Apple Shines in Retail Marketplace

Discussion
Mar 09, 2007

By George Anderson

Apple has always been known for its legion of loyal fans – those diehards who have stuck by the company even as everyone else seemed to see Windows as the only operating system in the world.

It was this as a backdrop that led to so much open scoffing when Steve Jobs and company announced Apple would open its own retail stores and reduce its reliance on third-party merchants.

Five years after the first Apple Store opened, it has proven the naysayers wrong by being named as America’s Best Retailer by Fortune magazine.

Mr. Jobs, Apple’s CEO, tried to explain the success of the company’s stores. “People haven’t been willing to invest this much time and money or engineering in a store before,” he said. “It’s not important if the customer knows that. They just feel it. They feel something’s a little different.”

What is also different about Apple’s 174 retail locations is the amount of revenues generated by stores across the country. The average sales per square-foot at Apple Stores is $4,032.

Apple found its way into retailing in large part because of the lack of support it felt it was getting from those selling its products. This was especially true of the larger chains that saw the market for Macs as miniscule compared to hardware and software made for Windows.

“I started to get scared,” said Mr. Jobs. “It was like, ‘We have to do something, or we’re going to be a victim of the plate tectonics. And we have to think different about this. We have to innovate here.'”

Innovation is something Apple knows about, but retailing was a completely different challenge.

“We looked at it and said, ‘You know, this is probably really hard, and really easy for us to get our head handed to us.’ So we did a few things. No. 1, I started asking who was the best retail executive at the time. Everybody said Mickey Drexler, who was running the Gap.”

Mr. Drexler joined the Apple board and then Mr. Jobs went in search of someone to run the retail operation. The person he found was Ron Johnson, a former merchandising chief at Target.

“One of the best pieces of advice Mickey ever gave us was to go rent a warehouse and build a prototype of a store, and not, you know, just design it, go build 20 of them, then discover it didn’t work,” said Mr. Jobs.

What Messrs. Jobs and Johnson discovered in the warehouse wasn’t pretty.

“We were like, ‘Oh, God, we’re screwed!'” he said. “”So we redesigned it,” he says. “And it cost us, I don’t know, six, nine months. But it was the right decision by a million miles.”

One of the redesigns included the popular Genius Bar, which is being expanded in many current and in all new Apple Stores.

“When we launched retail, I got this group together, people from a variety of walks of life,” said Mr. Johnson. “As an icebreaker, we said, ‘Tell us about the best service experience you’ve ever had.'” Of the 18 people, 16 said it was in a hotel. This was unexpected. But of course: The concierge desk at a hotel isn’t selling anything; it’s there to help. “We said, ‘Well, how do we create a store that has the friendliness of a Four Seasons Hotel?'”

The answer, he said, was “Let’s put a bar in our stores. But instead of dispensing alcohol, we dispense advice.”

“Apple has changed people’s expectations of what retail should be about,” said Candace Corlett of WSL Strategic Retail. “After they’ve seen Apple, how do they feel looking at a drugstore or the jeans section in a department store?”

Discussion Questions: What do you see as the keys behind the success of Apple’s retail business in-store and online? What impact has the Apple Store had on how retailers look at store design, product display, customer service, etc.?

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16 Comments on "Apple Shines in Retail Marketplace"


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Race Cowgill
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Race Cowgill
15 years 2 months ago

In my view, the deeper story here is beyond products, locations, store design, and customer service. From what we know, it appears that Apple started with an attitude of feeling it needed to learn how to do it right and that it didn’t have most of the answers off the bat. Maybe we could call this humility. In my view, this is something that I have almost never seen in another retailer. The difference is that many retailers have been in the business for decades, and have come to believe, understandably, that they certainly have most, or even all, of the answers. Unfortunately, however, this leads almost immediately to the position of not reconsidering assumptions when faced with even a common problem, such as how to break the seasonal or organizational sales cycles, not to mention more critical problems such as shrinking market share.

Craig Sundstrom
Guest
15 years 2 months ago

$4,032 $/sf…WOW! Who wouldn’t be impressed by that? Well, I guess brokers and builders of retail space might not be…if everyone reached those levels, literally 95% of America’s sales space could be plowed under. But that, of course, is the whole point: very few retailers could produce these kinds of numbers, no matter what they do.

