Apple Defies Critics, Makes Retail Stores Huge Success

When Apple Computer Inc. (AAPL) opens its newest store Friday on the same New York shopping strip as Prada, Tiffany & Co. and Saks Fifth Avenue, it'll mark five years of a distinctive retail style that both reinforces the company's brand cachet and pays off handsomely.

Like most other openings since Apple unveiled its first retail outlet in McLean, Va. in May 2001, anxious visitors will be lined up outside, waiting. Some began forming a queue on Thursday.

It's not because of Black Friday-like markdowns. Other than free computers and commemorative T-shirts being given to the first wave of visitors, the attraction is Apple itself.

The company, with its Macintosh computers and iPod music players — and now its stores — has built its empire on simplicity and a user-friendly approach. And other retailers have taken note.

"The stores have been super successful and a real contributor to Apple's success," Apple Chief Executive Steve Jobs said in a phone interview a day before heading to the New York opening. "It's bringing a whole new generation of customers to Apple and the Mac, and that's really important to us."

Analysts predict the latest store will be a magnet. Others already draw more than 10,000 visitors a week, on average. Altogether, Apple's stores pulled in $2.35 billion in sales in fiscal 2005, making it one of the fastest growing retailers in the world, according to Retail Forward, an Ohio-based consulting and market research firm.

The stores' growth rate in revenue per store — an increase of 44 percent from 2004 to 2005 — eclipses industry norms. By comparison, major retailers like Target Corp. (TGT), Wal-Mart Stores Inc. (WMT), and Best Buy Co. Inc. (BBY) saw growth rates of 3 percent to 6 percent in 2005.

Apple's stores also reap more revenue per square foot than others: Its annual sales of $2,489 for every square foot of space is more than eight times that of Target and 2½ times that of Best Buy, according to Forrester Research Inc.

The stores, along with innovative products like the iPod, helped Cupertino, Calif.-based Apple reach a record of nearly $14 billion in revenue last year.

"What the stores have done is really build the Apple brand," said Charlie Wolf, an analyst at Needham & Co., an investment banking and asset management firm. "It's so consistent with what Apple is that it has really added value to the entire enterprise."

Apple stores feature stark white walls and wood floors. Web-connected computers and iPods are arranged sparingly on tabletops, beckoning for a test drive.

An abundant staff of knowledgeable salespeople — who don't work on commission — are there to help when needed, but otherwise hang back, adding to the low- to no-pressure sales environment.

The larger stores host free how-to workshops, while all stores have "Genius Bars" where technicians fix Apple equipment and answer questions.

"Other retailers are also increasing the hands-on experience, but no one has done it as well as Apple," said Mary Brett Whitfield, a Retail Forward analyst.

A recent visit to a bustling store in San Francisco yielded only positive comments.

Mike Greaves, 28, used to drive miles to get to a shop that serviced Macintoshes.

"And you didn't get as good quality of service," he said, picking up his Mac Mini from a free repair at the "Genius Bar."

Sarah Bunje, 67, sat through her sixth in-store workshop on iPod-iTunes since last November.

"I always learn something new," said the Foster City, Calif. resident.

Apple stores have been profitable since September 2003, but when Apple first launched its retail initiative amid a declining PC market and other failing electronics retailers, most notably Gateway's (GTW) stores, it was viewed as a risky move.

Apple saw it as a way to improve its reach.

"The stores offered a much better way to deliver the product than being in the back of a Best Buy," said Andrew Neff, an analyst at Bear Stearns & Co. Inc. (BSC).

Jobs and his lieutenants paid careful attention to every detail — from the nuts and bolts of the stores' designs to its operations and customer service.

Ron Johnson, a veteran retail executive who worked at Target before Jobs recruited him to lead the Apple stores, still personally interviews each store manager.

"A lot of people thought we'd fail," Johnson said. "But five years later, there's a lot of evidence we're successful."

The popularity of the iPod helped drive traffic and sales, but computer sales have also steadily grown. In fact, more than 50 percent of the computers sold at Apple's stores each day go to customers buying their first Mac.

The new Fifth Avenue store, next to FAO Schwarz and across the street from Bergdorf Goodman, will be Apple's 147th, and its first to stay open around the clock. It will also have the largest staff of 300 workers.

Other Apple stores are scattered throughout the United States in high-traffic shopping locations. There also are six each in Japan and the United Kingdom, and two in Canada.

The striking Fifth Avenue entrance — a 32-foot glass cube emerging from a gray and white marbled plaza — was inspired by I.M. Pei's glass pyramid at the Louvre in Paris, said Jobs, who helped design it.

Wide doors lead pedestrians down a circular glass-and-steel staircase, swooping them into the inner sanctum of the subterranean but well-lit store.

The property's owner had solicited Apple to set up shop there, Jobs said.

And now, Johnson said, "in the city that never sleeps will be this store that never closes."