Mac Musings

Good-Bye, Apple Dealers

Hello, Apple Boutique

8 November 1999 - Daniel Knight - 1999.11.08 Tip Jar

Good-Bye, Apple Dealers

The reduced number of authorized Apple dealers, the exclusive national contract with CompUSA, and the beginning of the Apple Store marked the beginning of the end for many Apple retailers.

I used to work for Michigan's first Apple dealer, ComputerLand of Grand Rapids. I first worked for ComputerLand part-time in 1982. When we returned to Grand Rapids many years later, I found a position in retail sales. It was at that time that I became a Mac addict, eventually putting DOS and Windows behind me.

In those days, to be competitive we sold computers at an 18 point margin, accessories at 25 points. This allowed us to discount from retail and offer prices comparable to the competition. It wasn't a big margin, but we made due.

Today's dealers would kill for margins like that.

I've heard various figures for dealer cost on the iMac, but a dealer is lucky to keep 10% of the selling price. Out of that, they pay freight and often commission to the sales rep. (Sears pays a lower commission on the Macs than on PCs to reflect their tight Apple margin.)

From what remains, they have to cover rent, utilities, salaries, and ads. It would be virtually impossible for any dealer to remain in business selling nothing but Macs. They need the memory upgrades, printers, monitors, and other sales to make up for the fact that they barely break even selling Macs.

Add to that the competition from CompUSA, Sears, The Apple Store, and any number of Mac mail order houses, and it's obviously a no-win situation for independent Apple dealers. There simply isn't enough money to be made selling Macs to keep things going. (Frankly, they might be able to make more money as Outpost.com affiliates, while eliminating the overhead of a storefront.)

To remain in business, the store must make a profit. Some add Wintel hardware, then have to live with support headaches. Others become integrators, selling the Macs as part of a system with printers, monitors, networks, and more. Some provide training, although Mac users don't tend to need a whole lot of that.

No matter what they do, the dealers find themselves undercut by mail order houses and Sears' 10% off days. And to add insult to injury, customers learn that they can get their iBook or iMac from The Apple Store more quickly than from the local dealer.

Hello, Apple Boutique

If the days of the independent Apple dealer are numbered, where are Mac buyer going to find the local support they deserve?

The same place Gateway users do - in a company store.

Apple makes an average profit of 28%, far more than the local dealer does, and undoubtedly more than the mail order house or national chain (Sears, CompUSA) does. The profit is a bit lower selling to a chain or distributor, but somewhat higher when selling through The Apple Store.

Believe me, Apple would rather take the higher profit. Any business would.

Because of this, I strongly suspect that the rumors of Apple opening its own chain of retail stores will come to pass. Apple has worked with the Store Within a Store concepts at CompUSA and seen Gateway's success with the Gateway Country Store. They just need to add their own spin and create a chain of Apple Boutiques. (I'm not married to the name, but it's one that comes up regularly on the rumor sites.)

But how is Apple going to do it?

They could start from scratch and build brand new stores, carve out a new identity for the chain, and try to steal the best Apple sales reps from the local CompUSA, Sears, or independent dealers.

Of they could think different and work with local dealers. Instead of competing with AMS (my local dealer), why not partner with them. The Apple Boutique could be a 100% Apple owned and operated store, or it could be a franchise offered to current Apple dealers.

Look at it this way: Instead of dividing loyalties between AMS, who we've been working with since 1987 or 1988, and a brand new Apple-owned store, why not leverage the known with the new. AMS would become a franchisee of Apple Computer, not a competitor.

I don't know all the logistics involved, but this would immediately provide Apple with qualified sales and service staff and a known presence in the community, without alienating the local dealer.

I believe there would be great benefits for Apple in opening their own retail stores, and that those benefits would be magnified by partnering with existing Apple dealers.