Since Apple started opening retail stores, analysts have questioned
the strategy. Comparisons have been made with Gateway without looking
seriously at the different approaches or at differences between Apple
and the Wintel market. In most cases the argument has been that Gateway
couldn't make it work, PC retail is failing under the onslaught from
Dell, so Apple is doomed from the start.
The only real difference between companies in the Wintel sector is
price. Build quality is largely determined in Asia with many companies
using the same third party factories. Consequently Dell, which doesn't
have to pay a retail margin, will stay the strongest Wintel company for
the foreseeable future provided it keeps production costs under
control.
This Wintel sameness has worked against Apple at the retail level.
With the Apple market share holding at about 5%, there has been little
reason for any chain salesperson to bother with them. They received no
incentives to sell them, and over 90% of customers were going to walk
out of the store with a Wintel computer anyway. Even worse, they would
have been hired because of their familiarity with Wintel, so Apple was
trying to convert Wintel users - and in some cases Wintel advocates -
into Mac sales people. Consequently Apple product has often been buried
at the back of the store in an ill frequented, ill kept area.
Store within a Store (SWAS) looked to change this. Raising the
visibility of Macs was a start, but it couldn't overcome the lack of
interest from the sales staff unless the store manager was willing to
put effort behind it. Training sales people didn't help, because the
vast majority didn't believe they would make any extra money from
it.
The Apple online store has allowed Mac users a good buying
experience from the comfort of their homes. It now accounts for a
substantial part of Mac sales while indirectly emphasising the lack of
quality of the Mac retail buying experience. However, few new users or
Wintel converts are likely to buy a Mac over the Internet without
already being convinced of the merits. So unless Apple was willing to
stay at 5% of the market, it had to find a way of using retail to its
advantage.
The Demo Days allowed Apple to test the real Apple retail market at
minimal cost. As well as giving a much needed sales boost, it showed
the strength of user loyalty, that dedicated Apple sales people would
increase sales and that Apple could attract experienced users to help
it sell through retail.
It is these factors of loyalty and experience that will allow Apple
to keep its operational retail costs down. Apart from the costs of
leasing and equipping a suitable space, the major cost in retail is
staff. Apple has employed experienced users, which immediately reduces
the cost of training. Their loyalty to Macs and desire to be Apple
employees will keep staff turnover down. This lack of turnover and the
fact that Apple can easily recruit new staff from the Mac user pool
will minimise recruitment costs and means that Apple doesn't have to
pay top dollar except for well qualified technical people to man the
genius bar.
The stores have been laid out to seduce consumers. It helps to give
the faithful a shrine, but Apple needs potential Wintel converts and
new users to stroll through those doors. Inside they can see that
lots of software is available for the Mac, try out the systems
that interest them, and convince themselves (with a little help) that
Apple is a better solution.
Who buys a new car without driving it?
Although Apple's approach is compared to Gateway's, there are few
similarities. Gateway has chosen secondary locations. These cut store
costs but immediately limit passing traffic and impulse buying, which
is further reduced by the stores carrying no stock and all ordering
being carried out over the Internet. While this helps Gateway maintain
low channel inventory - it ranks after Apple and Dell - it means that
customers have to wait for their computers to be delivered and
therefore have the opportunity to buy elsewhere. Gateway isn't focused
on the consumer market to anything like the extent of the Apple Retail
Stores.
Gateway has the advantage of recruiting from the much larger Wintel
user pool, but is in competition with every other Wintel sales outlet
for the best people. This, with Gateway's weak financial position over
the last two years, will have led to higher staff turnover than Apple
is likely to experience.
What is generally viewed as Gateway's over aggressive expansion of
outlets should also be compared with Apple's steady expansion to
26.
It is this steady growth which will allow Apple to refine the model
without major disruption. Apple carefully analysed customer feedback
from the first two openings and took the time to make sure the data was
meaningful. This led to a doubling of the Mac software available in
each store. Future analysis will show the best malls to be in and the
best positioning for the stores. If this recession deepens and some
stores become unprofitable, Apple can halt or reduce the rate of
expansion. Apple has freedom of action because Wintel manufacturers are
bleeding red ink and, through lack of product differentiation, are
unable to profitably follow Apple's lead.
Apple's Retail Grab will be continued next week.
