Apple Inc.'s (NYSE: AAPL) retail stores account for 20% of total revenues. According to the New York Times, that share is growing as its retail stores accounted for $1.25 billion of its $6.2 billion in third quarter 2007 revenues. Despite policies which let people linger for hours using its Internet connections for free, Apple earns $4,000 per square foot a year -- far more than its competitors.
This has been Apple's decade. People have been trying to escape into their own world to get their minds off the world's woes. With its personal escape devices -- such as the iPod -- Apple has capitalized on that need better than any other firm. And its retail stores reinforce that sense of escape. While the stores are well lighted and designed with appealing details such as maple veneer tables and a glass staircase, the key lesson for retailers is Apple's sales staff.
These smiling employees make customers feel special -- roaming the floor, carrying hand-held terminals for instant credit-card swiping. Technicians work behind the "genius bar" -- fixing customers' broken iPods, MacBooks and iPhones. Others -- called "personal trainers" -- give one-on-one instruction and lead workshops.
To me the most interesting thing is Apple's tolerance for what its competitors might see as freeloaders. The Times article describes one example -- Isobella Jade -- a short aspiring fashion model who decided to write a book about her efforts to break into the modeling business.
Since she couldn't afford a computer, she spent hours at the SoHo Apple store generating 300 pages of her manuscript. Rather than kicking her out, the SoHo Apple employees shut her computer down last, to give her a little extra time. A few months later, the store invited her to give an in-store reading from her manuscript. She still has not bought her own computer but Apple employees welcome her to check her e-mail.
How does Apple achieve such high sales in its expensive stores? Its competitive advantage is in the system -- not any individual piece. The products are great, the people are well trained and know what they're doing, the store design and lighting encourage a special event feeling all the time, and Apple e-mails a receipt to customers -- making them feel ahead of everyone else.
In an era where people feel a need to escape, Apple provides the ultimate electronic cocoon.
Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in Apple securities.
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Reader Comments (Page 1 of 1)
12-27-2007 @ 10:56AM
Scott said...
I had the opportunity to meet Ron Johnson a year and a half ago. Ron leads Apple's retail efforts. I asked Ron whether they were concerned about these "freeloaders" - people who hang out in the stores using it as a free Internet cafe instead of buying anything. He acted surprised, and said "of course not!" He then posed a question to me: "would you rather walk into a store that has lots of activity in it, or one which is virtually empty?" The crowded stores act like a magnet, and if the crowds are based in part on people who aren't buying at the moment, that's OK. Simply seeing lots of people using the product generates an atmosphere that draws customers in.
12-27-2007 @ 11:49AM
Chris Jones said...
And doesn't the story of the short model reflect one of Apple's advantages over Microsoft, i.e., Macs are usually fun to use and PCs are usually not.
12-27-2007 @ 2:55PM
Buck Futter said...
Hey Scott, you and Chris Jones replyong to a blog on AAPL written by some guy who's own blog is one above the Britney Spear's blog on her spending all her money. Check out the guy's website-1990's at best-the guy thinks he is some kind of VC guru-LOSER
12-27-2007 @ 3:01PM
Great Dane said...
Peter.
I saw you on CNBC today saying that, if you held AAPL, you would sell and take profits. You also said that you do not see Apple continuing its growth in 2008.
One factor that you may have overlooked is that they design and sell the best computers on the planet and their marketshare is growing steadily.
Here's some food for thought:
Apple at $200 is cheap:
http://news.moneycentral.msn.com/ticker/article.aspx?Feed=FOOL&Date=20071227&ID=7979875&Symbol=AAPL
Apple's new price target: $300
http://www.bloggingstocks.com/2007/12/27/apples-new-price-target-300/
I'll see what you think in twelve months.
12-27-2007 @ 4:49PM
Matt said...
"I saw you on CNBC today saying that, if you held AAPL, you would sell and take profits. You also said that you do not see Apple continuing its growth in 2008."
Great Dane, Peter would've said the exact same thing back in December of 2006.
Every year, the analysts spout off the same old crap that Apple can't continue it's growth, the iPod will lose market share, the iPhone won't be successful, blah, blah, blah. They laughed at those of us who thought Apple could be $200 by January '08. Looks like we were right and they were wrong, as usual.
And by the way, your $300 price target is too small. Think $400.
The Apple tornado is just beginning. Mac sales will double. iPhone sales will triple. And iPods should continue to see a steady 25%+ growth rate. And then there's AppleTV, which will become a player come January with movie rentals being introduced.
No room for growth Peter? Just as your personal website shows you're behind the times when it comes to web design, you're the same when it comes to Apple.