Apple's retail stores turn 10: Crow for sale

Apple's retail stores turn 10: Crow for sale

Summary: Apple's retail stores turn 10 and what looked like a boondoggle---and potentially a disaster in the making---has turned out to be one of the company's most brilliant moves. Here's a look at the early critics and the $7.3 billion in operating profits since then.

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Apple's retail stores turn 10 and what looked like a boondoggle---and potentially a disaster in the making---has turned out to be one of the company's most brilliant moves.

On May 19, 2001 Apple opened stores in Glendale, Calif. and McLean, Va. The master plan was to open 25 retail stores in the U.S. in 2001, all aimed at selling Macs and "digital lifestyle products" to complement the Mac.

Note what's missing: No iPod---those landed in October. Certainly no iPhone. And no iPad.

Photos: Apple stores, 10 years of gear

Another comical item comes in Apple's statement touting its retail store opening. Consider the first two paragraphs of that May 21, 2001 statement:

CUPERTINO, California—May 21, 2001—Apple today announced that its first two retail locations welcomed over 7700 people and sold a combined total of $599,000 of merchandise during their first two day weekend. The stores, located in Glendale, California and McLean, Virginia are the first of 25 stores the company is opening across the U.S. in 2001.

“We are blown away with the numbers,” said Steve Jobs, Apple’s CEO. “More importantly, customers have told us they love everything about the store—from the knowledgeable sales staff to the Genius Bar to the store’s design and unique approach to presenting digital lifestyle solutions.”

Today, $599,000 is a rounding error to Apple. And the company has added anywhere from 25 to 50 stores a year on average to easily top 300 locations.

Jobs' big idea was that customers "rather than just hear about megahertz and megabytes" could "learn and experience the things they can actually do with a computer, like make movies, burn custom music CDs, and publish their digital photos."

Despite Jobs' enthusiasm, tech watchers didn't quite get the Apple retail focus. Why? For starters, Gateway launched a bunch of stores only to shut them down. Tech was all about going direct online at the time. Stores---silly bricks and mortar---were a crazy idea.

BusinessWeek panned the Apple stores and delivered this money passage:

Given the decision to set up shop in high-rent districts in Manhattan, Boston, Chicago, and Jobs's hometown of Palo Alto, Calif., the leases for Apple's stores could cost $1.2 million a year each, says David A. Goldstein, president of researcher Channel Marketing Corp. Since PC retailing gross margins are normally 10% or less, Apple would have to sell $12 million a year per store to pay for the space. Gateway does about $8 million annually at each of its Country Stores. Then there's the cost of construction, hiring experienced staff. "I give them two years before they're turning out the lights on a very painful and expensive mistake," says Goldstein.

BusinessWeek noted that Apple's retail store launches would hurt already strained relationships with partners. Best Buy in 1999 dropped the iMac after Jobs ordered the retailer to carry all eight colors. Sears, Roebuck & Co. dumped Apple.

CNet News was more balanced, noting that some Apple fans and analysts thought the stores were a good concept. Other analysts didn't get it. Gateway's stores colored the perception at the time and the dot-com bust didn't help either. From a 2001 CNet News story:

The retail outlet openings have some analysts puzzled, considering the economy's impact on computer sales and Gateway's troubles with its Country stores. Combined PC and notebook retail sales in March plummeted 27 percent in units and 25 percent in revenue from a year earlier, according to NPD Intelect. Apple sales fell deeper, plummeting 29 percent in shipments and 35 percent in dollars.

I can't find my old clips from 2001, but I'm pretty sure I didn't see Apple's retail juggernaut coming either.

The prism of retailing when Apple launched its stores was seriously cracked. Apple outlined the issues in its 2002 annual report:

The Company originally expected the Retail segment to break-even in the first quarter of 2002 and generate a slight profit for all of 2002. However, given the continued deterioration of the U.S. economy and the aftereffects of the events of September 11, 2001, the Company now expects its Retail segment to suffer a small loss for the first quarter of 2002 and for all of fiscal 2002.

Of course, no one knew at the time that Apple's iPod would dominate music and MP3 players and then set up the iPhone and iPad. When Apple launched its stores, the company was all Mac all the time. Apple was just trying to show that its OS X had software to go with it.

