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Apple Retail: Going for the Money

ByOlivia Oran, TheStreet Tech Reporter , On Wednesday August 31, 2011, 7:30 am EDT

NEW YORK (TheStreet) -- Brooklyn Borough President Marty Markowitz caused a stir recently by making a publ be built in Brooklyn as part of a downtown revitalization effort. He was shut down repeatedly.

How could Brooklyn -- a cultural hub filled with musicians, artists and entrepreneurs -- not be a good match for Ap used widely and prized by creative types, Markowitz wondered.

The answer lies within Apple's core retail strategy: capitalize on already well-trafficked, well-to-do areas that don't other words, go where the money's at. "For Apple it has to be the right place, the right time and the right corner," said Faith Hope Consolo, chairman of division at Prudential Douglas Elliman, who has consulted for Apple in the past. "Unlike other retailers they aren't very well thought out."

Even as its stores have become somewhat ubiquitous -- the company is preparing to add 40 outlets globally 360 -- Apple, which could not be reached for comment for this story, is still expected to continue its practice of me estate properties.

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Apple Retail: Going for the Money - Yahoo! Finance

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While most of Apple's success comes from demand for its products, its stores have become a key part of its brandin company tighter control around how its electronics are perceived and sold.

More than 73.7 million customers visited Apple retail outlets during the quarter, an increase of 22%. On average, A $5,626 per square foot, more than any other U.S. retailer -- including jewelry brand Tiffany & Co. ($2,974) and lu Coach ($1,820), according to research firm RetailSales.

"Apple has created a retail system that is unbeatable," said Jay Elliot, a former senior vice president at Apple who n Nuvel. "I don't see any of the other consumer electronics companies like HP, Dell and Microsoft competing." Lessons in What Not to Do When Apple retail chief Ron Johnson joined the company in 2000, Apple's competition wasn't exactly making a Cheap real estate seemed to trump analysis of traffic and location; computer makers like Gateway tended to place areas that weren't easily discoverable by potential customers.

Gateway also didn't stock its stores with products, a minus for nurturing a lasting in-store experience. After consult customers merely ordered their computer, paid for shipping and waited a week or so for delivery. This strategy ultimately failed as consumers instead chose to shop at big-box stores like OfficeMax or Best Buy purchase a wider range of electronics and take them home right away.

Apple, in turn, focused on placing its stores in highly dense retail corridors where shoppers were already present, in Corner, Va. in 2001.

"Apple put its stores next to a Victoria's Secret or an Abercrombie & Fitch," said Gary Allen, a blogger who run that tracks Apple's store openings. "They were willing to spend the money to locate where people were already wal five miles they'd walk 10 additional feet to get to the Apple store."

After the success of its initial mall stores, Apple began to shift its focus on building so-called flagship stores in spots teeming with people willing to spend money. Apple opened its first in New York's SoHo neighborhood in 20 with stores in Los Angeles' trendy The Grove complex and on Chicago's posh Michigan Avenue.

Apple is also working on a store in New York City's Grand Central Terminal, placing its products in the direct rout commuters -- many of them affluent -- passing through one of the city's largest tourist spots. Hermes, Louis Vuitton, Apple

Apple's stores are the embodiment of its brand: simple. Full of light and glass and free of pushy salespeople and clu highlight the products and the lifestyle they help foster.

They're "part marketing spend and part retail operation," said Allen. "They're a real brand search light that shine ou

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Apple is one of the most highly sought brands by landlords and shopping centers, said Elliman's Consolo. "They're Louis Vuitton in the fashion world -- they're a must-have," she said.

While Apple may have not have initially set out for its stores to become retail "destinations," analysts say they hav

"Years ago when someone was building a shopping center you'd bring in Bloomingdales or Saks Fifth Avenue other tenants," said Jeffrey Roseman, executive vice president at Newmark Knight Frank Retail. "But Apple has re tenant."

Tenants in close proximity to Apple reportedly generate 30% to 50% more revenue because of the additional traffic Roseman.

Not surprisingly, Apple is far less price sensitive about real estate when compared to big-box names that also sell A Fleming, a former executive at Wal-Mart and Target .

"The big box approach is just pure math -- it's just how many customers are in proximity," he said. "They're not loo as closely and don't care as much about positioning because they want to pay less ... Apple is taking a more high New Frontier

Like many other luxury brands, Apple is looking overseas for expansion. The company first started going global in store in Tokyo's Ginza shopping district. Locations in London, Sydney, Montreal and Zurich followed.

Boosted by sales of the iPhone, the number of international stores now represents 28% of Apple outlets, with the p increase to 32% by the end of the fiscal year, according to investment bank Needham & Co.

One country that Apple has just started to penetrate: China, where revenue during the third quarter increased six billion. Apple's four stores there -- two each in Beijing and Shanghai -- see more than 40,000 visitors per day. That traffic of any U.S. location. Company executives have said they've just scratched the surface in China. Apple has plans to open 25 more three years, including a flagship in Hong Kong.

"The big kahuna is China," said Charles Wolf, an analyst with Needham. "Apple can't just open stores there fast en Apple Retail Uncertainty Despite the recent loss of two key executives -- retail chief Johnson, who said he is leaving to helm J.C. Penney analysts say it's unlikely that the departures will impact the company's growing network of stores.

Apple's retail strategy is already well-established and there's little chance for disruption, Goldman Sachs analyst Bi note.

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--Written by Olivia Oran in New York.

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