Apple is the quintessential niche company: flawless execution certainly helps, and (in theory) everyone can do that…but everyone can’t be “different.”

W. Frank Dell II, CMC
Guest
15 years 2 months ago

Having visited the local Apple store it is easy to understand why many think it is a winner. Modern display, products you can try and very knowledgeable associates. They listen to your needs/problems and work to help. It is a pleasure to shop and I am a Windows/Dell user.

Carol Spieckerman
Guest
Carol Spieckerman
15 years 2 months ago

I believe that Apple has struck a brilliant balance between keeping the brand front and center and leaving it open for consumer interpretation. In the age of consumer empowerment and global retailing, Apple is (literally) plugged into the zeitgeist. Its use of white space in both advertising and store environment and a focus on experiential retail allows consumers to connect to the brand on their own terms; a look and an attitude that has become an influential modern standard (Uniqlo, American Apparel, Sony, etc.)

Glenn Ravdin
Guest
Glenn Ravdin
15 years 2 months ago

While I agree that Apple has been successful, it’s most recent advertising campaign falls short. While they do an effective job at selling against the PC to new users, they fail to address the migration issue for PC users. People need to feel comfortable knowing that if they switch platforms, they can continue to be productive at work and at home. Apple needs to reassure people that their applications will work the same way as they do on PCs.

Until they address this issue, they will continue to be a niche market product.

Jeff Weitzman
Guest
Jeff Weitzman
15 years 2 months ago

Lots of good comments above. Some highlights for me worth mentioning: can’t overemphasize the importance of Apple building a prototype store and being willing to start again when it wasn’t what they wanted.

Also, Apple’s focus on customer service mirrors their commitment to simplicity and elegance in their hardware. The Genius and Creative bars, the fact that their salespeople seems to really want to be there and help people, using technology like wireless handheld checkout systems to keep lines short and people happy, it all adds up to feeling good about the company and the experience.

Their approach to retail, like their hardware, is to take a lot of good ideas that exist in the industry and bring them together in a seamless, attractive package. That’s the secret sauce that gives them a cult following and they translated it to retail quite well.

MARY SALADINO
Guest
15 years 2 months ago
Yes, agreed, Apple’s success is due to all the things mentioned in Mr. Job’s interview and by the other discussion entrants. But it also succeeds because it has achieved the status of being a cult brand, due to the various marketing strategies the firm has undertaken. No one can argue the fact that the products are streamlined, look great, are user friendly, etc. This was and is Apple’s core competency. It is the fact that the company consistently built on those features, even while switching from a pure computer provider to its present position, as well as by the continuous introduction of new products, the opening of sleek stores, the introduction of a genius bar to further assuage any fears or concerns a consumer might have when and after purchasing, which makes consumers such blind and loyal followers. Every marketing ploy screams “I’m here for you” to the consumer. Why else would the lines to get into a new store opening seem tantamount to those at Disney World? We all know consumers are much more… Read more »
Bill Bittner
Guest
Bill Bittner
15 years 2 months ago

This is an interesting article on many fronts, but two things really stand out.

Taking the purely technical perspective, we cannot forget that in everything they do Apple has tried to “own the distribution channel.” Whether from necessity, as it seems they have done to save their hardware sales, or as an aggressive move to dominate the market place as they have done with iTunes, Apple remains in control of their destiny.

The second thing that struck me was thinking back on some of my recent purchases where the manufacturer’s package included the warning “do not contact the retailer if you have problems with this product.” No doubt these inserts are the result of some negotiations between the retailer and the manufacturer, but I wonder where the customer came out in that conversation.

Gregory Belkin
Guest
Gregory Belkin
15 years 2 months ago

Studying the rises and falls (and rises again) of Apple is always great fodder for case studies in interesting business models. The company has a reputation for being “different” and “above the fold” in technology and attitude. I believe it is this reputation that carries into their product success. Shoppers are are always interested in the unexpected and different, and Apple has succeeded in asking people to think (and shop) differently.