Today, you could argue that Apple has reinvented retail to some degree. The fast checkouts, the helping hands, the design of the store and the retail outlet as tech amusement park are all themes that have been copied to some degree. Everything from Apple's ability to draw a crowd at iPhone and iPad launches to supply chain integration to point-of-sales systems have been top notch. Bravo.

From those two Apple stores in 2001, the company now has locations in 11 countries and employs about 30,200 full timers.

But to really understand Apple's retail success you have to deep dive into the filings with the Securities and Exchange Commission. Here's a look at Apple's retail revenue through the years.

For the six months ended March 26, Apple's retail operating profit was $1.84 billion on revenue of $7.04 billion. Compared to the same time frame a year earlier sales almost doubled. Operating profit did double.

  • In fiscal 2010 closing at end of September, Apple's retail outlets delivered an operating profit of $2.36 billion on $9.8 billion in revenue.
  • In 2009, Apple's retail stores had an operating profit of $1.67 billion on revenue of $6.65 billion.
  • In 2008 saw an operating profit of $1.66 billion on revenue of $7.3 billion.
  • In 2007, Apple's retail operating profit was $857 million on revenue of $4.1 billion.
  • In 2006, Apple's retail operating profit was $600 million on revenue of $3.25 billion.
  • In 2005, Apple's retail unit had an operating profit of $151 million on revenue of $2.35 billion.
  • In 2004, Apple's retail stores delivered an operating profit of $39 million on revenue of $1.18 billion.
  • In 2003, Apple had a retail operating loss of $5 million on revenue of $621 million.
  • In 2002, Apple's had retail operating losses of $22 million on revenue of $710 million.

Add it up and Apple's crazy retail idea has earned more than $7.3 billion in operating profit over the last decade. Not too shabby eh?

Topics: Banking, Apple, Enterprise Software

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58 comments
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  • Ok, lets just hope that Google does not try to open stores!!!!

    NT.
    DonnieBoy
    • RE: Apple's retail stores turn 10: Crow for sale

      @DonnieBoy Like that would work.
      ItsTheBottomLine
    • RE: Apple's retail stores turn 10: Crow for sale

      @DonnieBoy
      You know they will... they have to copy everything Apple does... they can't innovate anymore only copy.
      Hasam1991
      • RE: Apple's retail stores turn 10: Crow for sale

        @Hasam1991 - Ouch!
        ItsTheBottomLine
      • RE: Apple's retail stores turn 10: Crow for sale

        @Hasam1991 Just like Microsoft and the MS Stores.
        itguy08
      • RE: Apple's retail stores turn 10: Crow for sale

        @Hasam1991

        They must have learnt it from apple then.
        Apple = biggest copy cat around.
        dunners6
      • RE: Apple's retail stores turn 10: Crow for sale

        @Hasam1991 Its as if you people are on cue. Do you just copy and paste the same, "company x cant innovate" message for every article on this website?
        nickswift498
      • RE: Apple's retail stores turn 10: Crow for sale

        @Hasam1991

        Sadly you're right.
        ShamooToo
    • RE: Apple's retail stores turn 10: Crow for sale

      @DonnieBoy - what would they sell? Clouds?
      vaporland
  • I agree partially with the critics

    They were right that branded computer stores were the wrong way to go...if they were selling Windows computers. Nobody, gateway, Dell, Microsoft can make stodgy PC's a draw. Microsoft loses tons of money on their failed stores but they have to keep them open, just like every other money losing business they stay in, to save face, while Apple absolutely crushes every record for sales and profit per any kind of store.

    I think what is more interesting is this. That Goldstein guy was 100% wrong, yet I bet he still has a job somewhere making six figure for his 'wisdom and insight'

    Steve Balmer dismissed everything Apple came out with, he even laughed at the iPhone thinking consumers would never buy it; he still makes a few million per year.

    This goes to show that no matter how dumb you are, if you're sitting pretty in a fat cat position in this country, nothing will get you knocked out.

    If I was a shareholder of MS, and saw this clown take a 500 billion dollar company and knock it down in ten years to half its value AND be late to the party with every new innovative product that the competition comes out with, AND laughs at things that consumers want but he can't realize it, I'd be mad as heck that Balmer still holds that position. He should've been fired years ago.

