its premium brand image.

"This confirms a turn in Nokia's retail strategy. It has failed to replicate Apple's success with this format of store," said Ben Wood, director of research at British consultancy CCS.

Nokia's brand is one of the most highly valued globally due to its strong position in emerging markets, but it is much lesser known in the United States.

"There is no reason for Nokia to have the flagship stores -- they cost too much compared to the value they create," said John Strand, chief executive of Danish consultancy Strand Consult.

"Flagship stores are important in fashion industry: Apple is fashion. Nokia is consumer electronics," Strand said.

Apple launched its store chain in 2001 and now runs more than 270 shops around the world. Microsoft (MSFT.O) recently followed suit and opened its first retail outlet in Arizona.

The rivalry between Nokia and Apple, which only entered the cellphone market in mid-2007 with its iconic iPhone, is increasingly fierce.

For a FACTBOX on Nokia and Apple, click on [ID:nGEE5B9132]

In October Nokia charged Apple for infringing ten of its patents in a case filed in a U.S. court.[ID:nLM664007]

Last quarter Apple generated more operating profit from its phone business than Nokia, despite selling 15 times less phones. Nokia has also tried to copy Apple's success with its online App Store, but has failed to gain traction.

Apple's success comes as Nokia battles a falling handset market this year. Nokia reported its worst ever quarterly result in July-September when it booked a 908 million euros ($1.34 billion) hit from its ailing network gear arm. [ID:nLF596616]

In the midst of recession Nokia has slashed annual costs by around 1 billion euros at its phone operations.

Nokia is now tightening its focus on the smartphone market -- where it has sold outdated models which mostly look the same and lack the touch screen of Apple's iPhone -- with a targeted push for fewer, more iconic models. [ID:nGEE5B227R]

NOKIA STRUGGLING IN U.S.

Nokia said on Thursday it would close the stores in New York and Chicago as part of a retail strategy revamp to better focus on cooperation with telecom operators and retailers.

Improving the company's position in the U.S. market has been a top priority for Chief Executive Olli-Pekka Kallasvuo since he started to run Nokia in 2006.

Since then, however, the company's U.S. market share has fallen to well below 10 percent. Globally, Nokia controls nearly 40 percent of the phone market.

Nokia is also closing one of its two stores in London and one in Sao Paolo, but said it has no plans to close down all the outlets. It opened its first flagship store in Moscow in December 2005.

Shares in Nokia were 1.2 percent higher at 8.65 euros by 1225 GMT, while the DJ Stoxx European Technology Index .SX8P rose 1.7 percent.

Nokia shares have dropped 23 percent since the start of the year, hurt partly by its ailing smartphone offering, while the DJ Stoxx European technology index, in which it is the biggest constituent, has risen 15 percent. ($1=.6799 Euro) (Reporting by Tarmo Virki; Editing by Steve Orlofsky and Jon Loades-Carter)

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