The Apple Conundrum - More Stores = More Sales = Less Special?

Slate has an article this morning noting that Apple retail sales are doing really, really well.

Not just "good", but "twice as good as the 2nd place finisher", in terms of sales per square foot. (2nd place was Tiffany, 3rd place was lululemon.)

The author - correctly - notes that when your revenue is that far out of line with the rest of the industry, you're leaving money on the table.

Add a bunch of Apple stores, and while the average revenue per sq. ft. will drop, you'll sell more stuff and make more money overall.

But Apple is a unique case. And aggressive expansion into new markets - both in retail and in low-end devices - would cause long-term damage the most profitable brand in tech. 

Apple Stores are Seriously Profitable

Take a look at the charts below. This is seriously good news for Apple retail:

Put simply, Apple per-store retail profits have increased *substantially* since the beginning of 2010, from around $7M/quarter to around $13M/quarter. 

So, the thinking goes - why not add more stores? Blanket the country with Apple Stores, and while the per-store revenue will decrease, the number of visitors to Apple Stores will increase, and total revenues will increase in kind.

For much of the country, Apple Stores aren't all that accessible. A relative of ours who lives in a small town in Iowa was just asking her Facebook friends where (and if) she could possibly get a shattered iPad screen replaced. 

For those of us in big cities, it's a no-brainer. Use the shattered-but-functional iPad to set a Genius Bar appointment, get to the Apple Store, and get that screen swapped out. Hopefully on warranty.

For my relative, it will mean a trip to a local computer store with access to OEM parts. More time, probably more money.

I'm sure that Apple is well aware that wide swaths of the country are underserved by Apple Stores. They're also well aware that their stores are generating far more traffic and revenue/foot than other retailers.

And they're standing pat. To the extent that they're opening new Apple Stores, they're generally in international markets. Why?

Apple Stores as Brand Indicators

Apple Stores serve three primary functions. They are places to view and purchase merchandise, they are repair centers - and perhaps most importantly, they are ambassadors of the Apple Brand.

Apple's success, in part, has turned on the perception of the company as "cool". Their products aren't just well-designed, functional tech... they are objects of desire.

For the last 10 years, Apple has carefully cultivated their image as a maker of high-end products.

It's amazing, when you think about it.... Apple's products are simultaneously ubiquitous and perceived as "rare". The iPhone is the #1 selling phone in America. It's available at Wal-Mart! And still, the brand is considered "exclusive" and special.

The Apple Store is the same way. Yes, there are "Significant Stores" in major cities... we've got one in Chicago. But across the country, Apple Stores are largely mall storefronts.... that are somehow viewed as "destination" stores by the consuming public.

The relative scarcity of Apple stores drives their cachet.

It's a delicate balancing act - Apple wants enough stores to provide the showroom and repair functions to as many people as possible, without impacting the third function - the Apple Store as the indicator of an exclusive, desirable, "cool" brand.

The Same Theory Applies to Apple Products 

And this is why I'm still not convinced that Apple is going to produce a low-cost, less-featured iPhone.

From the return of Steve Jobs onward, Apple has never been interested in maximizing market share at the expense of brand perception or profit margin.

That's why we don't see Apple Stores in every mall in America, and that's why we haven't seen a flood of cheap plastic iPhone LCs.

Even when Apple has released a lower-cost version of existing product lines, it has provided a compelling reason for the existence of the new item.

The iPod Mini fit in your pocket, and introduced the clickwheel.
The iPod Nano *really* fit in your pocket, and was completely solid-state.

The iPad Mini.... well.... the analogy starts to break down here. The iPad Mini's sole differentiators are "somewhat easier to hold" and "cheaper".

If that's a harbinger of a new way forward for Apple - one filled with plastic iPhones and MacBook LCs and the pursuit of market share, then they should tread very lightly.

But based on Apple's decision to limit store growth.... I don't think they're going to make that mistake.


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