PRINT THIS STORY:

CHANGE TEXT SIZE:

APPLE SEES STORES AS KEY TO COMPANY’S GROWTH

BY LEE KESSLER

Most of Apple’s stores are in malls, but the company is branching out into lifestyle centers.

Apple Computer is betting the store on its future growth — literally.

As much as Apple likes to flaunt its technological breakthroughs, it’s the company’s sleekly designed stores that lie at the center of its growth strategy, says Fred Anderson, the Cupertino, Calif.-based company’s CFO. He called the fledgling retail effort “the key to growing our market share and driving the growth of the company,” in a May Macworld article.

Since opening its first two stores simultaneously in Tysons Corner Center, McLean, Va.; and Glendale (Calif.) Galleria in May 2001, Apple has opened 55 more, and is now in 26 states. More than 1 million customers a week pass through these stores, and a third of the U.S. population now lives within 15 miles of one, notes an Apple spokeswoman.

Apple is one of the hottest retailers at The Falls Shopping Center, located in Kendall, Fla., an affluent area outside Miami, says Julie Goldman, SCMD, the center’s general manager. The 8,300-square-foot store there, which opened in November 2001, is “doing great,” she said, though she declined to give sales per square foot data.

“There are many young families that shop here, and they are very computer-literate,” she said. “They want good technical support. This demographic has been key to Apple’s success here.”

While most of Apple’s stores are in malls, the retailer is also at home in lifestyle centers, says Terry McEwen, president of Memphis, Tenn.-based Poag & McEwen Lifestyle Centers.

“They have a very exciting store,” he said. “They’re different, they cater to an exceptionally loyal customer, and they do a very good business.” McEwen declined to give its sales per square foot.

Apple’s 6,200-square-foot store in Poag & McEwen’s Aspen Grove, Littleton, Colo., opened November 2001 in a space near Banana Republic, Gap and J. Crew. Poag & McEwen also has a 6,400-square-foot Apple store in its Saddle Creek center, Germantown, Tenn.

A primary target of these stores is the people the company calls “switchers,” those among the 97 percent of all computer users who use a PC but might be tempted, as Eve persuaded Adam, by the Apple.

Like Eve, the stores are seductive. Sophisticated design, in both hardware and software, has been an Apple hallmark since the company’s founding in 1976. The stores are carefully lit; they are bright without glare. The polished hardwood floors are warm and inviting, and the countertops feature clean, white curves. The signage is neat and spare, too. In fact, the primary external sign contains no lettering — just a big, white apple logo on a black field.

The store design seems to flow from the company’s iMac computer, with its flat-panel monitor mounted directly onto the half-sphere base (a white pod) in which the machine’s innards are housed. Some of the peripherals are just as striking: The sub-woofer of the Harmon-Kardon speaker system looks like a Cuisinart on steroids.

Good-looking as the Apple store is, it’s not just a pretty face. It offers what it calls a Genius Bar, where specialists teach customers new tricks in addition to fixing and upgrading their computers. Each store has one, and it could be the most popular department; the company estimates that half the people who enter the store venture over to ask a genius a question. The service is free, if you keep it short. More-involved technical issues carry a price tag: Data transfer from your old machine to your new one can cost $50. Troubleshooting your hardware could cost $75. The overall aim, though, is to provide a friendly reception for customers who might have a question or just need a little hand-holding.

All the stores offer a menu of 25 free weekly classes on subjects ranging from “Getting Started on Mac OS X” to “Adobe Photoshop Workshop.”

When it comes to sales, the staff (who are not on commission) are low-key. Indeed, just as Barnes & Noble encourages customers to browse, so does Apple. Each store is equipped with AirPort, Apple’s wireless network, allowing customers to surf the Web or check their e-mail. A recent visit to a store revealed one customer who had wandered in just to kill a little time with a quick game of solitaire. There is even a kids’ section that keeps the young ones occupied while their parents browse.

The company has two flagship stores: one in The Grove, the Los Angeles lifestyle center opened by Caruso Affiliated Holdings in March, the other in the SoHo section of New York City. Both have two floors with a central glass staircase and a 46-seat theater area for seminars. The SoHo store, which opened last July in a converted 1920s post office, is Apple’s largest, at 18,000 square feet. (Regular Apple stores span 6,300 or 8,300 square feet.) Some 1,500 daily visitors to the SoHo store, the company says, are served by staff that speak 12 languages. The company says that half the machines sold in that store go to the target switchers or to first-time Apple users.

The company has brought in high-profile retail professionals, led by Ron Johnson, senior vice president of retail and formerly of Target, to run the store operation. Johnson was joined by George W. Blankenship, former vice president of retail for Gap, and Gap’s former president and CEO, Millard Drexler, who now heads J. Crew, is a member of Apple’s board of directors.

Apple is keeping its cards close to its chest when it comes to details about the stores’ performance. The company declined to provide information about future growth, in malls or elsewhere. It even wanted details of its initial store rollout kept secret until the day the stores opened, and one mall landlord reported being rebuked by the company for divulging that a unit was coming to his mall.

This closed culture has been characteristic of the company from the beginning. In the late 1970s, when the personal computer industry was just forming, it was universally understood that the Mac technology was vastly superior to PC technology, especially in presenting an “intuitive” user interface. But in a rival stroke of brilliance that has been the subject of countless business school case studies, Microsoft Chairman Bill Gates made his company’s source code open and free to anyone who wanted to develop software. Apple, meanwhile, charged a hefty fee — and the rest is history. The PC purveyors left Apple in the dust, especially after Microsoft released Windows, the user interface that critics say was largely copied from the Mac.

All of this nearly spelled the death of Apple, which had to be resuscitated in 1997 through an investment of $150 million by none other than Microsoft itself. Even so, most industry analysts predicted that Apple would fail, and it still isn’t out of the woods. In the past six years, Apple has struggled to build itself as a niche player. The company’s second-quarter net profit of $14 million represents a 65 percent drop from the $40 million posted for the same period in 2002. Sales were flat, with the company shipping 711,000 units during the period. Apple blames the profit decline on increased expenditure on its retail strategy, as well as higher research and development costs and a $3 million restructuring charge.

That expenditure has been placed at $77 million for store expansion in fiscal 2003 alone, according to Merrill Lynch analyst Michael Hillmeyer. That amount, Hillmeyer wrote in January, “indicates to us that a significant uptick in store locations is on tap.” But Apple must control costs, he added. “While Apple’s marketing prowess remains top-notch, the retail stores only compound its problem in reducing costs.” Hillmeyer rates Apple’s stock volatility risk as high.

Steve Jobs, Apple’s charismatic co-founder and CEO, has been practicing cost control by taking an annual salary of $1 for the past several years. Perhaps we’ll know that the company is really back when he starts drawing a real salary.

Not everyone is happy about the Apple retail expansion. Their traditional resellers, such as Mac Warehouse, are taking a hit. Macworld magazine reported that several of the larger resellers, the ones that provide sales and technical support, have filed lawsuits against Apple alleging unfair competition and breach of contract. But retail experts say the retail option provides a fresh opportunity for Apple customers and perhaps also for shopping center developers.

© 2010 ICSC. All rights reserved. | Terms and Conditions | Privacy Policy | Contact ICSC | ICSC Home |