Observations and Opinions About Apple Retail

by Ben Bajarin   |   August 22nd, 2012

Credit: Apple

As Tim pointed out earlier in the week, Apple competitors have many things to be worried about. Strategically, however, Apple’s retail presence would be one of the biggest things keeping me up at night if I was competing with Apple.

Unlike most companies, Apple sells directly to the end customer who will be using their products. Apple has and owns a clear and distinct relationship with their customers. Many other companies sell to retailers, or the channel, and therefore have a more hands off relationship with their customers. In fact, for many non Apple customers, if a relationship exists it is with a retailer and it is weak at best.

Looking forward to the next decade, and perhaps longer, Apple’s retail strategy and presence will be one of the driving forces helping set them apart from the competition and engaging in an ongoing relationship with their loyal customers.

Steady, Healthy Growth

Earlier this week Apple inevitably became the most valuable company in history. I firmly believe that their retail strategy played a key role in making this happen. I also firmly believe that their retail strategy will continue to play a key role in continuing their value growth.

To get a better picture of what is happening with Apple retail I made a chart looking at retail store visitors per quarter going back to 2009. On top of the retail visits data, I layered on key milestones of product sales for specific quarters. I also added at the bottom how many stores were open at key points in the growth cycle.

As you look at the above slide, the following observations stand out. It is obvious that Apple is on a steady growth trend. Apple’s growing retail store presence globally, as well as their growing number of visitors per quarter, remains on a steady upward trend along with nearly every other part of their business.

Notice also that with each growth trend, a new baseline was established. With each growth cycle a new normal was established with the exception of the last holiday quarter. The same is true with key product sales like Macs, iPads, and iPhones. They may dip slightly but not below past year-over-year growth. My chart shows that this is true since 2009 and my guess it goes back even farther.

Therefore, there is no reason to assume Apple’s steady growth trend will not continue going forward. In fact, Apple’s growth is following closely the growth of key segments of the market. Year after year as the total addressable market for smartphones and tablets grows. As it does so do all areas of Apple’s business. Interestingly Apple’s Mac business is also growing even as the market for traditional PCs stays relatively flat. I believe Apple retail has something to do with that. Since key markets still have a massive amount of headroom (particularly in China) to grow we can be assured that Apple’s ability to capture share of that growth is more than likely.

The key in this scenario in my opinion is that consumers have a premium shopping experience with Apple retail. Apple’s latest quarterly retail revenue came in at $4.1 billion which is admirable in itself but Apple still does more sales from the channel than they do from their own retail presence. But these retail outlets exist for more than just driving sales.

The Best Place to Experience Apple Products

The nearly 400 Apple retail establishments exist to support at a fundamental level that I highlighted at the beginning of this column, which is to manage and actively engage an ongoing relationship with their customers. Part of that relationship is the freedom to discover. This is why Apple stores are constantly packed. Consumers are going in and looking at products and experiencing new ones. Apple has intentionally designed their stores to maximize and showcase the best experiences with all their products. This is something that is void in all other retail establishments where electronics are sold. These stores don’t just carry Apple products but also a highly selective and curated selection of third party products that help maximize the value of Apple’s ecosystem.

Other parts of the relationship that are key to Apple retail is training through free workshops and support through the Genius bar. I am continually shocked at how many people I see taking the free workshops and learning how best to use the new Apple products they bought. Every time I go into Apple retail stores their training centers are packed. Consumers we interviewed who took the time to get trained on their products overwhelmingly were glad they did it and felt empowered to use their products to their full potential. You are hard pressed to find anything remotely similar with other personal computing platforms.

Lastly, I firmly believe that Apple retail plays one last role holistically with consumers. They create loyalty. Apple has had no problem growing a large loyal base of customers but the trick is to attract new customers and keep them loyal. The data continues to show that Apple is continuing to bring upwards of 50% new customers to Apple products within key product segments. Keeping new customers loyal is key. Apple doesn’t struggle with a tremendous amount of churn and Apple’s retail will continue to play a role in that reality. There are many fundamentals on why Apple’s platform establishes loyalty but retail remains a key part of this strategy for many of the reasons I outlined above.

Apple retail, in my opinion, is one component of the many fundamentals to their strategic and competitive advantage. I continue to keep a watchful eye on all information and quarterly reports related to Apple’s retail because the health of their retail will tell us a lot about their overall health and growth opportunities as a company going forward.

And keep in mind, Apple has barely scratched the surface in China.

