April 24, 2009

Apple 2.0: Apple Stores: The big chill

Filed under: News — hypeplug @ 4:14 pm

Mac news from outside the reality distortion field
April 24, 2009. 8:48 AM

Apple Stores: The big chill

Is there an Apple Store near you? Count yourself lucky, because the days of Apple’s (AAPL) aggressive expansion into the branded retail space are over — at least for now.

After opening more than 250 company-owned stores in eight years — an average of better than 15 per quarter — Apple in the last quarter opened just one.

The building slowdown is one of several moves that Apple has made in response to what COO Tim Cook this week called a “horrendous economy.”

Although Apple’s revenues grew more than 8% year over year in its second fiscal quarter, the average take per store took a 17% hit, falling to $5.9 million from $7.1 million in 2008.

So Apple has been cutting back. According to its latest SEC 10-Q filing, the company has slashed the ranks of its retail employees — from the equivalent of 15,600 full-time workers at the end of its December quarter to 14,000 in March, a net loss of 1,600 jobs.

It has also been closing stores — temporarily, for renovations — at a stepped up pace. IFOAppleStore, the definitive source for news of Apple Store openings, has been reporting round after round of retrofits. The latest cycle calls for stores to be temporarily closed in Tigard, Ore., Woodland, Mich., and White Plains, N.Y.

As its SEC filing notes, Apple-owned stores requires a “substantial investment in fixed assets and related infrastructure, operating lease commitments, personnel, and other operating expenses. … The Company would incur substantial costs if it were to close multiple retail stores.”

That doesn’t necessarily mean Apple plans to shutter a lot of stores, but it could signal a major reassessment of its retail strategy.

I believe Apple is at a dangerous crossroads with retail and must make very careful decisions here,” writes a retail management expert who posts on Investor Village’s AAPL Sanity board under the handle nontekkie. Although he believes Apple is doing the right thing, he also sounds a warning:

And as sales drop, expenses must be cut. So Apple faces the conundrum of cutting payroll and risking the service part of their reputation because they have sent the sales portion of their product to Best Buy, Wal Mart, AT&T, etc etc. The product gains wider distribution, the customer gains convenience, but Apple risks running stores in the red or losing their service strength.

Apple retail stores… are not meant to saturate a market, they need to be a destination. With resellers all over and product available online … the fewer the stores the better.

“It’s just too easy to buy Apple anyplace now, as much as I’d like to see Macs in a Wal-Mart, I believe that would be the death of most Apple stores, because they cannot exist on service alone.

“Either get out of retail or cut back, do not expand, and decide whether you want boutique resellers or mass merchant resellers — do not use both.” (link)

To get a feel for what it means to Apple’s customers for the company to open a new store in their city — and what a loss it would be if that were to stop – check these out:


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