Tech Check

Apple's New Flagship Store Shows Retail Strategy Working


In the great pantheon of Apple stories--the iPod, the Mac, the iPhone; and all the good guy, bad guy stories swirling around Steve Jobs, there's another story arguably more important than all of them.

Because no matter how great the product, and how effective the CEO, it means nothing if you can't sell the product. And that's where the Apple story should focus on the Apple store.

I mention this because Apple opened its long anticipated flagship store in Boston today, the ninth the company has in Massachusetts, with this one on Boston's Boylston Street. I'm told it's merely a long fly ball away from Fenway. The 20,000 square foot showplace is now the company's largest U.S. store, beating the Chicago store on North Michigan Ave.

The Boylston store is number 210. Apple had 177 stores this time last year.

This store is three stories, like the West 14th St. location in New York City. It features an all-glass front facade and a three-story glass staircase. The first floor is all about the Mac, the second floor is devoted to iPods and iPhones and the top floor is all about service.

And service is key: Last quarter alone, Apple delivered 580,000 hours of one-hour instruction, which is part of the annual memberships Apple offers for $99. You get one hour of instruction a week, or 52 sessions a year to learn how to use your Apple products, and more importantly, also learn about new Apple products you might be interested in.

In fact, the membership programs, and the customers who return over and over again to these stores for service and sales, has been an enormous factor in Apple's ongoing success to penetrate the market. Through the memberships, customers feel a connection to the store, its employees, and of course the products on sale. The stores make a personal connection to the customer that is almost unique to Apple and its clientele. Those 580,000 sessions bear that out. Smart move.

And that's arguably the far more important story here. As of the company's last earnings report, Apple generated $1.5 billion in retail store sales last quarter. That's up a staggering 74 percent from the year earlier, and at a time when other retailers are scrambling for business. And critics worry that high end consumer electronics companies--like Apple--are the first, and most likely casualties, of a recession. Recession? With sales up 74 percent? Hello?

Average revenue per store jumped 48 percent to just over $7 million, as operating profits for this part of Apple's business more than doubled, to $334 million.

Senior VP Ron Johnson, a Harvard MBA who's probably happy to be back in Boston opening his new store today, runs this part of Apple's business and should get all the kudos he can. Last year, he made headlines by exercising a huge chunk of options that ultimately netted him $112 million or so. He rode shares from their $24 strike price all the way up to $185.

It was a huge windfall. But looking at what he's done with the Apple retail strategy, what it has yielded the company and its investors, I'm not sure there's anyone out there who would begrudge him his big-time pay day. His retailing strategy for Apple is like the gift that just keeps on giving.

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