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Delivering on Imagination at Apple

Apple broke every rule of traditional retailing when it set out to open a network of stores three years ago.

Apple broke every rule of traditional retailing when it set out to open a network of stores three years ago. The units were significantly larger than necessary to showcase the product line; they were located in neighborhoods rather than shopping districts; they encouraged customers to linger and browse the Internet for free without buying anything, and they provided extensive product training rather than just sales help.

Although the naysayers predicted a disaster, the result was anything but. Sales per square foot are about $4,000, while annual sales have zoomed to nearly $2.4 billion and continue to grow.

In a presentation called “Imagine,” Ronald B. Johnson, senior vice president of retail for Apple Computer Inc., pointed to the “intersection of imagination and reality” that led to the launch of the Apple retail concept.

Johnson, who spent 16 years at Target Corp. before joining Apple six years ago, described his current employer as a company with “unlimited imagination,” an organization that views reality not as it is today but “what it might become.”

He remembered attending a retail conference at which a department store executive talked about his own company’s innovative breakthroughs: updated fitting rooms and better directional signage. Johnson called these “improvements” rather than innovations.

In planning the Apple retail network, Johnson took lessons he learned at Target to heart. He recalled how Target had originally focused on trying to beat Wal-Mart by becoming the top mass market discounter. But management soon realized this strategy was destined to fail, and switched gears to provide the mass market customer with superior products throughout the store.

“When I switched to Apple,” Johnson said, “[Apple chief executive officer Steve Jobs] said he wanted to open retail stores.” This was in 2000, when most other companies were moving to the Internet and away from brick-and-mortar concepts. “But that was precisely why we wanted to do it.”

The entire Apple product line could fit on one small table, yet Johnson built stores that were the size of the Gap. In addition, he said, the company decided to focus “not on selling but on owning, and let’s be a store for everyone.” Locations were chosen “where people live, 10 feet from their favorite restaurants and bookstores,” Johnson continued. “Let’s deliver expert advice, only carry the ‘right stuff’ by narrowing the assortment to 500 stockkeeping units, let customers ‘test-drive’ before they buy and personalize everything.” Hands-on training, face-to-face support, next-day repair and “a place to belong” were also among the required offerings, he said.

This story first appeared in the November 16, 2005 issue of WWD.  Subscribe Today.

“No one believed in what we were thinking,” he said. In fact, David Goldstein, president of Channel Marketing Group, was quoted as saying: “I give them two years before they’re turning out the lights on a very painful and expensive mistake.”

But Goldstein was wrong. According to Johnson, Apple’s customers loved the minimalistic design of the stores and the spacious interiors. “We give the best space to the public,” he said. Also popular were the Genius Bars, where patrons can get one-on-one training with the store’s technical experts. Some 150,000 people a week visit the Genius Bar at the average store, he noted. In New York’s SoHo location, 3,000 people a day come for technical support and the company recently added an iPod bar there as well.

The average Apple store has 50 employees — 25 in selling slots and 25 in support positions — Johnson said. Regardless of their duties, none of the employees are on commission and 70 percent work full-time. Despite the lack of commissions, he said there are still 20 applicants for every position, and turnover is less than 20 percent.

Apple stores also feature a Design Studio where customers can create their own photography or graphic design projects. As Johnson put it, “We bring your ideas to life.” Large stores also have one event an hour on a variety of topics of interest to their target customers.

The free Internet access in the stores is always a draw, and Apple also hosts school-night events for younger customers, as well as kids’ camps during the summer. More than 10,000 kids attended the three-week camp this year, Johnson said, learning how to make their own movies or photo albums, or record their own songs. Other special events include in-store concerts or tie-ins with popular events such as the SoHo Film Festival.

Johnson said the question that inevitably is asked is whether such an unorthodox retail strategy can produce financial results, and the answer is a resounding yes. Although Apple would prefer to “talk about recognition rather than sales,” there’s no escaping the figures. Sales in fiscal year 2005 were $2.35 billion and profits are estimated at $150 million. Sales per square foot average $4,000, making Apple the highest-performing retail chain in the business, he said.

Compared with others in its sector, Johnson noted, Apple tied with Circuit City with $16 million in revenue per store in 2004, lagging only Best Buy with $31 million. In 2005, he predicted, the gap will shrink, with Apple’s revenue per store hitting $23 million.

When it came to operating expenses, Apple looked to Nordstrom as a guide. Over the past two years, it has managed to lower its expenses as a percentage of sales below the Seattle-based retailer, as well as Target, Best Buy and even Wal-Mart, Johnson said.

Apple’s “secret,” he explained, is its high productivity and the fact that it opens a store every nine days. The store count currently sits at 124 in the U.S., Canada, the U.K. and Japan, and the rollout is continuing. The average store attracts 107 people an hour, he said, far more than the company envisioned when it started its retail expansion. To cut down on the crowds, Johnson said, Apple will open additional units, lengthen the hours of operation and hire more staff.

Johnson said he has no idea how many stores Apple can ultimately operate. “Target in 1995 had 480 stores and said they would tap out at 1,000. Now they’re at 2,400 and getting bigger.” The only certainty, he added, is that Apple won’t open stores faster than once every nine days. “It’s not about a number — it’s about quality,” he said.

The end of his formal presentation was a video created by Steve Jobs showing visionaries such as Albert Einstein and Amelia Earhart — people the video celebrated as “the crazy ones.” It ended with the line: “Those crazy enough to think they can change the world are the ones who do.”