Ben Bajarin

Ben Bajarin is a Principal Analyst at Creative Strategies, Inc - An industry analysis, market intelligence and research firm located in Silicon Valley. His primary focus is consumer technology and market trend research. He is a husband, father, gadget enthusiast, trend spotter, early adopter and hobby farmer. Full Bio
  • Rich

    Ben, Apple doing business in China could involve challenges with the government, and possibly with Chinese competitors. What do you think Apple’s prospects in China are?

    • benbajarin

      From what I have heard that market is still accepting of Apple and the stores. They realize that it is helping the economy and Chinese consumers are embracing the brand. I think Apple has massive growth opportunities in China.

      Keep and eye for more unique innovations from Apple specifically for the Chinese market. Like some of the things they did with Mt Lion for example.

      These are the kinds of things that will ignite that market for Apple. If the Chinese consumers feel Apple is not just re-selling them what they make for America but rather bring unique innovations just for them, they will continue to adopt and become attached to Apple products.

  • FalKirk

    Not only are Apple’s stores of immense value, they are virtually competitor proof. It has taken Apple 10 years and an immense investment of time and money to create their current retail empire. Copying it would be almost impossible.

    Microsoft has started down the path of re-creating the Apple Retail Store experience, but Microsoft’s products are software and are ill-suited for retail. All in all, I think that the Microsoft store experiment is a misjudgment on Microsoft’s part rather than any threat to Apple.

    • Rich

      If Microsoft sells the Surface in their retail stores, that’s a hardware product, and so are phones that use Windows Phone 7. But Windows Phone 7 hasn’t sold well and we don’t know whether the Surface will be successful in the marketplace.

      The retail stores and the Surface are surely an attempt by Microsoft to find a new direction, and one that targets the consumer as opposed to their traditional enterprise-oriented business. No doubt the company is well aware they’ve got a lot – make that a whole lot – riding on the new direction.

    • benbajarin

      Yes and I am very curious what everyone’s thoughts are on to the degree that this branded store is the future. I am tending to lean toward the reality that in the future, perhaps the distant future, most brands will need to control their own retail stores.

      This happens to be how it is done in China and it works very well.

      • mhikl

        “I am tending to lean toward the reality that in the future, perhaps the distant future, most brands will need to control their own retail stores.”

        Samsung has opened a store in Australia and it looks like a child’s play store knock off of an Apple Store with cheap tables and lots of blue lights. And empty except for a few confused souls and bored talent spaced about the room. The store has a help bar and Samsung boffins in blue shirts to boot.

        Thinking outside the box again, Samsung?

    • RedMercury

      I’m not so sure.

      Consider “the Mojave Experiment.” Basically, Microsoft showed Windows Vista to a bunch of people who came in with a poor opinion of Vista but had never used it. They were all very impressed. Microsoft tried to make ads out of this, which was a bad idea. But it did show Microsoft that they’d lost control of “the message.”

      Apple had a similar problem back in the late-90s/early 2000s. People who had never used Macs had a poor opinion of them. They were slow. They crashed a lot. You couldn’t use them on the Internet. They went into a retail store and saw a few lonely Macs sitting in the corner with broken keyboards and screens that were all messed up. Apple needed a way to “control the message”–to let people know how good Macs were.

      Apple’s stores were started with this in mind. “Macs don’t have software? We’ll put in a great big row of third-party software right down the middle of the store so people can see this isn’t true.” “Macs can’t get on the Internet? We’ll make sure every Mac in the store can use the Internet so people can see what they can do.” Dispel the myths and then people can make a choice.

      That’s what Microsoft is trying to do with their stores. And, much like Apple originally said, if the stores manage to break even, that’s a bonus.

      • FalKirk

        “I’m not so sure. … Apple needed a way to “control the message” … That’s what Microsoft is trying to do with their stores.” – RedMercury

        Ask yourself: Who is Microsoft’s customer? Their traditional business model is to partner with manufacturers, cooperate with business and IT and solve their problems. They, not the end user, are Microsoft’s customers.

        Now Microsoft wants to have it all. They want to please their manufacturers and compete with their manufacturers (Surface). They want to cooperate with IT and undermine IT with Bring Your Own Devices.

        A retail store does nothing for Microsoft’s manufacturer and business customers. It only serves the tiny portion of Microsoft’s business than sells to consumers.

        A retail store leverages ALL of Apple’s strengths, but it only leverages a tiny portion of Microsoft’s goods and services

  • http://www.BarnesFamily.com/ davebarnes

    I am pretty sure that some Chinese oil company is larger than Apple.

    • steve_wildstrom

      Apple is only the largest company as measured by market capitalization. The giant of Chinese oil, CNOOC, has a market cap of just $86 billion.