Another thing to keep in mind is that there is more or less only one place to get Apple computers, and that is from Apple. PCs… well you can get those pretty much anywhere. The success of their iBook and MacBook drive people right to their front door.

Ben Ball
Guest
15 years 2 months ago

The secret is right there in the closing paragraphs of George’s article. Note the one question Mr. Johnston says they asked customers when deciding how to build the retail environment.

“What’s the best CUSTOMER SERVICE EXPERIENCE you’ve ever had?”

That says volumes!

1. It’s an EXPERIENCE Apple creates.

2. The key to the experience is SERVICE.

3. The focus of the service experience is the CUSTOMER.

Not the product. Not more efficient retailing. Not collecting the maximum number of slotting dollars or display allowances. Not pushing the close-out merchandise to the front to get rid of it. Not (name your favorite retailing sin here)–but the customer.

Bill Bishop
Guest
Bill Bishop
15 years 2 months ago

Apple Stores focus on shopper experience, and product is secondary.

We’re actually seeing this same rotation of focus in other types of retailing such as the appliance business where it has been met with very favorable reviews.

The group cooking stores that are springing up around the U.S.–I’m told that there are more than 1,000 today–could well be one of the first examples of this phenomenon moving into food retailing.

Dick Seesel
Guest
15 years 2 months ago

Apple retired the “Think Different” slogan years ago but the concept and design of the Apple Store is true to the company’s culture and market position. Three things stand out:

1. Apple has been careful with its real estate strategy, and has not oversaturated any market with enough stores to feel “ordinary.” The stores become a destination for Apple devotees, not just places to feed off of mall traffic.

2. The store design obviously feels different…not only from the big-box electronics retailers but also from most other stores in the mall. The stark, uncluttered look adds a “cool factor” consistent with the brand’s goal of simple design and function.

3. Apple has paid a lot of attention to customer service in these stores…the “genius bar” being the latest push in this direction.

Coach stores may be the best parallel at retail to what Apple is accomplishing: Brand-image integrity…a design and staffing model that allows for “selling up”…and real differentiation even though the product is available at other retailers.

Kenneth A. Grady
Guest
Kenneth A. Grady
15 years 2 months ago
Apple often brings a creative approach simply by being the outsider willing to question how things are done. While the store’s design and operation certainly is part of the success, we can’t forget the products as the real drivers. The best store in the world with bad products still will do poorly. Perhaps the key to Apple’s success is understanding the store as entertainment, as well as the customer service aspect of a store. Most retailers have abandoned customer service to keep prices low. Apple has its price for products, but amps up the customer service to the level customers really want. Apple also matches the quality of the store design to the quality of the product design, another miss for many (most?) retailers. (Expensive store designs don’t equate to quality, in many instances. A stunning store design doesn’t necessarily convey the DNA of the brands featured in the store.) Apple made a huge bet and won. The challenge for other retailers is making that same type of huge bet, as frequently they won’t succeed.
Mark Lilien
Guest
15 years 2 months ago

Because Apple has the manufacturer’s margin plus the retailer’s margin, they can afford great service. Because their software and hardware is more reliable than the competition, their service efforts aren’t wasted. Because they’ve kept the number of stores very low, and because they have so few non-owned dealers, their sales per square foot are very high. Because they created store prototypes and tested the results before rollout, their tactics were proven. Having money and brains, they wasted neither.

Michael Tesler
Guest
Michael Tesler
15 years 2 months ago

They are probably succeeding because they do not follow established retail rules and procedures and they know and listen primarily to their customers.

Al McClain
Guest
Al McClain
15 years 2 months ago

As noted above, Apple is a great company with sleek, appealing products that do cool things. But, they can’t go much beyond their niche, at least with computers, because of the migration issue mentioned above. A terrific shopping experience doesn’t do the 95% of us with Windows any good unless/until they figure out how to make it a lot easier for Windows/Microsoft users to migrate over.
My one foray into an Apple store to consider buying a laptop was a delightful experience in terms of lighting, environment, willingness of personnel to try to help, etc. But, when we ran down the list of technical things that needed to be done to make the switch, and learn how to work in the Mac/Apple environment, it was overwhelming. Or, maybe I just don’t have the patience.

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