    On the other hand, as an Apple shareholder, I never want to see Balmer go!
    ShazAmerica
    • So much wrong in your argument I don't know where to start

      @ShazAmerica <br>I think it's safe to assume that you're a hater, and think people really believe the BS you post here, which honestly makes me feel kind of sad that people like you still exist in todays world, dinosaurs of a forgotten era.
      Will Pharaoh
      • Great, logical, well thought out reply

        @Will Pharaoh

        I like how you argued each one of my points in a thoughtful philosophical manner.

        Now go pull those fries out of the fry-a-lator before they burn.

        Oh, and yes, I am a hater of Microsoft, I'm a true American that believes in honest competition and a capitalistic society. I've read the MS trial transcripts. I know based on Gates and Co. own admissions and testimony what an immoral and unethical company MS was and is.

        I feel terribly sad there are people like you that call themselves Americans that back predatory monopolists that strong-armed, blackmailed, and sabotaged other, honest companies.

        Flip the burgers while you're at it.
        ShazAmerica
      • RE: Apple's retail stores turn 10: Crow for sale

        @Will Pharaoh. I really don't see anything wrong with his comment. You must be a hater to call him one, since he made a very simple point about American business and pundits: salary is not tied to results. Jobs takes $1 a year as a salary as a reflection of confidence in his ability. I also agree with the following comment. MS profits primarily by creating bottlenecks in the market and exploiting them. If you are convinced of their value, I have one word for you: VISTA. To spend years and billions designing and packaging and marketing and delivering a landmark product - the only truly innovative thing in ten years - and have to pull it from the market because it was so bad... it's a farce, and all they were trying to do was copy someone else!
        shakatfoo
      • RE: Apple's retail stores turn 10: Crow for sale

        @ShazAmerica
        Be careful there hot shot - Apple is not the shining example of Corporate responsibility either - they just seem to hide it better, of course MS did as well while it was the darling, and they still do quite well - you forgot Stock Split. But then again your posts never cease to bring lots of entertainment - thank you, now back to my crashed Mac.
        ItsTheBottomLine
      • ShazAmerica is right on the Money!

        @Will Pharaoh
        How can ShazAmerica be labeled as a hater, when in fact only the truth was told. As I have said before, Balmer must have something on someone to be the CEO of M$. Personally I would't give him a job running a hot-dog stand. The insight this man has is alarming. I just love his iPhone comments. On the other hand, as an Apple shareholder, I never want to see Balmer go!
        MacNewton
      • RE: Apple's retail stores turn 10: Crow for sale

        @Will Pharaoh

        Perhaps this person is a hater. Perhaps they're not. Regardless, this person's correct. This is what's happening with Microsoft. They can afford to bleed, but only for so long. Speaking of dinosaurs, while we argue points Microsoft is quickly evolving from T-Rex to a barnyard chicken. Maybe it's for the best?
        ShamooToo
      • RE: Apple's retail stores turn 10: Crow for sale

        @Will Pharaoh
        why is ShazAmerica a hater?
        everything he's saying is true? how can it be that MS value got knocked in half, and Ms is late to everything. not making any money, yet Balmer is still CEO? i think this is a very valid point.
        rocketboy5114
      • RE: Apple's retail stores turn 10: Crow for sale

        @ItsTheBottomLine
        "thank you, now back to my crashed Mac."

        Oh really? What steps resulted in this supposed crash? I have crashed (due to kernel panic) maybe once every two years, and I drive my multiple machines hard.

        Lie much?
        DeusXMachina
    • RE: Apple's retail stores turn 10: Crow for sale

      @ShazAmerica
      Don't forget Michael Dell...
      Hasam1991
      • Interesting thing about Mr. Dell

        @Hasam1991
        When he made the comment that Apple should shut its doors and give the remaining money back to the shareholders, Steve Jobs put Dell's picture on the wall with a bullseye and said,"We're coming after you" (of course, this was in a day unlike now, where you have Palin putting Giffords in a crosshair in political ads leading to nutjobs shooting people, but i digress)

        Jobs meant it in a way meaning that Apple was going after Dell. Look at the laser beam like focus Apple had/has. Build great products and run over companies that built their business by being just widget and commodity makers, fighting to the bottom for quality so they can squeeze a penny profit out of selling cheap PC's.

        Apple's business model, as detailed in this months Fortune magazine the opposite of most businesses.

        Now Apple has no one in their sights. They've blown by MicroSloth and now only have Exxon in front of them. An absolutely amazing turn around for a company people were leaving for dead just 16 or so years ago.
        ShazAmerica