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November 28, 2007

stores

What a difference six years makes

Posted Nov. 28, ’07, 8:02 AM PT by Dan Moren
Category | Apple » Stores

Apple StoreThanks to the Internet, we can now afford to keep records of each and every careless or incorrect statement ever made by anyone anywhere. Truly one of the great technological innovations of our time, it’s also a double-edged sword, to be sure (your late 1990’s enthusiasm about The Backstreet Boys, for example, will be preserved for all time).

But, if nothing else, it certainly provides an interesting perspective on what people were thinking at the time. Currently making the rounds is a BusinessWeek article from May 2001 about the imminent launch of Apple’s retail stores. As you’ll see, things didn’t turn out exactly the way this one writer predicted.

The way Jobs sees it, the stores look to be a sure thing. But even if they attain a measure of success, few outsiders think new stores, no matter how well-conceived, will get Apple back on the hot-growth path. Jobs’s focus on selling just a few consumer Macs has helped boost profits, but it is keeping Apple from exploring potential new markets. And his perfectionist attention to aesthetics has resulted in beautiful but pricey products with limited appeal outside the faithful: Apple’s market share is a measly 2.8%. “Apple’s problem is it still believes the way to grow is serving caviar in a world that seems pretty content with cheese and crackers,” gripes former Chief Financial Officer Joseph Graziano.
That may have been the case six years ago, but today it’s an approach that’s working like gangbusters. Turns out while many people may be satisfied with their cheese and crackers, they turn out to prefer caviar when they actually try it.

I’d argue that the retail stores have been a major part of Apple’s renaissance; Steve Jobs is a control freak with good reason; unlike many other CEOs, he’s passionate about the products he sells, and conveying that passion to end users is what has made Apple such a force to be reckoned with.

Just as Apple has long focused on making the whole widget, entering the retail market allowed them to put their hands on the entire experience, from the creation and promotion of the computers all the way down to the consumer-level purchasing decision. It’s Apple’s way of controlling the message: in a big, mainstream store, Macs are just one computer among dozens. But promote it to the level of independent storefront, and all of sudden you don’t need to compete with other PC vendors. Most people who walk into Mac stores are already sold on a Mac: it’s just a matter of which model they’re going to buy.

Back in ‘01, the only major PC vendor to attempt a similar strategy was Gateway. That made them a natural target for comparisons:

Problem is, the numbers don’t add up. Given the decision to set up shop in high-rent districts in Manhattan, Boston, Chicago, and Jobs’s hometown of Palo Alto, Calif., the leases for Apple’s stores could cost $1.2 million a year each, says David A. Goldstein, president of researcher Channel Marketing Corp. Since PC retailing gross margins are normally 10% or less, Apple would have to sell $12 million a year per store to pay for the space. Gateway does about $8 million annually at each of its Country Stores. Then there’s the cost of construction, hiring experienced staff. “I give them two years before they’re turning out the lights on a very painful and expensive mistake,” says Goldstein.
These numbers are based on informed speculation, let’s look at some actual figures. Apple reports its sales numbers quarterly: in 2007, the Apple Stores had revenue of $4.12 billion, an average of $23.1 million per store, almost doubling Goldstein’s projected necessary numbers.
What’s more, Apple’s retail thrust could be one step forward, two steps back in terms of getting Macs in front of customers. Since most Mac fans already know where to buy, much of the sales from Apple’s stores could come out of the hides of existing Mac dealers. That would bring its already damaged relations with partners to new lows. In early 1999, Best Buy Co. (BBY ) dropped the iMac line after refusing a Jobs edict that it stock all eight colors. Sears, Roebuck & Co. (S ) late last year dumped Apple, sources say, after concluding that sales were too hit or miss. And in recent weeks, Mac-only chains such as The Computer Store and ComputerWare have closed down, citing weak margins. Now, faced with competition from Apple, others may cut back. “When you choose to compete with your retailers, clearly that’s not a comfortable situation,” says CompUSA Chief Operating Officer Lawrence N. Mondry.
Partnerships, by Jobs’s own admission, are not Apple’s strong suit. Major retailers like CompUSA never knew how to sell the Mac; their salespeople were untrained and apathetic. Of course, CompUSA itself underwent some serious challenges, closing more than half of their stores earlier this year. And Best Buy once again joined forces with Apple, putting into place small “mini stores” that mimic the aesthetic and design of Apple Stores.

Now, my point here is not to discredit the BusinessWeek article—in 2001, with many tech companies reeling from the dot-com collapse, opening a chain of retail stores seemed ridiculous; at the very least, it was a gamble. But Apple succeeded spectacularly, and with that success came the resurgence that we are still basking in today.


5 Comments

fletcher Author Profile Page said:

Apple had two important advantages over Gateway. First, Gateway tried to use their stores as a showroom for online sales. For the most part you would order your machine and receive it a couple days later by mail. Jobs insisted that the Apple store would provide the immediate experience of buying a Mac, opening it with your kids, and getting started.

Second, the freaking iPod! The Apple Store is premiere place to go buy an iPod. They carry lots of iPod accessories. And, they have iPods sitting out where you can play with them, watch videos, look at pictures, even listen to earphones.

Prior the Apple Stores opening I did most of my Mac shopping at CompUSA. And, I was faithful to CompUSA until all the local stores shut down. They were a bit cheaper than the Apple Store, had better locations, and in many ways had better selection. With their loss, I really value having local Apple Stores where I know I can find Mac accessories if I can't wait for mail order.

Finally, The Computer Store is still open. It's now called The Mac Store and has numerous locations in Oregon and a couple in Washington. They sell Macs and iPods. When I need out-of-warranty service they are a great resource. I do try to buy from them when I can.

November 28, 2007 8:12 AM
Nigel said:

It would be really interesting - and I mean that in a positive way (rather than as a chance to gloat) - to hear what David Goldstein would say today about Apple's runaway retail success. Sure he got it way wrong, but most people did... so what does he think now?

Slim chance, I suppose...

November 28, 2007 11:19 AM
Dave-O said:

Obviously it's easy to look back and laugh, but there's a huge logic problem in the quoted material. If you accept that macs are expensive, then you can't honestly suggest that it is a mistake to target high-end shoppers (the ones picking up caviar). And you can't then compare sales of cheaper goods in low-end venues to the the sales you expect at high-volume high-end shops.

How many BMW dealerships do you find next to a Wal-Mart?

November 28, 2007 12:08 PM
Michael Long said:

As I pointed out in the article below, I think another major difference that's consistently overlooked is the Genuis Bar.

Where, wonder of wonders, you can actually talk face-to-face to a real, live human being, and get answers to your questions and solutions to your problems. And this at a time when everyone else is trying to offshore support to a call center in India.

Buying a computer is one thing. Getting it to work, however, is something entirely different.

http://www.iSights.org/2007/11/the-15-dumbest-.html

November 28, 2007 3:57 PM
anthony williams said:

I bought a mac mini online, and it ended up not working. I had to actually drive an hour and a half to the mall to go to the mac store. i ended up traeing the macmini in for a macbook. It was the best computer decision ever. this computer rocks!!!!!!

November 30, 2007 8:57 PM

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