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The Reasoning behind Square’s Physical Store Model

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Square opens a showroom store

Square (SQ) is expanding its marketing strategy to include showroom-like physical stores. The company opened its first brick-and-mortar store last month in Manhattan, Bloomberg reported.

Square has outlined specific goals it expects to achieve with the physical store model. The goals include improving customers’ experience, introducing shoppers to the Square brand, and boosting sales for its merchant customers.

Merchants can make appointments with Square store employees to get technical help with the company’s hardware and software products. Square sells credit card readers and offers a range of service and software solutions.

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Software and services as a main source of revenue

Sales of card reader hardware contribute only a tiny fraction of Square’s revenue. The company generates the bulk of its revenues from software and services. The services Square offers include small loans to its merchant customers. Besides interest income from these loans, the credit business is also helping Square build a loyal base of customers.

The above chart shows Square’s revenue by segment for 2Q17.

The company hopes to use the physical store model to draw more customers to its platform, especially encouraging the use of its services and software—which are more profitable operations.

Promoting customers’ products

Square is mainly a mobile payments processor, which makes it a competitor with PayPal (PYPL), Apple (AAPL), and e-commerce providers like Amazon (AMZN) and Alibaba (BABA) that have in-house payment support on their marketplaces.

Square also uses its physical store to showcase its merchant customers’ products, a strategy that could be a big draw for merchants to use Square products.

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